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US Federal Reserve Essay

The biggest single news item in the past two weeks or so is the bankruptcy of the Lehmann Brothers and the planned bailout of the US Federal Reserve of the AIG. Much has been written about the issue and the end seems to be further away. The move by the US government to help AIG was met by positive response from the finance sector and with skepticism by a lot of politicians and economic analysts. Karnitschnig, Solomn and Pleven (2008) wrote about the issue and posited that the government will gain effective control of the insurance industry with the bailout of AIG.

The authors cited that the move of the government, may be a bit inconsistent with its policies and the application of US laws and regulations. Furthermore, the government gets an undue amount of influence and control over an insurance group with operations all over the world. In judging the crisis, the authors used consequentialism ethics. They were looking at the cause of the present predicament of AIG as a clue to what could be best done to mitigate the issue and prevent disaster from hitting a huge number of people.

Furthermore, the solutions being proposed are evaluated based on their

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consequences and the predominance of benefits over the costs of the action. The authors also use rights ethics in presenting the facts of the AIG case. Although the government is obligated by the Constitution to respect the rights of citizens and protect them from political and economic harm. Yet, the proposed bailout of the AIG may be a big burden to the United States taxpayers. As such, the decision will not be an easy one.

Also, the taxpayers should not bear the burden of the bad decisions made by a big corporation. The authors were using Conventional Morality, particularly in Maintaining the Social order. Because of the magnitude of the negative effects that could be ushered in by the bankruptcy of AIG, the government is intervening to maintain the social order. The authors also appeal to this kind of morality and stressed the need to preserve the social order while making important changes that could help improve the system.

This means that the law is being upheld and the emergency powers being used by the government, particularly the Federal Reserve, is still allowable under the law. By explaining the facts of the AIG financial troubles and the possible negative impact of its demise on the American society, the authors are using conventional morality. The preservation of social order is an important part of their arguments because there would be a lot of Americans who will suffer as a result of the AIG’s bankruptcy. This is not to say, however, that the authors are disregarding the rights of the individuals.

The authors also pointed out the importance of the rights of individuals and seemed to exhibit postconventional morality. Yet, in the final analysis, by looking at the role of the government as the preserver of social institutions and helping the economy survive the crisis, the authors have effectively used conventional morality.


Karnitschnig, M. , Solomon, D. & Pleven, L. (2008) U. S. to Take Over AIG in $85 Billion: Central Banks Inject Cash as Credit. The Wall Street Journal, September 17, 2008.

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