The Monkey Cage

If you take AIG out of this graph, is there any relationship at all?

Yes, this relationship would basically be flat without AIG. So AIG is driving the correlation, as you can probably see from eyeballing the scatterplot. But, it remains suggestive that AIG lobbied much more and got a much bigger bailout, while Lehman, which lobbied very little, got no bailout.

I am usually the first to suggest corrupt (or semi corrupt) activities on the part of our government, but one point does not a trend make. Plus, there’s another obvious explanation for why AIG got a big bailout; they needed it in order to stay afloat.

This just tells me that Citigroup needs better lobbyists.

Lee -

“But, it remains suggestive that AIG lobbied much more and got a much bigger bailout, while Lehman, which lobbied very little, got no bailout.”

Not suggestive of that at all: Wells Fargo lobbied barely more than Lehman, and got the largest bailout other than the outlying AIG.

Now, add the car companies and see how you do…

I worry about selection on the outcome:
http://www.stat.columbia.edu/~cook/movabletype/archives/2008/12/graph-of-lobbyi.html

Selection bias is a problem; however, lacking the post-mortem of who applied for what when, we don’t know who didn’t get the bailout they sought (except for Lehman). Hopefully, someday we will know and we can do an analysis that is more sophisticated.

AIG could be explained by greater need, but how do we know it was in greater need? Presumably, this is based on its own assessments, which the government trusted.

Wells Fargo does look like an outlier on the bargain side, but Wells Fargo is really Wells Fargo plus Wachovia (which it acquired right before getting the bailout). Wachovia, which had about $700 billion in assets, spent approx $2 million lobbying in 2008, so if we took Wells Fargo as Wells Fargo plus Wachovia, the total lobbying would be $3 million, which would put it right on the regression line.

There’s also a timing issue. Money from Congress was easier to come by earlier in the meltdown.

AIG is also an insurance company, not a bank. Presumably this means it has a pattern of assets and liabilities considerably different from most banks. In particular, I would guess that the liabilities of AIG are likely to be a significantly higher fraction of assets.

Actually, scratch that, banks are probably going to have a higher liability-to-asset ratio.

Nevertheless, my point stands: it’s not at all clear that you can easily make this comparison between banks and insurance companies.

1) Insurance companies are very highly regulated, banks were not. This may also help explain differences in lobbying expenditures.
2) Banks have been hit on the asset side of the balance sheet: seemingly profitable loans and investments have turned out to be worthless, hence the need for a bailout. I believe AIG was hit on the liability side: some insurance contracts with 0 expected loss turned out to be quite costly.

I’d not be willing to make anything of the lobbying expenditures. AIG is simply a very different beast from these others. If Wells Fargo fails, that wouldn’t have anywhere near the contagion effects as if AIG failed. AIG was really tied to everyone. (At least, from what I’ve read)

Another thought: did AIG feel emboldened to take on a riskier position because it felt confident that if it got into any trouble, it had the lobbying prowess to ensure a full government bailout?

did AIG feel emboldened to take on a riskier position because it felt confident that if it got into any trouble, it had the lobbying prowess to ensure a full government bailout?

AIG shares went from $70/share to $1/share in less than a year. How did the “full government bailout” protect the owners of what was once one of the 20 largest public companies in the world?

And once again, insurance companies and banks engage in different activities, which is why insurance companies tend to be much more highly regulated than banks.