Monday, March 16, 2009
A.I.G. has told us American taxpayers to drop dead.
Not surprisingly, President Obama is outraged and has ordered Treasury Secretary Geithner to do everything legally possible to block the payment of hundreds of millions of dollars in so-called bonuses to A.I.G. executives who drove the company into the ground and cost the taxpayers $170 billion. And New York State Attorney General Andrew Cuomo is set to issue subpoenas to find out who got what, why and when.
Republicans are as genuinely angry as Democrats about A.I.G.'s unbelievable gall. Senator Charles Grassley (R-Iowa) went so far as to tell a radio audience that A.I.G. executives should either quit or commit suicide. Pundits of the left and the right appear finally to have found something on which to agree: to hell with their contracts; let the "bonus babies" sue.
The time has come to nationalize A.I.G. The Treasury and the Federal Reserve already own 80% of the company (bought at a $170 billion price tag that is far in excess of what 100% of the company is worth). The rationale for government backing of A.I.G.'s "insurance" of the risks taken by big banks and other counter parties continues to be inescapable. Regardless of how reckless and stupid A.I.G.'s conduct of its business has been, we cannot stand by and watch helplessly as the global financial system grinds to a halt, bringing with it an even longer and deeper economic downturn.
But we also should not allow A.I.G. or any of its executives -- even those who were installed by the government since September to help steer the company out of this mess -- to stick their thumbs in our collective eyes. If we allowed A.I.G. to go bankrupt -- as it surely would have done last fall without the huge taxpayer bailout -- the bonus babies would not have received a nickel of their supposedly contracted-for extra compensation. Obviously, they do not feel any reciprocal obligation for the benefits they received from the bailout. So what exactly is to stop A.I.G.'s management, which theoretically must respond to its 80% owner and sole financial backer, from refusing the next important request that the Federal government makes of them?
The answer is, nothing. Indeed, A.I.G.seems to think it has the government over a barrel. What this incident proves is that the only club the Treasury and the Fed now hold over A.I.G. is the threat to withhold further needed public cash. But since that would only serve to rock the financial system globally, A.I.G. can stick its thumb in our eyes again.
The only way to put a stop to this outrage is to take over the company, right now. It can be governed by a specially chosen board of trustees answerable to the Treasury (or the Fed) and its operations run by a CEO chosen by the United States. This arrangement should be temporary, as was the Resolution Trust Corporation in the S&L cleanup. The fact that the government does this with A.I.G. need not be a model for dealing with other financial institutions. As we have learned painfully since September, A.I.G. is sui generis.
No time to lose, though. Nationalize now!
What's your opinion of a takeover? Post a comment.
Posted by J. E. Burke at 9:00 PM