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The media and political furor of the week is the employee bonuses paid by AIG under contracts that existed prior to the government’s effective takeover of the company. And while the President as well as politicians of both parties are fulminating about the payouts, voter anger should be directed more at those very politicians than at AIG.
In a truly remarkable statement yesterday, GOP Senator Charles Grassley (R-Farm Subsidies, or R-Iowa) said this of AIG executives: “The first thing that would make me feel a little bit better towards them if they’d follow the Japanese model and come before the American people and take that deep bow and say I’m sorry, and then either do one of two things – resign, or go commit suicide.”
And NY Attorney General Andrew Cuomo demanded (and presumably received) a list of everyone who received a “bonus” check. Think about that for a minute…
And then Senator Chuck Schumer (D-NY) said of the people who received the bonuses, “If you don’t return it on your own we will do it for you.” Think about that for two minutes…
I’m not saying that these bonus contracts were wise or even that they weren’t a minor level of corruption in their own way. But they shouldn’t distract us from the fact that it was politicians and bureaucrats who gave AIG your money and mine.
By now we all know (and by “we”, I’m including idiots like Grassley) that the bonuses were due to current and former employees based on pre-existing contracts…and that the top management of the company is not receiving them.
But even after that was clear, politicians from the President on down are trying to figure out how to block or recover those payments, including some Democrats suggesting a special surcharge tax on bonuses from firms which are receiving TARP money with the effect of creating a 100% tax rate on those payments.
Of course, just two years ago, the President’s Press Secretary said the administration was “confident” they knew where AIG was spending taxpayer money.
The upcoming government program called the Term Asset-Backed Securities Loan Facility (“TALF”), which was already delayed once, is now getting the cold shoulder from many would-be participants over the level of government interference in their business which they may be subject to if they participate. Not just the risk that government may retroactively try to change employment or other contracts, which would make it more difficult to attract quality employees who would prefer to go to a non-participating firm without that risk. But also other know-nothing protectionist measures such as the provision in the stimulus bill that restricts the ability of recipients of government “rescue” money to hire foreign workers on H-1B visas. These are not tomato pickers we’re talking about here. They are educated, important members of the American economy who will simply leave the US and go to compete against us because of Congress’ boneheaded “America First” nonsense.
There’s another very important point about the money that went to AIG. It seems that AIG tried to keep secret (probably for both legitimate and illegitimate reasons) just where it sent the tens of billions of taxpayer dollars it received. The majority of payments to AIG were distributed to other banks and investment banks, each of which was made whole on contracts at taxpayer expense even though almost all of those banks could have withstood losing much or all of the amount paid. In other words, American taxpayers just covered nearly $100 billion in potential losses, including at least $58 billion which went to foreign banks, especially in France and Germany!
Goldman Sachs, which has had tremendous impact on and some might say control of the US Treasury for much of the time since Robert Rubin was Bill Clinton’s second Secretary of the Treasury, received about $13 billion! No wonder Hank Paulson wanted AIG bailed out. And no wonder he appointed as the new CEO of AIG Edward Liddy…who serves on the Board of Directors of Goldman Sachs. Anyone smell a rat?
While nobody likes to lose money, these giant American and foreign institutions could have withstood losing a few billion dollars each. Instead, the government simply paid out $100 billion of our money to cover their potential loses.
While part of me thinks government should demand a return of part of that money from all the AIG counterparties so that they’re at least sharing in the loss, another part of me says that would just be further government meddling in existing contracts. Hindsight is 20/20, but clearly the government should have let AIG go into bankruptcy protection and then work out an orderly closing-down of the company, including letting its counter-parties take all, or at least much, of their losses.
And now the politicians want to scream about $165 million actually paid to employees?
To put it another way, dividing the $165 million in bonuses over the roughly 6,400 people who will receive them, we’re talking about an average of just under $26,000 per person. But these are the same politicians who passed an economic stimulus plan that Democrats claim will cost around $100,000 per job created and stimulus opponents claim will cost over $200,000 per job created.
It’s truly amazing for a President who is proposing a budget with a $1.75 trillion deficit (and it will be higher than that) and a Congress that passed a “stimulus” bill that will likely end up costing over $3 trillion in the next decade (not the $800 billion nominal price tag on the disastrous piece of legislation) is complaining about $165 million going to Americans who are due it under contracts.
They’re simply tried to cover their asses for being responsible for the single biggest waste of taxpayer money in American history. We must not let them get away with it.
The Treasury Department and the Fed, either knowingly or unknowingly (my guess is the former) simply redistributed your money and mine to Goldman Sachs, Merrill Lynch, Societe Generale, and Deutsche Bank, just to name a few. They made the argument (which I believed, to a degree) that the counter-party risk could take down the entire financial system. But it turns out that the counter-party risk was so widely distributed that it would have been just a small bruise on an industry which was being so severely beaten for other reasons that the additional losses from AIG would have been little more than a minor additional nuisance.
Barney Frank is one of the key villains in the whole financial meltdown, but he got one thing right this week, speaking of how the government threw more than $100 billion of taxpayer money at AIG with no strings and no oversight: “Clearly there was a mistake at the beginning.”
And today, if I understood him right, Barack Obama is saying that he will be proposing legislation to allow government to regulate executive compensation. It is an all-out war on capitalism, but unfortunately for those of us who prefer capitalism to the current trend toward economic fascism, the left is using AIG as the poster boy for free-markets when any true capitalist would have said “let them fail.”
It’s far past time to insist on an end to government bailouts, to stop accepting “too big to fail” and instead to consider some thing “too big to save.” And it’s time to hold our elected officials accountable for wasting our money on a nearly unimaginable scale.