Everyone switch on your BS detectors because there's a lot of it flying around Washington over the A.I.G. bonuses. (Memeorandum has a roundup of all the latest stories and commentaries.)
President Obama says he's "outraged" and has ordered his team to use every "legal means" to get the money back. This after his own Treasury Secretary knew about the bonuses at least for several days and waved the dough on through. According to this report, the chosen means will be to "deduct the cost of the bonuses from the government's pending $30 billion cash infusion." Well, that'll teach 'em! The government has already pumped nearly $200 billion into A.I.G. so the deduction won't even be a rounding error -- and the clowns who got the million-dollar "retention bonuses" but left the company anyway will still have the loot.
Over in Congress, there are multiple plans and threats to tax all or most of the bonus money. Good luck with that, given that many of the beneficiaries don't live in the U.S., and their lawyers (you can get good lawyers if you pool your millions) will have a dozen ways to argue their case. Like Obama, members of Congress are all shocked, shocked to discover that this bonus business was going on and determined to get to the bottom of it and hold someone responsible (Tim Geithner is looking better and better for that role). But they ought to look in the mirror. Congress has had six months since the first bailout to block whatever compensation at A.I.G. they wanted to block, but nobody did a thing.
This is all theater and spinning. The deed is done; the money is out the door; there will turn out to be nothing that can be done about it -- except of course to engage in more partisan food fights about whether Obama or Bush, Geithner or Paulsen, should get more blame.
There is a bigger issue in all this that none of these pols are addressing. After two months of almost daily bickering about whether some of the big banks should be nationalized outright ( a bad idea), no one has even suggested nationalizing A.I.G. ( a good idea). That's especially curious since A.I.G. has received vastly more bailout money than any other company, and the government already owns 80% of the damn thing. What do we get for our 80%? Apparently, we get the brush off from managers installed by the feds!
I'm not normally a nationalizing kind of guy, but this company is begging for it. Most of Washington is agreed that A.I.G., with its unique, intricate connections to the whole global financial system, cannot be allowed to fail and bring the house down. We have put up $200 billion of the taxpayers' money to ensure its survival. But it's clear that we -- by which I mean Obama and Geithner and Congress, not just you or me -- don't really know what the company is doing. And we can't make it bend to our will even on a personnel matter. So how confident can anyone be that A.I.G. is operating in the public interest?
The answer is, we can't be confident at all. It's time for a 100% takeover. Probably, a takeover should be structured somewhat like a government-sponsored bankruptcy, with federal guarantees for all of A.I.G.'s obligations. The company should be split in two. The healthy, traditional insurance business would form one new company that should be reprivatized quickly -- through a sale or a new stock offering. The "bad" half -- the swap-issuing, securities-dealing "casino" business -- should be placed under an open-ended government trusteeship with the aim of unwinding its transactions and recouping as much money for the taxpayers as possible.
Really, this can be done in a few days. All it takes is an act of Congress and the naming of a few new executives and trustees. Ah, but that would take some actual responsibility in Washington at the White House and on Capitol Hill. That's the sort of thing that interferes with politics and grandstanding!
What do you think should be done about A.I.G.? Post a comment.