The Discerning Texan
-- Edmund Burke
Monday, March 16, 2009
AIG Bailouts, Bonuses and the BIG LIE
Impressive and somewhat justified outrage about the AIG bonuses swirled through the news and blogs this weekend. The story that no one is noticing is that Federal support for the AIG security lending business is much greater than the Federal support for the credit derivatives business. Who broke AIG? Regulators and those who love them will prefer to tell a story about mysterious, unchecked credit derivatives, but the truth seems to be a bit more complicated and prosaic.
Let me start on a positive note by lauding Josh Marshall, who nicely captures the current disillusionment accompanying the discovery that he who pays the piper does not, in fact, call the tune:We're collectively taking our country's future in our hands, spending vast sums of money to keep these companies from suffering the consequences of their own folly and (in many cases) criminality. And in return we're receiving cavalier dictates about pay-outs and bonuses from executives who by any reasonable measure work for us -- dictates we promptly accede to. There's a beggars can't be choosers problem there. And the disconnect is so mighty that it fuels the impression that the whole enterprise is not what it seems, not what we've been told, that in addition to picking up the tab we're being played for fools.
Hilzoy sneaks a peek at the truth of the situation but quickly backs away:As far as I can tell from reading this explanation from AIG, and this letter from its CEO to Sec. Geithner, there are two issues. One is contractual: they promised their employees all this money back in the spring of 2008. To which I can only say: what sort of idiot would commit a company to paying a bonus to an employee even if that employee took down the company?Well, well. Who indeed would retain the idiots who "took down" the company?
...The second, which is much harder to accept, is that no one but the idiots who put these trades together understands them well enough to unwind them. (See pp. 3-4 here.)
There is more here than meets the eye. Read the whole thing.