The latest round of taxpayer tranfusions into the rotting corpse of AIG has sparked outrage, but no definitive action to halt $165 million in bonuses. The President, The Secretary of the Treasury, the Chairman of the Federal Reserve have all voiced their disgust at the news that a second round of bonuses would be distributed to the Financial Products Division of AIG, the very division that abused the unregulated credit default swaps to amass their personal fortunes.
The public is outraged because our tax dollars are being directed to prop up an economic inequality machine. This machine continues to operate at full bore, notwithstanding the loss of jobs, housing wealth, foreclosures, falling state and local tax revenues, and drastically diminished retirement portolios.
The AIG Financial Products division was an inequality machine because it was built on a model in which subprime mortgages were originated by unregulated morgage lenders who took their fees and ran. The further packaging and distribution of predatory loans was made possible by sonambulent credit rating agencies, who got paid and ran. The Financial Products division issued credit default swaps (insurance policies) to former Secretary Paulson's, former firm, Goldman Sachs, Societe General, Bank of America and Citigroup, among others also took their money and ran.
This same group of beneficiaries, Bank of America, Citigroup, Goldman Sachs, has already benefitted from bailouts of their own. The most outrageous fact of all is that Merrill Lynch, where bonus bingo was played for 15 billion dollars, just before it was acquired by Bank of America, is also a counterparty of AIG and has received additional millions in passthrough "insurance" . This is rubbing salt in taxpayer's wounds.
According to a Federal Reserve flow of funds report, released last Thursday, American households lost 5.1 trillion dollars of wealth in the last quarter of 2008. This represents 9 percent, of our wealth. According to the NYT this is the largest "loss in a single quarter in the 57-year history of recordkeeping by the central bank".
President Obama expressed his outrage to a group of small business leaders in the White House today, Obama promised "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole." He urged the blocking of bonuses to "a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?"
These are strong words from a President. The unanswered question is why is the President of the United States consigned to sputtering his understandable fury. Surely,The power of the Treasury, the Federal Reserve and the White House combined provided enough tools to prevent these bonuses from being distributed in the first place. When one considers that Secretary Geithner was a direct participant in the negotiations to rescue AIG last year, the bonuses are inexplicable. This is not an "inherited" problem.
The bonus and compensation review for both the Bush/Paulson TARP distributions and the first and second Obama distributions were overseen by Secretary Geithner, who is the bridge between all of these decisions.
The problem is the AIG inequality machine, in which ordinary taxpayers lose $5.1 trillion of our wealth to a machine that was built on an edifice of economic predation of subprime loans. This machine yielded outsized bonuses to an elite group of corporate executives for failure and gave ruinuous losses to the rest of us.
We take the pain, they take the gain.
Actions, not words will calm the public fury.