AIG and 'political risk'
Ian Bremmer and Sean West
The Wall Street Journal
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After quietly tolerating $170 billion in bailout money for AIG, why have the public, Congress and the administration suddenly blown up about a tiny fraction of that amount that is being paid out in retention payments and bonuses? After all, the AIG bailout channels U.S. taxpayer dollars to foreign banks and even potentially covers hedge-fund profits.
The reason is one of political expediency: The bonuses represent greed in the face of dire circumstances, which resonates with Joe the TARP-funder. The public now has an Enron-like target on which to unload its collective frustration about the financial meltdown. While public outrage is understandable, pandering to it jeopardizes the administration's credentials in a sloppy attempt to score populist points. This raises the political risk for all investors in the U.S. (both domestic and foreign) significantly.
The financial-sector rescue necessitates unpopular actions that will only be politically worth it if the administration actually solves the crisis. Until recently, the Obama administration had taken pragmatic if slow actions that it deemed necessary to fend off disaster, as opposed to pursuing an ideological agenda in how it implements the bailout.
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Filed under: AIG • Bailout Turmoil • Economy • Raw Politics |
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What a mess. Therefore, put their names out there. Black list those that refused to give the money back. And maybe fire a couple of people.
I've been surprised at how Obama has gone on his speaking tour and appearing on Leno to try to win the American voter over to his way of thinking. Has anyone told him the campaign is over and that he won and he doesn't need to keep running? Get to work and solve some of these problems you promised you had solutions for. The bonus mess pales in comparison with what else there is to do and is a waste of political time.
I am confused about the argument that the AIG bonusess could not or cannot be overidden by the Federal Gov. In 1991, I purchased an 81 unit apartment complex from the "owners" in Colorado. The RTC stepped in and voided the state contract without even an "excuse us". They forced open bidding on the property and eventually notified me that I had won (with the same price as I had orginally agreed to).
My closing attorney determined that the RTC has no legal right to "sell" me the property in question. They agreed with him and simply changed the contract with the 'owners' after it had been signed! Later, at this same closing, my attorney demostrated that the RTC has no legal posession of this property. They agreed and produced an "Assignment of Title" (whatever that is) inorder to transfer the propeerty to me. They also reneged on government financing as they did not have legal title. This forced me to assume the existing financing on the property.
Here are three instances of the government setting a precedent to alter, change or ignore existing contracts when they see a need to do it.
As I understand it, Chris Dodd and his Democratic cohorts included language in the stimulus allowing these bonuses at the urging of Obama's administration. Now, when the public wakes up, they are the loudest in denouncing them. Where is the outrage at Obama and his cronies at putting this rushed and dangerously flawed legislation out in the first place? How long is the public going to let campaign rhetoric hide the truth?
Here's the problem...
Paulson (+ Geithner, Bernanke, etc) designed this 'Ponzi' scheme (TARP). We understand everyone wanting us to buy more stock in order to keep the market up...fix the system...then we'll have 'confidence' to invest.
And that FIX is simple and oblivious, but everyone seems not to be addressing it directly...
– it's 'Corruption-Corruption-Corruption'.
ie. special interest groups, earmarks, lobbyist, elimination of rules and regulations, the financial sector having contributed over $5.2B to political campaigns, same people who got us in this mess are now tying to get us out (humanly impossible...they will, and have instead spent most of the time & money trying to cover-up the industry's underlining behavior).
Corruption is the 'root' problem here...as it is everywhere. Until that gets fixed first...everything else is redundant...we're just pouring $$$ into the abyss! Wall Street has always been Ponzi Street, and the Golden Rule always applies; 'never invest $$$ you can't afford to lose'.
Fix the 'corruption' – then we'll have 'confidence'.
The solution – 'Transparency-Transparency-Transparency'.
How? Start now Restructuring (nationalize, fix, resell) all these financial institutions – the FDIC does this every day.
Obama has already proven he was not ready to lead. He managed to turn our democracy into socialism by bailing out companys that deserve to go out of buisness. Spending trillions of dollars does not solve money problems. Now what do you know AIG spends money wrong. Oh yea bail out GM to while your at it. Thats sure is going well. Obama is solving problems by making problems. He is an oaf.
Would the companies that recieved Bailouts have been in the cash position to pay out all those executive bonuses if they had not recieved the bailout?
I believe the problem is that our government allowed AIG to become a monopoly. Now we pay a price for that.
Greg
This can be put to bed quickly. Pres. Obama needs to forward the names of all of those at AIG that received a bonus to the IRS with the instructions that their returns for the past 5 years are to be audited. These people are so dishonest that surely everyone has committed fraud on these returns and we can legally put them in jail. Pretty simple, eh? And effective too.
I must admit ,you guys are finally correct on this issue! Although," Wall Street's editorials are well-timed propaganda, created by the wealthy to begin with, floating this crap in the beginning,and as usual the public took the bait! Unfortunately there is never enough for everyones greed! Except for the have-nots who would like to change places,...? PS The sad part being the creators of the so-called "exotic derivatives unit " have all left in 2008 with their huge bonuses, and are working for competing firms,kinda like Mike Milkin after getting out of jail an teaching at Stanford (Calif) prestigious financial college,with grad students knocking down the doors to get into his class. Good luck with your BS!
"After quietly tolerating $170 billion in bailout money for AIG, why have the public, Congress and the administration suddenly blown up about a tiny fraction of that amount that is being paid out in retention payments and bonuses?"
Suddenly? Tiny Fraction? When has the taxpayer ever tolerated bail outs? We're not upset about a "Tiny Fraction" (it isn't tiny btw). We're upset about the whole bail out INCLUDING the retention bonus monies. I question WSJ stance on this. Could be a media ploy to make it seem like overreaction here, when it's actually logical reaction. I dislike when they do this. Making everyone seem out of sorts in order to rationalize their poor investment decisions. A 5 year old could ....
This is the best blog you have done I think. It's the truth. If the administration does flex it's muscle and tax because the public is outraged, then it is foreshadowing more of what's to come with this administration. And the scary thing is that the President has much more pull and power with the American people; he may be the most influential President we have ever had. So if he sways people towards this issue and then uses it to his advantage, what more will he do, and why. I'm not an expert on government practices but this is scaring me; like what else will our government try to own, control, run. I'm not a big fan of Bush but I'm starting to miss him, because he wasn't as smart as Obama, and that might have been a good thing. I wish the news would not follow the President as much because I don't think it's so good for one man to have so much power as Obama. You are giving him the power. He is just a figure head for our government but it seems like he is becoming more than that. This might sound real snobby.... but he is leading and rising up the poorer and middle class who for the most part don't have as much intelligence or understanding of how companies like AIG run as the rich do. The rich didn't get rich for no reason. Most of them are either so hard working & determined or just plain smarter than the rest. So the poor are getting mislead and aren't frankly smart enough to understand the issue and that is why we see this complete outrage from the American people. The Obama's need to re-think the way they see wealth in our country. The American Dream is about getting rich; not being middle class.
Who is it that 'supposedly' misled Chris Dodd to include the bonus clause in the bailout to A.I.G.? Why are we not angry at Congress, and the Obama Administration? Why should only A.I.G. heads roll? Why are the politicians who received $$ from A.I.G. giving back their payoffs from A.I.G.?
Nooooo… the government is showing that they are finally fighting for the little people instead of letting the big fat cats on Wall Street get away with what they’re doing. Its not what you’re trying to turn it in to.
The people of this country have rarely ever been so angry at its government as they are now. The government needs to show that they serve the people. They are risking much more than a financial meltdown, they are risking civil unrest and worse.
The people in this country have shown before that they are willing to sieze control of the government from corrupt officials. I do believe they are called the Revolutionary and Civil wars.
People are angry.
What would you have the government do? Nothing?
It doesn’t work that way.
As a great movie once said… “People shouldn’t be scared of their government, government should be scared of its people”.
AIG needs to be broken up into smaller companies so that they don't have so much control, you know like the phone company several years ago. Then set up controls so they can't go back together as one in the future. No company, bank or any industries need to be so big that they can not be allowed to fail and we want get into the mess again. Control the Greed!
Nooooo... the government is showing that they are finally fighting for the little people instead of letting the big fat cats on Wall Street get away with what they're doing. Its not what you're trying to turn it in to.
The people of this country have rarely ever been so angry at its government as they are now. The government needs to show that they serve the people are risk much more than a financial meltdown, they risk civil unrest and worse.
People are angry.
What would you have the government do? Nothing?
It doesn't work that way.
As a great movie once said... "People shouldn't be scared of their government, government should be scared of its people".
A quote from Jubak's recent article
"Twenty-eight current members of Congress own stock in AIG. Sen. John Kerry, D-Mass., is the biggest investor, with stock valued at $2 million (it was valued at $2 million at the time he filed his lastest financial reports, anyway)."
Why aren't we hearing more about this aspect of the bailout? We are bailing out our congressmen and women.
And I quote from Jubak's recent article:
"Twenty-eight current members of Congress own stock in AIG. Sen. John Kerry, D-Mass., is the biggest investor, with stock valued at $2 million (it was valued at $2 million at the time he filed his lastest financial reports, anyway)."
The above insight gives new meaning to the words, "pork, earmarks, too big to fail."
I just want everyone to take a deep breath and stop this ridiculous, off-the-cuff, spur of the moment legislation. We have already seen too many pieces of legislation get rushed through congress and the senate, only to discover after the fact, the many flaws that it contains. I believe that the current legislation relating to AIG bonuses is another example of a rushed and highly flawed piece of legislation that is “follow the crowd” and popular opinions, but will miss the mark in its effectiveness.
Many people in companies on Wall Street that receive bonuses are hard working honest people that were not involved in any way with the CDOs and other highly leveraged debt obligations that caused the failure or losses. Yet, instead of isolating the people involved directly, the legislation is incorrectly targeting whole firms. I do believe that the people involved should be held accountable for their mistakes. But, I also believe that punishing people not involved serves no purpose and will ultimately hurt these companies in the long run.
Also, the TARP funds were originally distributed in a closed room, where all were required to take the funds, whether they needed them or not, so that no one would know who the banks were that actually needed the funds. It is also my understanding, that most of these banks cannot pay back these funds early. So, it seems fairly ridiculous to pass legislation that again changes the rules of the game, after the game has started. Even kids in a playground would tell you that’s not fair.
I also believe that this is truly just politicians trying to appease their constituents and not really thinking about what will ultimately be the best for our economy. I know that many people are hurting and are angry. Many are justifiable in their anger and those that are directly involved, as I stated earlier, should be punished. But, as Abraham Lincoln said, "You cannot help the poor by destroying the rich. You cannot strengthen the weak by weakening the strong. You cannot bring about prosperity by discouraging thrift. You cannot lift the wage earner up by pulling the wage payer down. You cannot further the brotherhood of man by inciting class hatred. You cannot build character and courage by taking away people's initiative and independence. You cannot help people permanently by doing for them what they could and should do for themselves." I believe that the pitch fork mob mentality that is out there today, is misdirecting their anger. We need a President that will be both the calming and rational voice.
I also think that Moody’s rating agency should be the target of much of this anger. What were they doing constantly rating these CDOs, which ultimately proved to be junk, as triple “A”? How about the independent accounting firms that signed off on financial statements? Did they do a thorough audit of these firms? Did they do due diligence in pricing the CDOs? The answer is obviously no. Moody’s and our CPA firms are supposed to give investors confidence that the financial statements are correct. Where is the outrage for them?
I won’t even begin to discuss the guilt of Barney Frank and Chris Dodd, who over the years obligated Fannie and Freddie to accept mortgages that people couldn’t repay. I think all this outrage is being misdirected on purpose by our elected officials, so that we won’t see that most of the problems began with them and are also being made worse by them.
My only hope is that President Obama has enough sense to stop this madness and calm the rioters, and encourage congress and the senate to put together some legislation that is fair and effective.
Sincerely,
Mary Alice Tyler
Mr. Bremmer, I watched you on CNBC, and I am glad I have a chance to respond to you.
Mr. Bremmer, you want us to actually tolerate as you say "about a TINY fraction of that amount....." Actually, sir, on September 16, 2008 Congress approved a staggering $173.3 Billion for AIG! I was supportive of bailing-out our banking sector, because I know well the history of the Great Depression, however, when I supported the bailout I did not support bonuses!
CNBC and its pundits keep saying that there is the "rule of law" and that this is how it is done in the private sector, or as Larry Kudlow ranted about last night "if we do not retain these people, we will have only D students working on Wall Street!"
Let me explain why our Nation is angry about the bailout money going to AIG's employees: IT IS BAILOUT MONEY!
Isn't free market Capitalism about the fittest surviving and rewarding those who..... win??? How is rewarding those who fail correct?
IF my husband's company has a less than stellar year, we do not give bonuses. Bonuses are reward for a job well done! AIG .... had it not been BAILEDOUT would have been .......dead....... gone..... kaput!
When millions of Americans have lost money on their 401K's and no one is bailing us out; when millions of Americans have lost their jobs and no one is bailing them out; when millions have lost their homes...... and no one is giving them bailout money!
The AIG bonuses added insult to injury! When AIG FAILED....... and they were BAILED OUT the LOST the privilege of handing out bonuses! GET IT?
The financial-sector rescue necessitates unpopular actions-–really? When financial institutions make bad investments and drive the financial structure of their company-–that requires financial rescue-–and of course--who do they turn to--the government. It would appear that regardless whether you are successful or unsuccessful in managing your financial institition--the financial rescurer (the government) will be there to provide assistance--and that is OK by me--provided that the government rescues them with someone else's money-–and not mine.