The real scandal of AIG isn't just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail -- the most money ever funneled to a single company by a government since the dawn of capitalism -- nor even that AIG's notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle -- are planning to give themselves $100 million in bonuses. It's that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money.
The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG's chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But most will be paid anyway, because, according to AIG, the firm is legally obligated to do so. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needed to be able to retain talent.
AIG's arguments are absurd on their face. Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid; indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if it weren't already so expensive.
Apart from AIG's sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG's bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.
The outrage resulting from the AIG bonus scandal is analogous to the "1 minute of hate" in George Orwell's "1984" when various enemies of the state were executed.
The bonuses pale in comparison to the corporate-political corruption that is represented by incompetents like Chris Dodd. For all his years on the banking committee, he feigns innocence.
This, to me, is really sick.
Then, NOT ONE CENT should be paid to those hedge funds which bet agains these derivatives, planning on sucking up all this money because they bet right. They didn't make wild guesses, they had inside information on these financial things and most of them should go to jail, instead of making money on them. In fact, they had bundled and created many of them and sold them, and then turned around and bought a policy on particularly credit swaps and derivatives, knowing that they were doomed. DON'T REWARD THEM FOR CRIMINAL BEHAVIOR.
All the money should then be put back into the other divisions of AIG and try to stabilize it, or return it all to the government immediately and evaluate the other divisions and see if they have been managed in the same manner.
The AIG Board has the capacity and the obligation of stewardship all along. Before blaming politicians, the Board had the responsibility and shareholders had the obligation to protect their own investment in the firm -- which included the astronomical bonuses that are paid out.
Looking for a legal solution, or a political solution -- abrogates these people from their obligations and any misconduct on their part. Ultimately, it was the Board who did not stop the mess in FP division . And it was their failure.
And it is the responsibility of the media for actively ignoring the notion of "follow the money" that has left the Board of Directors alone. They did not attend hearing with congress, they are not being scrutinized by Attorneys General either. For that matter, they have been let entirely of the hook.
I am sure there are governance rules that they were contractually obligated to follow in the stewardship of AIG.
too big to fail = monopoly. they should be allowed to fail for exactly that reason. as usual the american people are freaking out about something (the bonuses) that is actually irrelevant to the real issue. the real story should be that AIG was funneling their bailout money to goldman sachs (among others) and that Geitner was connected to them. I'm disappointed with Obama's decision to stand by geitner. AIG is a front for a bunch of other companies that are sucking away our future earnings.
My objection to Mr. Reich and others like him is that they lack the knowledge of facts relative to situtations that they write about. So how about some facts regarding the bonuspayments made by AIG. (1) The bonus agreements were entered into and specifically approved by the Board of Directors prior to the time that the Federal Reserve loaned money to AIG. (2) The Fed loaned money to AIG under the terms of a lending agreement. AIG pays interest on borrowed funds.(3)Another word for lending agreement is Indenture. Without exception when Companies borrow money, there is an agreement between the lender and the borrower which sets out conditions that the lender requires. This would have been the time to deal with the bonus agreements, and place any restrictions that the lender required. (4)From AIG's point of view, there were no legal restrictions on the use of borrowed funds. (5) Prior to paying the Bonus amounts Mr. Liddy sent the issue to outside legal, to see if he had to pay the bonus. He was told that he did. The bonus payments were specifically approved by the Board of Directors and by the Chairman of the Federal Reserve. Mr. Liddy works for the Board which approved the bonus, outside legal said they had to be paid, so who would expect Mr. Liddy to assume personal liability and not pay the bonus amounts.
Monopoly =/= should be allowed to fail. What you do with monopolies is have an anti-trust action where there's a court order to split them up into a bunch of smaller companies. If you wait for them to fail, you'll often be waiting a long time.
This is a battle between the American people.....All the American people........vs....Wall Street/Government scoundrels.
If they can succceed in makiing us fight each other instead of uniting and confronting the beast..........Wall Street/Government cabal..........then they will win.
The time for action is now.
One of the reasons the government cannt go after the financial system with a big stick is the absence of a national retirement system, like in Europe.
If 401s etc are dependent and related to Wall Street and companies like AIG, these can hold the economy at ransom. This is blackmail and extortion , what AIG is doing.
The bonuses issue is not important. What is important is to change the rules so that the U.S. citizens are not held captive by the AIGs - this begins with a public retirement system like in any other advanced society of the world.
Why in fact are we relying on the same "geniuses" that created this nightmare?????? Why doesn't Obama see this? His fears of being locked in the WH and losing touch with 'reality' seems to have already taken place. I guess it shows how quickly the machine that is the WH sucks you in.....I for one, have lost hope...as long as I see and hear Obama DEFEND the obvioius moral and idealogical deficits of his "financial team".....I know we're all screwed....except for Goldman and Co.....
The main driving force of the election was Main St. vs. Wall St. That's why President Obama won, he was the furthest from Wall St.
I hope he takes corrective steps on this issue, that isn't going to go away.
Unfortunatly it appears that Barak Obama has planted one of his two feet in his own political grave and he hasnt even been sworn in yet. The people he has hired for his economic team are the very same people who caused these problems. The very same people the Bush administration was using. Like too many other politicians he took campaign money from wall street and we are seeing the result.
posted Dec 25, 2008 at 11:07:45
greta article!
http://time2thinkoutloud.blogspot.com