Fed Chairman Ben Bernanke aptly described AIG as a hedge fund attached to an insurance company. It’s important to keep the two AIGs straight, as AIG Financial Products, a hedge fund, basically went belly up writing credit default swaps while the group of insurance companies known as AIG are doing fine. Unfortunately, the MSM rarely captures this distinction, typically referring to AIG not as a hedge fund but as an insurer, in articles having nothing to do with the company’s insurance operations. Some politicians are as ignorant on this distinction as the rest of us, while others cynically exploit this popular confusion for political gain. For example, House Democrats Gene Taylor of Mississippi and Peter DeFazio of Oregon are both pimping A.I.G. as an excuse to exhume their past efforts to repeal the antitrust “exemption”^* for insurers. Per National Underwriter:

They had introduced such legislation in earlier Congresses, and said they count on the controversy over bonuses paid to American International Group employees to help advance their measure.

“Shouldn’t the $170 billion bailout of AIG be the third and final strike to the ‘business as usual’ attitude toward the insurance industry?” they asked.

Perhaps it should be, if the $170 billion bailout had anything to do with either the insurance industry or antitrust law, preferably both. Does anyone seriously think that a hedge fund went bust by writing a bunch of crazy default swaps because its well-capitalized and solvent sister companies were out colluding with competitors?

At the other end of the spectrum, California Republican (yeah, there still are a few of those) Ed Royce exploits the same popular confusion in support of optional federal charter (OFC) legislation which, like Taylor and DeFazio’s antitrust issue, was a pet project of his long before the AIG scandal. Royce argues that “the 54 various state insurance regulators didn’t have the capacity to deal with a global insurance company” like AIG, as if to suggest that one regulator could succeed where 50 real regulators and 4 imaginary ones had failed. On the one hand, I guess I should congratulate the guy for thinking there are only 54 states rather than 57, which is three states closer to the real number than the President’s conception of the country. On the other, what the hell do any of the 50 state regulators have to do with AIG Financial Products, which was regulated by 0 of them?

As full disclosure, I should note that I work for an insurance company, which may well have its own positions on antitrust and OFC. I don’t know my company’s positions on these issues, and in any event I speak for myself, not for them. Personally, I favor optional federal charter and couldn’t care less about the antitrust question either way. My beef is not with either concept in principle, but with their supporters’ lame efforts to turn popular confusion into their own political gain. The same could likely be said of the AIG bailouts themselves; if everyone had understood that taxpayers were only bailing out a hedge fund, and not a group of insurers who were in need of no help, the already unpopular bailouts would surely have been a tougher sell politically.

^*Scare quotes because contrary to popular opinion, insurance companies are not generally exempt from antitrust law. The McCarran-Ferguson Act generally provides that federal laws will not trump state insurance laws, but the effect of this rule is that insurers are only exempt from federal antitrust laws to the extent that the states regulate in this area instead.

The House has voted overwhelmingly to enact an ex post facto fine masquerading as a tax, a bill of attainder, and a taking without just (or even unjust) compensation rolled into one. Meanwhile, the self-righteous punks that just last month voted to make A.I.G.’s outrageous bonuses happen is now lashing out at Edward Liddy, who played no role in drafting the contracts and had no connections to A.I.G. whatsoever until last fall, and is now working for free to try and keep the company afloat. Hope and change, people, hope and change.

UPDATE: Silly me, I forgot the 14th Amendment ban on depriving citizens of property without due process of law. Strictly speaking, that amendment shouldn’t apply to the federal government, but that train left the station a half century ago. On the plus side, it now looks like the administration may prefer an alternative approach that’s only 3 ways unconstitutional rather than 4.