Aieeee, AIG! (Part 2)

Excellent-sounding suggestion about how to stop those abonimable AIG bonuses, from Bill Black, Tom Ferguson, Rob Johnson, and Walker Todd (The Huffington Post, 16 March 2009).  Even if it doesn’t succeed in stopping the bonuses, their suggestion to break off AIG’s toxic Financial Products Division (like a hedge fund attached to an insurance company, as Ben Bernanke described it) from AIG’s main business, and then treat the Financial Products Division like the bankrupt entity it is, is very appealing.

Dean Baker makes much the same point:  bankrupt companies don’t get to pay bonuses.

The NYT has another sensible editorial about AIG and who it’s been paying off with the $170 billion in bailouts it’s received so far.   Under the bailout, the company has been paying off many credit default swap (CDS) holders in full, which is a great way to burn through hundreds of billions of dollars with lightning speed.   And now we know that a good chunk of those billions went to CDS creditors like Goldman Sachs who, like AIG, are wards of the state.  (To be fair, a substantial but smaller amount of CDS payouts went to state governments.)  The only relief I can think of is Herb Stein’s old line:  the good thing about something that can’t go on indefinitely is that it won’t.

James Kwak at Baseline Scenario explains why populist outrage over AIG is well founded.  He wonders if the bonuses might be the tipping point toward a less indulgent policy stance by the Obama administration toward AIG and the big problem banks.

Has it tipped already?  Consider that the names of AIG’s main counterparties were released this week, whereas two weeks ago they were still under wraps.  Fed Vice-Chairman Donald Kohn told the Senate Banking Committee, “My judgment would be that giving the names would undermine the stability of the company.”  Kohn’s apparent misplacing of priorities infuriated senators and real people alike:

‘Senators criticized the federal assistance to AIG, calling the company “a bottomless pit,” “a lost cause,” and “a very disturbing story of malfeasance, incompetence and greed.” They warned Kohn that the administration should not expect another dime from Congress if it does not improve transparency.

‘”You will get the biggest ‘No’ you ever got,” a red-faced Sen. Jim Bunning (R-Ky.) told Kohn.’

When I find myself agreeing with a red-faced Sen. Jim Bunning, you know it’s gotten bad.

And now, the revelation of those “retention bonuses” and their $165 millino price tag has sparked such a furor that AIG’s bailout CEO Ed Liddy is saying those executives should give at least half of them back.  That’s progress, I guess.

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3 Responses to “Aieeee, AIG! (Part 2)”

  1. democommie Says:

    After listening to a few minutes of the testimony and questionin at the congressional hearings today (talk about ruining one’s appetite) I would say that AIG might be the target of a RICO style investigation before this is over.

  2. cinderalka Says:

    I think the only way to end this safely is to shame AIG into giving back the money before the names of all the employees who received bonuses is released. Carrots and sticks.

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