Bidding Against The Giants That Have Taxpayer Backing Part I

The GAO (Government Accountability Office) is now investigating to see if AIG has a distinct advantage due to the government bailout.  I pointed this out in a blog months ago that the government is functioning like a bid rigging scheme.  By letting AIG have an incredible amount of funds, one has to question if AIG has upset the insurance market further by underbidding so severely to just obtain the business and then use taxpayers funds as a safety net. 

One of the other insurance carrier manipulations that I have seen is insurance companies acquiring banks or becoming bank holding companies in order to receive a bailout under the TARP program. The only property and casualty company that has used this manipulation to get their hands on the free money is The Hartford. 

Blain Rethmeier, a spokesman for the American Insurance Association, said in a National Underwriter article, “It is essential for Congress to exercise its oversight responsibility to ensure that the government's intervention does not result in any outcomes that distort private markets and create conflicts with the government’s role as market regulator.”

Mr. Rethmeier added, “In circumstances, like the AIG situation, where the government takes a controlling stake in the company and provides it with capital, it is particularly important to ensure that the capital is used for well-defined and tightly controlled purposes.”

If the government does not ensure that the provision of capital tracks with these purposes, Mr. Rethmeier said, “this capital could be used for other unintended purposes such as gaining market share of financial institutions that are accessing private capital at market rates, presenting a substantial risk of market distortion and competitive advantage.”

That was a great quote by Mr. Rethmeier that encapsulates the problem in its purest form.  The Federal Government has allowed a situation that is very close to the bid rigging problem of a few years ago. 

Check back with me tomorrow to see how my company made out trying to bid against companies that are receiving the bailouts.