Billions Dished Out in the Shadows
This is crazy! Forget the bleating of Rush Limbaugh; the problem is not with the quite reasonable and, if anything, underfunded stimulus package, which in any case will be debated long and hard in Congress. The problem is with what is not being debated: the far more expensive Wall Street bailout that is being pushed through--as in the case of the latest AIG rescue--in secret, hurried deal-making primarily by the unelected secretary of the treasury and the chairman of the Federal Reserve.
Six months ago, we taxpayers began bailing out AIG with more than $140 billion, and then it went and lost $61.7 billion in the fourth quarter, more than any other company in history had ever lost in one quarter. So Timothy Geithner and Ben Bernanke huddled late into the night last weekend and decided to reward AIG for its startling failure with 30 billion more of our dollars. Plus, they sweetened the deal by letting AIG off the hook for interest it had been obligated to pay on the money we previously gave the company.
AIG doesn't have to pay the 10 percent interest due on the preferred stock the U.S. government got for the earlier bailout funds because that interest will now be paid out only at AIG's discretion, which means never. The preferred stock, which got watered down, carried a cumulative interest, meaning we taxpayers would have recaptured some money if the company ever got going again, but that interest obligation was waived in the new deal.
We've already given AIG a total of $170 billion--an amount that dwarfs the $75 billion allocated to helping those millions of homeowners facing foreclosures. And more will be thrown down the AIG rat hole because President Barack Obama is blindly following the misguided advice of his top economic advisers, who insist that AIG is too big to fail.
"AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans and Fortune 500 companies who together employ over 100 million Americans," the joint Treasury Department and Fed statement declared while insisting that for that reason, plus the "systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high."
What about the cost of inaction by Treasury and the Fed before this meltdown? If AIG were so important to the American economy, shouldn't government regulators have been looking more closely at its activities? They couldn't then, and even now they don't understand what AIG has been up to, because the company was allowed to operate in an essentially unregulated global economy in which multinational corporations have their way. As the Treasury/Fed statement concedes: "AIG operates in over 130 countries with over 400 regulators and the company and its regulated and unregulated subsidiaries are subject to very different resolution frameworks across their broad and diverse operations without an overarching resolution mechanism."
Oh, really? And you're discovering that only now, when you're making us bail AIG out? It wasn't that long ago that a couple of hustlers operating out of an AIG office in London were going wild making money off selling insurance on credit default swaps that no one could understand, but the company execs loved those huge profit margins. To challenge their maneuvering, as some in Congress attempted, was said by their defenders, including Geithner, to put them at an unfair disadvantage in the world market. Ignorance was bliss ... until the bubble burst.
This was all belatedly conceded by Bernanke in his Senate testimony on Tuesday: "AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets--took huge losses. There was no regulatory oversight because there was a gap in the system."
AIG used to be in the conventional insurance business, covering identifiable risks it knew something about, until it took advantage of deregulation and a lack of government surveillance to come up with contrived new financial products. Even Maurice Greenberg, the man who built AIG from the ground up over a span of 40 years before he was forced out amid corruption charges in 2005, admits that he didn't understand the newfangled financial gimmicks that the company was peddling. This week, claiming he too was swindled, Greenberg sued in federal court, charging the AIG execs who forced him out with "gross, wanton or willful fraud or other morally culpable conduct," over the credit default swap portfolio that was part of his settlement.
U.S. taxpayers now have ownership of almost 80 percent of AIG, but with the company's once solid traditional insurance business now suffering a steep loss of consumer confidence, it's not likely that even the formerly healthy parts of the company will be worth much. What we have here is all pain and no gain for the taxpayers roped into this debacle, which is proving to be the story of the entire banking bailout.
Robert Scheer is editor in chief of Truthdig and author of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.
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Nobody is too big to fail. AIG is too big to be permitted to fail. Unfortunately there's nothing the government can do to keep AIG from failing in the long-term.
The current strategy with AIG and Citigroup is to inject common stock (which bears no obligations in return) so that they can continue to pay their bondholder and client liabilities.
However, it isn't any easier for a corporation to drive revenue while in government bailout purgatory than it is in chapter 11 bankruptcy, so more and more of their liabilities will be serviced by the government over time.
Eventually, this arrangement will no longer be sustainable, and the populist rage will probably provoke a Congressional line in the sand before it comes to that.
Perhaps the financial system and the real economy will be in a somewhat more resilient state when we finally cut AIG loose. I wouldn't bet on it, but that seems to be the desired end-game for the Obama administration.
Obviously the grand euphemism of the "multi-national corporation" must be eliminated ... and the power of any country to regulate the affairs and dealings within its own country (and concerning its own country) must be asserted.
Under the present definition, Robert, "we are now the proud owners of 80% of ... WHAT, exactly?" If money and assets flow porously in-and-out of national boundaries at the convenience of the crim... I mean, the "businessmen" ... then it would seem to me that we are merely being fleeced.
In order for national distinctions, their borders and their legislatures, to be effective at doing what they do, then corporations that operate (say) in the United States of America must be wholly United States of America Corporations. Subject to the laws set forth by the Congress of the United States -- including laws governing the transfers of assets and liquidity. No other system can realistically work. Sure, this stipulation is designed and intended as a restraint. But let's just call a spade here: "AIG, your 'w00t w00t! multi-national business model' happens to have FAILED, utterly and completely. You don't have a leg to stand on when you assert that it must be allowed to continue."
The failure of AIG has nothing to do with it being an international enterprise.
We need to see the accounting for this and AIG needs to be withholding 40% on any payouts as Income Tax deductions for the entities that they are paying the money to...
EVERY PENNY IN and EVERY PENNY OUT needs to be accounted for...It worked for the Medicis and the Rothschilds and it will work for us....
Obama will review the results shortly...
It's strange. It's as if we still have the Bush Administration running this part of the country, shoveling hundreds of billions of dollars out the back door. Why is our President allowing this to happen?
AIG should be forced to strictly work for the government in providing insurance to the millions of uninsured Americans. People who work for AIG will become welfare workers who will get paid minimum wage. If they don't like it they can go try to get a job somewhere else. It is time to stop this robbery and make these people work for a living and paying back what they stole from us. Another approach is to boycott AIG services. Put them down and press your boots into their faces and make them hurt till they cry mama.
Obama lied; the economy died. Is your retirement better off now than it was 6 weeks ago?
The economy died long before Obama came into office. By the refusal to regulate espoused by the right. Try again.
The war in Iraq is not the disease with Republicans (like Cencom), it is a symptom of the disease.
No Republican president since Dwight Eisenhower has balanced the federal budget. Every Republican president from Nixon to W. Bush has bankrupted this country paying for war and weapons systems, expenditures which notoriously enrich corporate investors. Then they leave the Democrat with all the debt. It is not an accident. It is a strategy of neoconservatives.
And here we have this Cencom, a Republican shill, apparently claiming that instead of saving our banking system from themselves, and protecting consumers from Wall Street, we should try "tax cuts for millionaires" again.
Bingo! you are right on .. the Republicans don't care about deficits .. never did, never will. because bankrupting the government and removing the new deal pgms and other safety nets are there goal. Starve the beast, government is bad, government is the problem - you name it, they think it.
The mess we're in has everything to do with the beginning of all this in the Reagan admin ... deregulation of the phone co, airlines, trucking industry, etc. How's that all working out for us?
Don't you find it interesting that all this mess happens after most, if not all , the people who lived through the Great Depression Era are gone to remind us why there are controls and regulations and why the safety net was needed and still is?
Timothy Geithner's got to go!
I'm calling for the resignation of the Treasury Secretary (and I've been reading others on the net saying the same thing.)
Let's have a Treasury Sec'y who is working for the people, not the banksters and the Wall St. rich elite class.
I agree Geithner has got to go. He does not have the skill set necessary to see thins thing through correctly. He is a total amateur, a babe in the woods who is about to be eaten by the fox. He will probably be forced to resign.
Media Mantra: AIG is too big to fail. You want proof? Look at what happened when the government let Lehman fail!
GMatter: Exactly which extraordinary cataclysmic events directly resulted from the fall of Lehman? It's true that Lehman's bankers temporarily lost their ability to further enrich themselves, speculators in Lehman risked and lost their investments, and these wizards of Wall Street lost a little confidence in their own powers. But people were already losing their jobs and their investments, and Wall Street's illegitimate self-confidence is as much to blame for the mess we're all in as anything else. Is it a given, per the Media Mantra, that Lehman should not have been allowed to fail?
This is the market at work, no matter how much money they pump into it this company is doomed. Should have let them go like Lehman, the market would have grabbed the valued assets and the rest would be worthless as they are now. Too big to fail it dumbest reason to assist any corporation.
I hate Wall Street, and I cannot stand the Republicans who are responsible for this mess, but:
If AIG defaulted in paying the insurance indemnity on thousands of business losses, don't you think that would be bad?
I agree with all that was said and I hate the Bailout but like standing on top of a mountain of snow thinking of pushing down a boulder you better be sure an avalance isnt about to happen. All these Credit Default Swaps are all over the world on an unknown number of balance sheets. Once you pull the trigger you dont have do overs.
The credit default swaps are all over the world . I say stand aside and let the world go after AIG.
Thanks Robert . Always love your articles.
http://www
The Lazy Man's Guide to the Economic Crisis
By KATHY SANBORN
Nationalize, investigate, prosecute and regulate..
Do you mean: Rape, Pillage and Blunder? That's the only thing the government knows how do well. Be careful what you wish for.
Well, "Rape, Pillage, and Blunder" are actually three things, but Republican government knows how to Lie, Neglect, and Destroy in addtion to their world-class Rape, Pillage, and Blunder abilities.
BINGO!!!
Thank you Robert for this view of fraud, greed and criminality that will probably never make it to the wider media and publics attention. Several questions; how many of the perpetrators have been brought to account? Do they still enjoy the vast profits they made, er stole, from others? Are they still taking luxury junkets and "training" vacations at fancy resorts----with our money? Why are the most visible swindlers and thieves, like Madoff, still living in their $7 million apartments while so many have "lost" everything? Will they be charged and brought to "justice" and have their holdings confiscated? It seems that Tim Geithner has more "loyalty" to?, experience with?, time in bed with?, brainwashing in common with?, the perps and those who benefitted from this massive theft than he does to those who are funding the "bailouts", injections of capital, whatever. Where have the "losses" gone? Disapeared?, Invested elsewhere?, in offshore/Swiss accounts?, to buy Montana ranches for the AIG executives?
"Rat Hole" indeed!
Invade the Cayman Islands!
Bomb them, Switzerland and Monaco will get the message...
"What we have here is all pain and no gain for the taxpayers roped into this debacle, which is proving to be the story of the entire banking bailout."
When King George W announced the first bailout back in September, I knew it would be all pain and no gain. Bush never advocated *anything* that would benefit anybody but the wealthiest of us.
What about Congressional oversight? Are you actually agreeing with the House minority!?!?! It was the only political body that jumped in and said no - and perhaps - it seems they were right on the money. Now if we can just get more poiticians of all stripes to say no when it comes to spending..
No, I'm not "actually agreeing with the House minority"!?!?!
The GOP had no issue with all the money King George W spent while they cut taxes. They were on board for raiding the treasury to feed the fat cats. They turned on W only after the polling indicated that it was political suicide to do otherwise. They are irrelevant and wrong about everything.
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