The Real Scandal of AIG
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.
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Why is so hard for all the "experts" to place the blame for the financial crisis on those who deserve the blame, the banking /financial sector? There would not be problem, if it not wasn't their fraudulent business practices
AIG is accountable to Goldman Paulson Sachs, of course. Geitner is a mere puppet and it is difficult to know who is pulling the strings.
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.
The government should call their loans to AIG, tomorrow. Then, spin the financial division off, claw back 80% of what has been paid on the fact that the underlying derivatives and credit swaps were fraudulent and never were worth the amount insured, and make them pay it back, especially the overseas banks. The foreign governments should have to bail out their own criminals.
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.
Had AIG gone into bankruptcy, several trillion dollars of CDO's would have become immediately due and payable. Think LEH was a mess? You have no idea.
AIG's executives ARE responsible to the Board of Directors, who until yesterday have had no mention in the news. The shareholders (now the US citizenry with 80s ownership) can be demonstrated as a proxy by the Government.
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.
Well yes I agree Osteoron. My view is that the moment those bonuses were announced they should have been immediately and irrevocably canceled by the Feds, by Obama. What arrant nonsense! It is the taxpayers bailout money stupid, you ain't gonna be givin' out those enormous bonuses and have everyone just ooh and ah at them like before. Uh-uh. I think that (perhaps the only needed one) part of the stipulations for giving the bailout money in the first place should have been that the government sets everyone's salary in the company, or at least the executives'. The alternative is foreclosure, chapter 11. Take your pick. You want a job or don't you? If not, there are many others who do.
hallelujah.
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.
The Treasury Secretary had no authority to stop the AIG payouts. And neither did the President.
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)A
Too big to fail =/= monopoly. Monopoly has to do with pricing of products; too big to fail has to do with what happens to other firms if the firm does fail. A very small firm can be a monopoly, if they're producing a niche product. A firm that's too big to fail can have many competitors and limited ability to influence prices, if it's very interconnected with the finances of other companies.
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.
In listening to Liddy's testimony, a few things leap out. How is it that those who work in the Financial Services Division part of the company, can quit and turn around and sell the information to other institutions or hedge funds, in order for them to short sell? Isn't there a contract clause that they can't utilize the knowledge, like so many other companies have in place? Liddy made it sound like they would sell their knowledge of AIG to the highest bidder. He also kept reitterating that in order for AIG to be profitable, the market has to turn around, fat chance of that happening. So basically these financial institutions have used CDO's like their own federally insured deposits, to gamble with, they made money on the upside and now are using the CDO's to make it on the downside with taxpayer money.
That is called insider trading, and it is illegal. Many of the hedge funds, however, too positions agains these derivatives and credit swaps based upon insider knowlege. Put them in jail.
Who should decide corporate compensation? At the moment it seems to be the executives themselves who do the deciding. I admit it might be impracticle to suggest that shareholoders regtulate exercutive compensation, but as long as the decision is left to the executives themselves they will obviously take until companies are on the brink of bankrupsy.
Absolutely true that democracy is broken in the U.S. And why? In simple terms, because of Republicans. The Republican Party, supported by religious wingnuts, racist goodolboys, and military obsessives, has systematically repealed laws that encouraged democracy and loaded the Supreme Court with conservatives. We are now in a real pickle, and no matter what Obama does to fix the fractured system, the Republicans, enabled by the corporate "news" media, will be hammering their talking points to a gullible public and using the sick brains of Rovebots to find ways to continue the destruction.
This type of thinking plays right into the hands of the wall street/government cabal.
This is a battle between the American people....
If they can succceed in makiing us fight each other instead of uniting and confronting the beast.....
You people are cowards. The crimes currently being committed against the American people by the Federal Reserve and the U.S. government DWARF the crimes committed by the British government against the American colonies in the 1760s, and yet here everyone is, sitting around like deer in the headlights, waiting for someone to show up with a magic fix-it potion. THIS IS REAL, EVERYONE. These things are really happening. Your government is really trying to destroy you. We are absolutely faced with the conditions outlined in the Declaration of Independence as just cause for revolt. WAKE UP.
Right on........
The time for action is now.
I cannot argue with that. We currently lack the will and the spirit and the bravery of our founding fathers.
too big to fail = too big to exist
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.
In bankruptcy the solvent portions of a company, 401ks and deposits, can be separated from the insolvent portions, CDS and CDO. This would also separate many wealthy individuals from their money invested in equity, bond, hedgefund and other financial instruments. It is the wealthy who are being protected. We are being robbed in the process by first Bush and now Obama. Geithner works for Wall Street, not us.
yup.
The Bush Administration failed. The Congress failed. The Presidential candidates failed. Both political parties failed the test when the unindicted co-conspir
I couldn't agree more.....I
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".....
Doesn't matter what plan Geithner comes up with, it still screws taxpayers and benefits his boys. He's watching out for his boys and that sure as hell doesn't include the everyday Amercian taxpayer. He can spin, spin, spin himself into the ground nobody believes this bullshit anymore.
When Dr. Reich thinks, talks, or writes, I sit up and take notice. This mess is far from over and the American people are being kicked in every part of their collective bodies. The solution is simply fire the greedy CEO's and fire O'Bama's poor choices in his administration. The longer he dithers, the more his favoritism ratings plummet.
Agreed.
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.
No, you have that wrong. It was John Edwards that said he was ready to take these greedy looters on directly on behalf of the working class. The corporate media censored all through his campaign.
Your right, and they better start getting a clue. Retaining these captains of clueless will destroy any good feelings we had, we need CHANGE or we'll do the CHANGE for him.
This is a copy of my very first post on H.........
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
It truly is a scary situation we are in but if there is a silver lining behind the tanned skins of these outragesly overpaid ceos is that we can seize this moment to shed light on their activities. NY Att. Gen. is fighting to have these business' open up about their activities behind closed doors. They keep requesting to take our money and yet not answer questions that we the tax payers have a right to ask and know.
greta article!
http://tim
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