Missing the Larger AIG Picture
by Harry Haller at 10:45 am | Be the first
While I sympathize and agree with most of the outrage expressed concerning AIG executive bonuses, it misses a larger point, one Joe Nocera at The New York Times makes in two simple paragraphs:
But there is a much bigger issue that has barely been touched upon by Congress: the way tens of billions of dollars of taxpayers’ money has been funneled to A.I.G.’s counterparties — at 100 cents on the dollar. How can it possibly make sense that Goldman Sachs, Bank of America, Citigroup and every other company that bought credit-default swaps from A.I.G. should be made whole by the government? Why isn’t it forcing them to take a haircut?
What’s worse, some of those companies are foreign banks that used credit-default swaps to exploit a regulatory loophole. Should the United States taxpayer really be responsible for ensuring the safety of European banks that were taking advantage of European regulations?
Eliot Spitzer (yes, that Eliot Spitzer) expresses it in numbers:
But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?
The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.
Spitzer is right: The outrage over executive bonuses is diverting our attention away from bigger, perhaps more difficult issues that must be addressed. Mainly, are U.S. taxpayers shoring up the banking industry worldwide without insisting obscenely wealthy individuals suffer any consequences for playing financial keno with the depositors’ money in their trust?
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