AIG bonuses and Washington

So the White House, Congress, and Co. probably knew about the bonuses all along, agreed to them, yet now act all outraged and demand that the execs pay them back? Seriously, if I was one of the execs who got money, I would tell Washington to shove it and tell them to take a pay cut first. But of course it's hypocritical for the GOP in Congress to criticize the Dems, when many of them endorsed, or at least condoned, a similar action on AIG by Bush last year. Maybe Obama "didn't know" personally until the rest of us did, but what does that say about a president who claims to be on top of things and working incessantly on the economy? And the ignorance excuse didn't work for Iran Contra and Iraq WMDs either. Trust was lost. Maybe this is why some holdout Congressmen are actually doing America a favor (instead of trying to score petty political points, as Obama alleged of the obstructionist Republicans). Stalling, complaining, and second-guessing can be counter-productive, but would they rather cave to the pressure and sign off on hastily-crafted, problem-riddled, huge spending legislation?

http://www.sfexaminer.com/local/41404462.html

Critiques from the 2008 AIG handout: http://www.economist.com/finance/displaystory.cfm?story_id=12607251

Senate Banking Committee CHAIRMAN Chris Dodd admits to inserting an earmark loophole for AIG bonuses in the recent stimulus bill:

"[Senator] Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill. As late as today, Dodd’s spokeswoman denied the senator’s involvement... Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision."

http://news.yahoo.com/s/politico/20090318/pl_politico/30833

And that guy was running for president 10 months ago. Well, for the record these bonuses were not for merit/performance (of which there was none), but for retention. You have to throw the talent some treats if you don't want them to jump ship during crisis time, but of course do it tastefully and humbly. Give some bonuses if you want to, but don't try to hide it or lie about it. Though the other expenditures for office redecorating, junkets, repaying foreign clients, and buying other troubled banks are just unacceptable.

Change, my ass. The Dem Congress and Obama White House have been just as friendly to Wall Street, if not more, than the GOP. Maybe it's true that AIG and others are too important to fail (though spare us the alarm; AIG's vital insurance services are much more safeguarded and regulated than it's gambling wing). But don't cut them lifelines in secret and then act all outraged about it when the news leaks. Politicians just want it all: whip up the populist outrage, claim to be crusaders cleaning up Washington, yet also still take care of their 35% tax bracket campaign contributors in private.

And maybe this bonuses fiasco is just a silly distraction - is it helping to restore lending and untangle the troubled assets? As grotesque as it may be, $165M in bonuses is a drop in the bucket of what taxpayer loot AIG received (hundreds of billions). They are supposed to use that money to pay the claims of people who got burned by Lehman and others.

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Seriously though, in your "house on fire" analogy, that is pretty clever if an i-banker can do that, and leave the firemen (us) to clean up the mess - from an amoral point of view at least. Yeah the i-bankers are obvious targets of outrage with their Swiss bank accounts and 20 cars. But what about the politicians and their appointed regulators who took campaign contributions from them and do nothing to police their shenanigans? Correlation doesn't imply causation, but Dodd, Graham, Frank, Obama (and many others) have accepted many thousands from employees of AIG, Citi, Merrill, and other "dens of i-banker serpents", as recently as 2008. Now contrite Dodd claims he's going to return AIG's contributions haha.

What do you expect? Their industry incentivizes risk taking for short term gains and shortcuts to profits. And they are well compensated for doing so. Their kind are taught practically from birth to worship greed. Rockefeller wasn't the first one. You can't blame a tiger for wanting to eat meat. But the zookeeper (government) is at least supposed to put a cage around the tiger so he doesn't hurt bystanders. And the zoo patrons (citizens) should boycott the zoo if it doesn't look safe. We are all guilty, so then no one is guilty, and we conveniently blame the i-bankers for everything, neglecting the other players. I would never defend an i-banker, but like in a previous email, now we are so wedded to investing and capitalization that we "need" these tigers to support our way of life. We can't really chastise them for doing what we kind of wanted them to do in the first place (but of course they went too far). And we never blame them in a bull market - in fact we commend them!

It doesn't help us get out of this mess by railing against natural human greed, just as it doesn't help whipping up socialism phobia. What may help is trying to come up with more greed-resistant laws that prevent the tigers from burning the house down (to merge two analogies). Forget about the red herring of compensation limits - instead limit their bag of tricks, so they don't leverage their house 35-to-1 as Bear Stearns did.