As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Monday, March 16, 2009

Condition Critical

The AIG bonus scandal is a real crisis for this Administration. Now revealed to be as big as $450 million dollars, the money is weighted heavily toward the Financial Products division that wrote all the credit default swaps which contributed to nearly taking down the global financial system, and there are only 370 people at this division, so you're looking at about $1M per person for the unit that lost $40 billion and destroyed their own company. At this point, I'm not sure why AIG NEEDS a Financial Products division at all. Far from shoveling them $450 million dollars, they shouldn't have a job. Yet that's what CEO Edward Liddy is doing, and pretty brazenly - saying that he's very sorry, but his people are getting their cash. I agree with Hilzoy:

And extortion is what it is (morally; I am not a lawyer, and I'm not trying to make a legal claim.) If I ran someone down in a car on a deserted road, it would take a lot of gall for me to ask him to pay me an exorbitant price to take him to the hospital since there's no other car around. When you run someone down, taking him to the hospital is the least you can do, and payment shouldn't so much as enter the picture.

Likewise, when you run the world financial system and the American taxpayer down, it takes a lot of gall to ask for not just a performance bonus, but a retention bonus as well. Any remotely decent person would stay and try to unwind the damage s/he had caused, if s/he was the only person who could do so, and would be content with his or her salary. (After all, it's not as though people in financial services are generally underpaid.)

The expressions of outrage on the part of the axis of Geithner and Summers are nice, but the shrug of the shoulders and words like "There's nothing we can do" are disingenuous at best. First of all, we the people own AIG. We have an 80% stake, and shareholders of that magnitude ought to be able to dictate at least some terms. Second, this "contractual obligation" argument was not operative when auto workers - whose companies are not owned by the government at an 80% rate - were forced to tear up their own contractual requirements on wages and accept new terms as a condition for their industry bailout.

Jane has a long piece on this today.

The White House is worried about backlash over AIG's payout of $450 million in bonuses to the executives in its high flying Financial Services Group, the out-of-control derivatives trading arm that looted the company, destroyed its stock and contracted for huge bonuses even after they saw the risk of collapse.

Robert Reich says that the administration's failure to stop this is a sign that "our democracy is seriously broken," and it is. When the story was initially leaked by a "senior government official," this was the excuse for the administration's impotence in what can only be characterized as a grand theft [...]

American taxpayers now own 80% of AIG. They'll be paying back the government, and paying off the bonuses, with our money. There is no reason to be tiptoeing around these people.

Are Geithner and Summers are just too aligned with Wall Street interests to do what needs to be done?

The bottom line is -- nobody trusts them. Congress needs to use its subpoena power to get a hold of these AIG contracts and make their own analysis.

President Obama is in a tough spot. Today he said that he intends to stop the bonuses from going forward, putting him in direct contrast to his own economic advisers.

"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession.

"How do they justify this outrage to the taxpayers who are keeping the company afloat," the president said.

Obama spoke out in the wake of reports that surfaced over the weekend saying that financially strapped American International Group Inc. was paying substantial bonuses to executives.

Noting that AIG has "received substantial sums" of federal aid from the federal government, Obama said he has asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."

He's saying the right things. But if the functionaries continue to look at what's best for Wall Street over what's best for the people, Obama will be caught. The fact that AIG is vowing to cut bonuses in the future will be of little consequence. If the 2008 bonuses stand, there will be hell to pay, and eventually Republicans will figure out how to play this game.

This is arguably made worse by the fact that AIG has now released the list of beneficiaries to its rescue, the counterparties who were paid off in the process of the bailout. It's pretty much the same group of domestic and foreign banks expected, but now the bonus babies at AIG are being paid to funnel money to Goldman Sachs and the like. The optics are terrible. And if the Administration is not careful, and continues to please elites at the expense of the people, they will face a massive backlash.

...Marcy Wheeler thinks AIG is making a veiled threat to the government, that either they get their bonuses or they would trigger a default event and take the taxpayer for billions more. Honestly, how is this any different from what they are already doing? If we cancelled the contracts and let France appoint a designee, wouldn't we be done with this company? I'm sure it's more complex than that, but I'd be fine with a lawsuit and a final payoff to end it... I understand that this would set off an event that could pull the whole house down, so obviously it's quite a serious terrorist act AIG managed to pull.

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