Wednesday, March 18, 2009

AIG: Why is Anybody Surprised?

El Jefe confesses that he finds economics a dismal science, which is one of the reasons he has not had much to say about the apparently endless successions of bailouts, financial rescuses and assorted conniptions that form so much of our recent news.
The AIG business, however, is farcical. The politicians are shocked, SHOCKED that AIG, handed wads and wads of cash by the government, would do what ginormous corporations habitually do; and pay its senior management and its high-flying traders huge bonuses. AIG and the other corporate big wigs, for that part are shocked, SHOCKED that Federal money comes with some real strings, namely 535 gasbags who have to have their five minutes on television bloviating to show the home-folks that they are cracking-down on the fat-cats.
What's really going on here, of course, is unorganized bankruptcy, as compared to the more organized liquidation process provided by the Bankruptcy Code. Had AIG been pushed into bankruptcy, the offending salary contracts would have been out the window, and the company's assets sold to healthier entities. Instead, the government elected to go with bailouts, for arguably good reasons. Maybe AIG and the others really were Too Big To Fail, and bailouts were necessary. For the record, I supported the TARP (but not the recent "stimulus") because I bought the Too Big to Fail argument, and believed that not doing it risked a meltdown of the whole system.
But, today, quibbling over the side effects of bailouts is just absurd, particularly since the Feds forked-over the cash without making ANY rules beforehand. Now everyone affects surprise because the players have (of course) maneuvered for advantage. That's just farcical. All this crying over bonuses and other payments that the Obama administration knew about months ago is either gross stupidity, or political playacting. Probably, it's both.

5 comments:

Texas Gator Girl said...

Oh Jefe - I so agree with you !! At this rate, I must get in line for my bailout Moo-lah!

El Jefe Maximo said...

I'll take all the agreement I can get. If you score any bailout moolah. . .don't pay bonuses! Cash your US Treasury checks promptly, since everyone else will be doing the same thing . . .

Roy said...

You are right. I cringe at lawmakers on both sides of the aisle when they talk about this. It looks like business as usual in Washington.

When to do we start calling the political environment "post-optimistic"?

LFC said...

The bonuses are, as several people have noted, a distraction in the sense that they are a tiny fraction of the money AIG has been given. In the end most of the bonuses probably will be voluntarily returned (disgorged, whatever), and all the posturing largely forgotten. But it is understandable that people were upset that the AIG traders at the London credit-default-swap operation were given these bonuses, contractual provisions or no.

LFC said...

p.s. see
http://duckofminerva.blogspot.com/2009/03/tim-burke-responds-to-jake-desantis.html
and the links