Atlas Insurance Group, pt 3

For once in my life, I am in complete agreement with Robert Riech: Robert Reich: The Real Scandal of AIG

The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG's chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But most will be paid anyway, because, according to AIG, the firm is legally obligated to do so. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needed to be able to retain talent.

AIG's arguments are absurd on their face. Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid; indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if it laughing weren't already so expensive.

Apart from AIG's sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG's bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.

Absolutely right, although it doesn't help that the Indispensable Man has been so intimidated by AIG's executives. He really missed a chance to stand up for himself and the taxpayers, and instead lazily acquiesced faster than Paulson would have. 

This business about how the "bonuses" must be paid because of pre-existing contracts is absurd. Breach the damned contracts and let's see these guys try to get their money through the courts. Let them try to bring lawsuits to enforce these contracts. I think it's high time America came face to face with the whizzes who have done so much to destroy our financial system, and yet continue demand their perquisites.

Reich is right that AIG and the rest of the Bailed Out are no longer within the capitalist system. They are demanding, and getting, government protection, despite that protection being ruinously expensive and deeply unpopular.  AIG has spent nearly twice as much $$ as the entire Marshall Plan, but the only recipients of that largesse has been fellow members of the financial community. It is time to turn off the $pigot, but our government is too cowed to do so.