Tag Archives: Obama bailout

The Focus on AIG

Many people are talking about AIG. Some are losing focus. One is Chris Dodd, who denied writing the portion of the Obama Stimulus that protected AIG bonuses, before “remembering” that he did write it at the behest of Geithner.

Another person losing focus is Barack Obama, who seems to be poorly served by both his Treasury Secretary Timothy Geithner:

The Weekly Standard
At his bizarre town hall last night, President Barack Obama joked that “Washington is in a tizzy” over AIG and the $165 million in bonuses to be paid to its executives. The New York Times yesterday quoted White House chief of staff Rahm Emanuel complaining that the whole affair was a “distraction.” At Tuesday’s press briefing, White House press secretary Robert Gibbs could not even provide a rough timeline of the administration’s handling of the AIG affair.
Yes, it’s true that the bonuses represent less than one percent of the total bailout money that has gone to AIG. And yes, there are legitimate points to be made about retention bonuses in general and (though less persuasive) retention bonuses for these AIG employees. But it has been clear for a while that something — an event, a comment, a cable news tirade, a speech — was going to focus the growing public anger over bailouts and government giveaways.

Sadly, some people losing focus on AIG are my friends. Some people even think that taking the bonus money back from AIG solves anything!

For instance, my friend Adrian writes :

And regarding the scariness of punitive tax – there’s nothing wrong with following the letter of the law. The IRS code says “reasonable” salaries are deductable for tax purposes. These bonuses are obviously not reasonable. So, don’t allow AIG to deduct them, problem solved.

Of course, Adrian is wrong. Adrian’s suggestion is as sensible as punishing a women who has been raped by stoning her, or (if your wallet is lifted) withdrawing some more cash from the ATM, and considering everything back to normal.

While some AIG stock is still held by non-government investors (about 20%), this is easily wiped out (and should be too). AIG’s largest stockholder – and largest creditor – is the US government. Making AIG pay back the bonuses, or making AIG to pay more tax, or whatever, is as sensible as responding to a theft against the federally owned United States Postal Service (USPS) by making USPS pay taxes to the federal government.

The best thing to do is to levie a 100% excise tax on these bonuses.

Of course, this will hurt AIG and similar zombie banks. It will make individuals doubt the ability of these firms to actually follow-through with contracts, and deprive AIG, zombie banks like Citi, and others of talent. Hurting AIG and zombie banks is a good thing. The TARP-funded zombies are a complete disaster, a guarantee by the federal government that as long as you have government friends, you can never go bankrupt. TARP-funded Zombies like AIG and Citi should be so eviscerated that any company thinking of a bailout will be s o afraid of arbitrary and capricious federal oversight that it will not ask.

The Stimulus is a Distraction

If you’re worked up about whether or not the government is going to spend $800 billion (not counting interest) or $900 billion (not counting interest) in Obama’s stimulus plan, you’re been successfully misdirected:

Bloomberg.com: News
Feb. 9 Bloomberg — The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged to provide up to $5.7 trillion more if needed. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps. The Senate is to vote early this week on a stimulus package totaling at least $780 billion that President Barack Obama says is needed to avert a deeper recession. That measure would need to be reconciled with an $819 billion plan the House approved last month.

The stimulus if Obama’s Iraq War – big, expensive, controversial, not as good as he hopes, not as bad as the opposition claims. It might well do some good, whether or not its primary objectives are met

The Obama bailout, or TARP III (which will be unveiled Tuesday), on the other hand, is incredibly dangerous. It’s going to be executed through the Federal Reserve, instead of the Congress, because there’s no way the Congress would agree on $10 trillion in guarantees to Citi, BOA, etc., but which Obama thinks is a good idea.

Britain did the same thing recently, and that’s where talk of the bankruptcy of Britain (not likely, but no longer unthinkable) came from, too. Letting Citi and BOA go bankrupt would be a catastrophe, everyone agrees on that. My difference with Obama is whether or not it’s good for the country to promise to pay back those loans, if Citi and BOA can’t.