Advertisement
Politics

AIG Bonuses Aren't the Real Problem

OK, can we all breathe deeply into a paper bag and settle down a little? Yes, the bonuses paid to AIG employees -- many of whom helped drive our economy into a ditch -- are distressing.

OK, can we all breathe deeply into a paper bag and settle down a little? Yes, the bonuses paid to AIG employees -- many of whom helped drive our economy into a ditch -- are distressing. But let's face it -- there are a lot bigger things to be livid about, plenty of other culprits and there are bound to be more outrages coming down the pike. Can we concentrate more on fixing the problems and preventing additional damage?

Advertisement - Article continues below

Let's start with AIG -- not the bonuses, but the underlying problem that prompted the bailout and how it is being handled.

Among the financial instruments that blew up and would have taken AIG down had the government not stepped in were credit default swaps, which amount to insurance that banks and investment houses could buy to protect them if the debt they owned went into default. Many of those default swaps were bought to protect bundles of mortgage-based securities that began tanking when the housing bubble burst. Under pressure from Congress and others, AIG released the names of some of the owners of those swaps -- giants such as Goldman Sachs and the Germany Deutsche Bank -- and the amounts they were reimbursed with bailout funds, which was about $24.5 billion.

But, as spelled out by New York Times financial columnist Gretchen Morgenson, here's the infuriating twist: Those banks got 100 cents on the dollar for the swaps -- as though the debt was a complete wipeout -- even though many of them did not go into default. And what's more, the banks still own the original investments that the swaps protected. Now, a legitimate argument can be made that those banks were in serious danger because once AIG was on the brink of insolvency, they would have had to cover those debts -- which could have considerably worsened the credit crisis. However, Morgenson argues out that the Federal Reserve -- which is handling the bailout and also is supposed to be finding ways to save the taxpayer as much money as possible -- could have struck a far tougher bargain instead of handing the banks a windfall.

Now, let's turn to Congress. Not since a federal appeals court ruled in 2002 that the words "under God" in the Pledge of Allegiance were unconstitutional and the Senate voted unanimously just hours after the decision was announced to condemn the ruling has Washington seen a rush to legislate like the efforts to reclaim the AIG bonuses with a special tax. There are no easier votes than bravely standing behind God or taking on a bully who took candy away from some skinny kid.

It's hard to blame Congress for getting in high dudgeon in front of cameras over such low hanging fruit -- but it's a little hard to take when they were at least partly at fault and when far bigger outrages are taking place right under their noses. First, the bonuses were exempted by legislation it wrote and approved -- and if it didn't know it at the time, then that shines a pretty big light on just how tainted the sausage can be when the sausage makers rush. Second, when virtually every member of Congress was wagging fingers of disgust over the bonuses during a questioning of AIG chief Edward Liddy and saying essentially the same thing, where was the outrage -- and more importantly the questions and insistence on transparency -- over the default swaps. The cash at stake in that little soaking of the taxpayer is roughly 140 times bigger than the $165 million in bonuses.

Finally, let's look at the administration. All the chest beating and arguing with Jay Leno in the world by President Obama doesn't make up for the fact that multiple hands -- and mouths -- had no idea what the others were doing. Yes, it's a very young administration. And yes, calls for Treasury Secretary Tim Geithner's head are far too hysterical and premature. After all, this is team that was dropped into this whirlwind only two months ago. But mistakes that might be minor or overlooked under normal circumstances can exacerbate a global crisis. Obama and his lieutenants need to act accordingly -- acting more quickly to douse the flames of flare-ups like these and keeping their main attention on fixing the bigger problems crippling the economy.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump has issued an executive order to defer the collection of payroll taxes. How much will it save you?
August 9, 2020
What a Payroll Tax Cut Would Mean for You
Tax Breaks

What a Payroll Tax Cut Would Mean for You

If Congress can't pass another stimulus bill, President Trump says he will initiate a payroll tax cut by executive order. How much would that save you…
August 8, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting
Politics

Vote by Mail: A State-by-State Guide to Absentee Ballot Voting

With health authorities recommending people continue to social distance, the idea of voting by mail is becoming an increasingly hot topic.
August 4, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
July 22, 2020
Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)
small business loans

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)

Small business owners are getting another crack at Paycheck Protection Program loans. Here are answers to some frequently asked questions about the lo…
July 21, 2020
Travel Planning in the Time of Coronavirus
Travel

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020