"We are a country of law. There are contracts. The government cannot just abrogate contracts."
Will the government adopt the same stance when demanding that auto workers accept cuts to remuneration? In that case, there seems to be a whole different attitude: accept reductions to pay and benefits or you can't expect to keep your job. There are even demands for cuts to payments to auto union pensioners.
If you're going to force auto workers to accept pay cuts for relatively minor bailouts you sure as hell better force financial institutions to accept pay cuts.
To put the bailout in perspective, US taxpayers are paying on average over $1,000 in 2008 - just to bail out AIG. And it's just one of dozens of financial institutions being bailed out. The bailout to the auto industry is going to be something like one 10th of just the AIG amount.
I see the justification in the auto industry negotiations: the auto industry is not profitable, and so costs have to be reduced to make it a sustainable industry. Has the financial industry somehow not been judged in the same way?
Most of the AIG bonuses go to the Financial Products Division, the group that ruined AIG. In the last three months of 2008, AIG lost $62B - the largest losss of any company ever. Some individual bonuses are as large as $6M. The company argues that the average bonus is only $19,000, but you can manipulate the average: the key thing is the top amounts. Plus, the company claims that if they aren't paid people will quit, but really: in today's economy, where will they go? You might argue that they'll sue: well pass a law.
The bonus issue is just part of the scandal at AIG. There are also troubling questions about counterparty payouts: while a company in distress might have forced counterparties to take a cut on payouts (especially since a lot of the transactions were highly speculative), AIG used federal bailout funds to voluntarily pay 100% - and is now resisting efforts to provide a list of who was paid. Again, it seems like the rich and powerful are using government bailouts to transfer money among themselves.
You might argue that it's all about power. AIG is too big to fail so the government's hands are tied. Baloney. The government now owns 80% of AIG. The government has all sorts of options up to and including taking control of the company, sending people to jail, and levying massive fines.
I'm not blaming Obama for this; he has a whole lot better take on this than his opposition. This is just the way the system works. It's a mindset: a paradigm that needs to be broken and replaced with something more equitable. It's doubtful it will ever change. Everyone's mad about this but nobody's mad enough.
Update: Counterparty payments released
3 comments:
Yappa.. you're exactly right (no pun intended).
Why is it that some of the most ardent "capitalists" who will decry the concept of a socialist welfare state, will immediately line up at the trough to ask for government help when they can't pay their own bills.. even though those bills may be for their BMW payment and their Boca mortgage?
AIG - let them go with Lehman brothers.. sometimes the best lessons are learned hard... for all of us.
Hi Roblaw -
I'm no libertarian, but I'm increasingly uncomfortable with the bailout of the financial industry. Conventional wisdom is that it was necessary - that the refusal of the Bushites to bail out Lehman nearly blew up the world - and that money needs to be pumped in until they're all back on their feet.
But we really need to see a comparison of the costs from different approaches. Also, the lack of oversight and safeguards is suspicious. Finally, there have just been too many financial bailouts in recent history, and I think they expect it now: we probably need to let a few big ones fail just to make the rest less complacent.
An example of a bailout that worked was Jimmy Carter's bailout of Chrysler. Carter took pains to make sure that taxpayer money was protected. That was a much smaller amount of money.
These latest AIG scandals are just the latest in a long line of scandals surrounding how financial institutions are using bailout funds. Thw whole thing is very troubling. If I were an American tax-payer I think I'd be shouting, "I want my trillion dollars back!!!"
Yappa - I wouldn't call myself a libertarian exactly, I believe in strong government programs for those truly disabled and in need.. but weaker government involvement for those otherwise able to fend for themselves, and that certainly includes stock brokers and speculators..
I was speaking with a financial analyst from Minnesota a few weeks ago, and I asked her, "do you remember when mortgages were like 16% back in the early 80's?" She recalled that - and I then asked, "Do you think that so-called experts at AIG would have remembered that when they started leveraging their mortgage assets 30 to 1".. and she also agreed..
I would seem very, very clear that the so-called experts should have expected the very real possibility that mortgage rate changes could leave the sub-prime mortgage holders in a very risky position - they ignored the long-term risks in favor of short-term greed.. and now everyone else is being asked to get on board and bail them out..
Seriously.. I'm an ardent anti-socialist, but I would prefer the U.S. government to take over AIG, fire every one of their higher executives, put the remaining employees on fixed salary, and back their mortgage securities until the economy picks up - then sell it off. This bail out, allowing executives to retain the "security of their corporate sinecures", is just wrong for many reasons - not the least of which, if you don't teach a hard lesson, they're never gonna learn.
The facinating thing I've noticed, however, is the blurred lines between right and left we're seeing as a result - which is, in the long run, a good thing.
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