Robert Reich: The Real Scandal of AIG

[babylonsister]

http://www.huffingtonpost.com/robert-reich/the-real-scandal-of-aig_b_175105.html

Robert Reich
Posted March 15, 2009 | 03:33 PM (EST)

The Real Scandal of AIG


The real scandal of AIG isn't just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail -- the most money ever funneled to a single company by a government since the dawn of capitalism -- nor even that AIG's notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle -- are planning to give themselves $100 million in bonuses. It's that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money.

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.

[MannyGoldstein]

1. Well Said

We are rewarding hubris and abject failure by showering AIG and counterparties such as Goldman Sachs with a torrent of cash. The "talent" should be wearing stocks in the public square, not buying diamond-encrusted dog bowls for their private jets.

[D-Lee]

67. Thinking right, conclusion wrong.

The underlying thought might not follow contract principles, but has an essential truth: AIG top brass should have worked on not paying the bonuses, including saying the executives would have to sue to get them.

So far, AIG just doesn't get what it owes to government.

But for Reich to say this represents a breakdown in democracy is silly beyond belief.

[Demeter]

2. I Think It's Our Treasurer Who Is Broken

Geithner is a weak reed, that much is obvious. And Obama doesn't back him up.

[ChairmanAgnostic]

8. wrong analysis.

Obama made a mistake in hiring him, true. But Geithner is anything but a weak reed. To the contrary, he is doing precisely what his puppet masters on Wall wanted him to do. Pay for their mistakes, insuring their golden compensation, and fixing the problems with tax payer money. he is doing everything that Wall wanted.

To be fair to Obama, he wanted to prevent total chaos and meltdown, so he had to give a little towards Geithner's puppet masters. But, I think it is time to cut the strings, let geithner go, (gently) and advise AIG, Bear, Citi, and others, that there is a new sheriff in town, and his name is Reggie Hammond.

or something.

[MindMatter]

41. Exactly. This is Obama's biggest mistake so far.

[indepat]

3. Kicked this excoriation of the most odious of fraudsters to greatest page

with delight. :P

[KittyWampus]

4. No shit. I have been perfectly willing to give Team Obama some slack. But AIG saying "Fuck You"

and his team just ACCEPTING IT?

Sorry. There is something very wrong here.

[burythehatchet]

13. Seriously? But for weeks there have been decisions made

that everyone but about 10% of us seem to rationalize. Why is this one different? That "there is something very wrong here" feeling has been warranted in regard to so many decisions. Why don't people see it for what it is? The answer: Barack Obama used liberal code words like the Republicans use fundie code words. He wink winks and hints at doing the right thing but when it comes down to actually doing it he does the opposite. Almost every time. I've had a pitchfork permanently embedded in my ass courtesy of DU. Maybe you all will open your minds to the idea that you've been scammed.

[flyarm]

17. No truer words said burythehatchet !!! Thanks! eom

[Pastiche423]

25. On the day that Obama appointed rahm as his CoS

I knew that any chance of "hope" and/or "change" was gone.

It just went *POOF*

I kept waiting for that giant sense of relief I was supposed to feel when whistle ass was finally out of Our House. It never came.

:(

[tomp]

28. i knew it the day he embraced colin powell. nt

[shirlden]

34. May I say Amen

Yeh, Rohm was the first and then Geitner.............My honeymoon with the O lasted about 30 seconds.....


Still, he is better than any Repig and most Dems. The rise of the Blue Dog and Dino packs are causing a short supply of good progressives.


:shrug:

[notadmblnd]

30. I was never under the illusion that the Powers That Be would allow anyone to be elected president

who would not maintain the status quo.

[redqueen]

52. Spot on.

Real change will take a lot more than just one election. A LOT more.

[CubicleGuy]

57. Patrick McGoohan was right

There were two episodes of "The Prisoner" that dealt with corrupt government: the first being the time he was brainwashed into running to be the next, new Number Two (a fat lot of good it did him when he supposedly won that election), and the final episode when he was given the option to become their new leader, or to walk away from it all and reclaim his freedom (which was shown to be somewhat illusory in the final moments of the show when the front door to his old apartment opened automatically to admit Number Two's butler just as it had in The Village).

I thought it was particularly amusing in the final episode when he was permitted to address the council members to bestow his wisdom on them, and it was made quite clear that they had no interest in what he had to say at all, and went so far as to refuse to allow anyone to hear what he had to say by shouting over him as he spoke.

It may have all been just a fairy tale (as Number Two admits at the end of "The Girl Who Was Death"), but it was a good one.

[chimpymustgo]

31. I'm going to come out of hiding to applaud your courage and correctness.

[SammyWinstonJack]

50. !

:thumbsup:

[dixiegrrrrl]

56. "by their deeds ye shall know them"

etc

I don't like what I am seeing,either.

[AlbertCat]

71. Who did you think was supposed to be president?

The Blue Fairy?

"It's not magical...there's something wrong here."

[freemarketer6]

46. Exactly.........One can get caught up in the baloney for only

so long. I keep hearing we can't let AIG go under because of the all the insurance companies and other companies it's hedging through it's quasi legal operations. Screw that: let them go under and have the government take over the hedging. It won't unwind as much as the Lehman Bros debacle did, and would provide a fresh start. I think Obama is being misguided.

[AlbertCat]

70. TOO BIG TO FAIL

What does this mean? Aren't monopolies illegal? Didn't they break up the phone company?

I say let it fail and let smaller companies(that's plural)take over their clients.

"Too big to fail" means "we might have to get new jobs and loose our bonuses"...apparently. Too connected to be allowed to fail, they mean, because they ALREADY HAVE FAILED.

Y'know, in the 1920's there were laws about how big a company could get....and how much profit they could make....and that some of it had to go into the surrounding community.

[truedelphi]

61. Not sure that anything is wrong. Corporate politicians give

Corporate America exactly what they want. Obama cannot claim he doesn't know better - as a student of Abe Lincoln's life, he surely has read the chapters about "Honest Abe" where Lincoln woke up and realized that any American economy is in trouble if relying on private banks. That is why Lincoln created the nation's Central bank, run by the government.

If the 4 to 8 TRILLION dollars we have given away to the private financial institutions had instead been given to a Central governemnt run bank instead, and assuming it was run correctly (by Issa and Kucinich, perhaps?) the following may have been accomplished by now

1) The bank would directly be making mortgage loans, car loans, small business loans, and othe loans directly to citizens of our nation
2) The rich banking families would no longer be in power, but instead power would be returned to people who are not Corporate Swindlers. The fact is - small business carries the weight of 50 to 60% of the results of a decent economy - so why should private citizens and small business bail out the crooks at the top? Those crooks are not loaning the money as they pledged to do, and they are still paying out bonuses, and they are probably, as Kucinich suggests, going to use whatever funding our tax dollars gives them to buy up utilities -such as your local water utility.

[dixiegrrrrl]

5. Quick Follow the money exercise....

1. Bush's Treasury Sec. was Paulson, former Goldman Sachs CEO
2. Current Treasury Sec. Tim Geithner, former Goldman Sachs official, mentor was Paulson.
3. Former Head of the New York Fed: Tim Geithner, moved to above position.
4. Current Head of the New York Fed who replaced Geithner?
William dudley, formerly of ..........
Goldman Sachs.

5. Goldman Sachs...counterparty to AIG. If Aig goes under, mostly likely Goldman Sachs, its biggest debtor, will follow.

That is where the money is going.


is your congress critter hearing for you on this????

[MindMatter]

42. Always follow the money

Well done. The robber barons are still in control. Nothing new about that. It has been going on for well over 100 years.

[OHdem10]

6. "Fascism should be more appropriately called CORPRATISM

because it is a merger of state and Corporate Power."

Business finally took control of this country during the last
administration and prove it daily by being unaccountable to no
one.

They act as if the taxpayer's money is theirs for the mere asking.
It is expected that Government will fall in line.

[rhett o rick]

12. Capitalism, corporatism, and fascism go hand in hand. nm

[yellerpup]

64. That's a quote straight from Benito Musolini's mouth.

Down with corporate royalty.

[upi402]

7. How 'bout the Real Scandal of NAFTA, Riech??? n/t

[rhett o rick]

9. Rec. Why is Obama keeping these thieves? nm

[Ichingcarpenter]

10. AIG had a pre determined Medical Condition which it didn't disclose

which makes the contract void thus rendering them adherent and must
be charged exuberant fines and fees.

Hey the medical insurance companies fuck us over like that all the time.

[GreenPartyVoter]

11. I like your way of thinking!

[JDPriestly]

76. Brilliant, Ichingcarpenter, succinct, to the point, and right on target.

[ljm2002]

14. Sadly, I'm beginning to think...

...it's not time for the government to take over AIG, it's time for the people to take over the government.

Really, this is feigned helplessness. The government has the power. The government is in charge of the largest, most powerful military machine to ever exist on this planet. The government tells us we are "at war" every time we seek to limit its power over us, its citizens. And yet, this very same government, under a new "hopeful" leader, cannot get corporations to stop paying bonuses to talentless hacks with the taxpayers' money, it cannot get them to reveal where our money is going, it "cannot" do anything at all about this ludicrous situation...

I think not. "Our" government is choosing to continue to sit on its hands while the big money boys rob us blind, while homeowners are thrown out on the street and are publicly labeled as "losers" by the likes of Rick Santelli... "Our" government does not look out for the great majority of its population but rather, for the big operators... it looks out for the big operators at an international level. Meanwhile "our" government ships death and destruction abroad, as our real society -- you know, real people with real homes and real health issues and real children and real elderly parents, et-fucking-cetera -- decays from the corruption that has infected the system.

It really pisses me off.

[truedelphi]

15. Eventually Lincoln woke up and created a Central Bank that

Was run by the government. If people want to call this "Socialist" fine. It's in the Constitution, that Congress have control over our banking interests.

The gigantic hole of imbalance created by 550 Trillion dollars of derivatives (Notice the M$M never discusses this, except maybe once some months ago on "Sixty Minutes") That imbalance will impair the banks forever. It's time to walk away from them, put ten trillion into a government-run bank and start from there.

[IthinkThereforeIAM]

24. Those derivatives...

... created under Reagan and purposely UNREGULATED ! If something is unregulated, doesn't it lead to "caveat emptor", buyer beware? I say declare them as such and let the swindlers that created them eat it.

[chimpymustgo]

32. We do need to start over. How much more of OUR money must we give the banksters???

[truedelphi]

60. I know. It is so sad. The whole BailOut idea is nonsensical.

it is based on lies - we know now that the entire scenario of "BailOut Us Bankers or the Economy is toast" meme was a fraudulent and hyped up situation. And the fact is, the Congress and President to Be Obama fell for the hype, and voted for the first Swindle er I mean, BailOut Package. That package of 700 Billion was supposed to mean that the banks would start loaning money to us, and that mortgage holders, average Americans would be bailed out.

Kucinich's staff found out that a mere 457 Americans received help with their mortgages from the first 350 Billion. And most of us are aware that lending did not incurease, not evern after the second 350 Billion was thrown in the mix.

Kucinich warns that the banks will simply hold on to whatever monies we give the banks, and use those funds to proceed with the purchase of utilites. Coming soon to your neighborhood - water bills for consumers that will be 300% higher than what they are now.

[Mike 03]

16. Fantastic article. I've always respected that man. Thanks, K and R. NT

[Jackpine Radical]

18. Looks like all the weirdos and socialists are gathering on this thread.

I'm in.

[unkachuck]

19. K&R....n/t

[bridgit]

20. American taxpayers insuring that the largest insurer doesn't go under...

No fine print, no questions asked, just hand them the money and walk away :thumbsdown:

[tooeyeten]

21. tell them buh bye

[spamlet2002]

22. are you listening, mr. obama?

he better get his act together

[sce56]

23. K & 40thR

It is way past time to start putting the crooks out of business and stop giving them tax payer paid bonuses!

[The Wizard]

26. Any system left unregulated and to its own devices

will self destruct. In a feeding frenzy sharks will start eating one another. Marx discussed this in Das Kapital in that unfettered capitalism would devour itself from within.
As a result, the totalitarian Bush regime drove a stake through the heart of the country in the name of unmitigated greed.
Nationalize AIG, arrest its officers and seize their assets, foreign and domestic. Drastic times call for drastic measures.

[Optical.Catalyst]

27. AIG pays bonuses to retain employees that drove the company into the ground

And, in any event, Liddy explained, AIG needed to be able to retain talent.

With all that 'talent', these folks should have no trouble finding equally well paying jobs with another company. Their bonuses should be severance pay for a job un-well done.

[ProfessorGAC]

51. Exactly What I've Been Saying

The higher you are in AIG, the more radioactive you'll be to other companies. The company posted a $60 billion quarterly LOSS!!!!! What company wants that talent?!?!?!?

The deal is simple: No bonus. Don't like it? Take a hike. See if you can find another $750k job with AIG on your glorious resume.
GAC

[Faith No More]

29. What in hell do you have to do to get a bonus in that place, Show up for work?

I was always told bonuses were only paid when the company was doing well, not when it was going down the tubes. I mean, hell, you can apparently be the biggest fuckup in the goddamn company and still be assured of a bonus. And if they don't get their bonuses and quit, where are the sorry fuckers going to go? Shit on 'em!!!

[Hubert Flottz]

33. When our very own Secretary of the Treasury cannot make

his decision stick...we need "CHANGE" It's what I thought we just voted for back in November.

[mod mom]

35. Why should the average taxpayer continue to payoff the terminally greedy who got us in this mess.

AIG did not reveal this debt obligation because they knew we'd be outraged. Their failure to do so makes the contract null and void. Go after these thugs with stiff penalties for their failure to disclose. Reaping any bonus for running a company into the ground is not only obscene but must be criminally prosecuted. (and while you are at it....go after the war profiteers!)

[Bluenorthwest]

36. Those who pay theives, are themselves theives

The very idea that any person would stand up and claim that our problem is that teachers need more oversight, while he is handing off billions to theives, stealing from US to give to them, is repulsive to me. Accountability. When Obama says that word I laugh out loud. He is paying off the biggest failures in business history with taxpayer money, bonuses for to retain failed talent, and yet he claims the whole nation is guilty and we all need to be held accountable? Teachers must prove they have merit, but crooks get sixfigure bonuses paid by you and me?
The hypocrisy of it is difficult to deal with. The cowardice is even worse.

[FailureToCommunicate]

44. Do I hear tax revolt?? There was a time when NOT paying the war related portion

of your taxes some said was the morally right way to bring attention to the powerlessness of the average citizen...

[90-percent]

37. Bonuses are contractually bound?

I would love to see that fucking contract:

If you, (the hack employee) cause devastating losses to our company, then you will be entitled to an obscene 7 figure bonus.

I want a job that gives bonuses based on really bad performance and incompetence. I'll go fuck any company up if they're paying out 7 figure rewards to do it!

-90% jimmy

[Wapsie B]

39. Contracts can be broken.

Bonuses can be done away with. Golden parachutes can be taken away. All that is needed is the will to do it.

[MindMatter]

40. No contract is enforceable if it is a fraud

That's the point none of the talking heads want to confront. Everybody involved in those bonuses knew perfectly well there was a huge fraud underway. The contracts were offered by people organizing the fraud and they were accepted by people carrying out the fraud.

I'm not a lawyer, but I have to believe that this could easily fall under our racketeering laws. The fact that the Obama administration expressed some mild regret about this, as opposed to actually doing something about it, is completely outrageous.

[Brucie Kibbutz]

69. The govt. had no problem tearing up the GM/UAW contract.

The Obama administration wouldn't do that to their corporate masters, though. We can't allow Wall Street to be inconvenienced! :patriot:

[myrna minx]

38. K&R n/t

[FailureToCommunicate]

43. K & 61st R The Glass- Steagle Act regulating banking since 1933 was severely

weakened under Reagan in 1980 and eliminated by Phill Graham and fellow (override proof) Republicans in Congress in 1999. And the Wall Street
orgy began to really pick up. They partied like it was -oh wait, it WAS 1999!! And our ever vigilant 'free press' was not looking into why champagne corks were popping
all over Wall Street because...(may I have the envelope please)... all the media focus was on the Bill Clinton/ Monica Lewinsky affair, and Republican lead impeachment
proceedings. Then of course Cheney/Bush took over and you know the rest of the story.
Party On Garth!

[AllyCat]

45. I don't even understand finance and this seems common sense to me

Well written!

[closeupready]

47. Wow. Reich hits it out of the ballpark.

n/t

[nichomachus]

48. Corporations walk away from contractual obligations every day

If you don't believe me, just ask those tens of thousands of workers who had their pensions ripped out from under them just months short of retirement because the corporation needed the money for a new jet, or the workers who were promised health care benefits for life, but didn't get them because the execs needs to have a big party in Monte Carlo.

[bagrman]

49. These special executives should get a special bonus tax of 99%.

[RiverStone]

53. What about the contract with the American people?

I can't fathom how AIG is allowed to give us and the Admin --- the finger!

K&R

[RedCloud]

54. They have given $30 + billion to foreign banks.

AIG decided our tax dollars should prop up banks in France, Germany and England. Nice to have such allies!

[muriel_volestrangler]

59. That's who had bought the credit default swaps, and so were owed money

If the idea was not to pay out on the money that AIG owed, then it should have been put into bankruptcy, rather than kept going as a company. AIG didn't say "ooh, I wonder who to give this money too - I know, I'll pick some foreign banks"; it had a list of where the money was owed already.

[Raster]

55. Burn down Wall Street! Let something sane and honest rise from the ashes!

Burn down Wall Street!:kick:Heads on pikes!

[truedelphi]

63. A K & R for your post (I wish) n/t

[jfkraus]

58. It's time to Boycott and Divest AIG

[knitter4democracy]

62. And they have my 403b. Grrrr!

It's not much, especially after losing 50% of its value in the last year, but I'd lose almost all of it to fees if I took it out. I'm thinking of calling again to see what I'd end up and just take the cash. I'm betting they're going to crash and burn and take us all down with them.

[bagrman]

65. Give them a special tax to pay 99% on anyone getting a bonus.

[truedelphi]

66. Error message: You have already rec'ed that topic. n/t

[Lydia Leftcoast]

68. Reich was already warning us about the consequnces of Reaganomics and

"paper entrepreneurism" (earning money through speculation and shady currency products instead of through production of goods and services) in the early 1980s.

But the right wingers made fun of his short stature (the result of a childhood illness) and the mainstream ignored him.

Just call him Cassandra.

[Overseas]

72. K&R !!

I totally agree that the government should take over any corporation that has become "too big to fail" and needs a bailout.

And if bailout exceeds price of purchasing all the stock, the government should own it outright. Sorry pals. You didn't make it in the free market-- you crashed and taxpayers had to buy your company so it is no longer yours.

[specimenfred1984]

73. So, why hold them responsible?

UGH...

[rambler_american]

74. K&R

:kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick::kick:
I do NOT pay taxes to give bonuses to already wealthy beyond belief crooks.

[rambler_american]

75. .

Error: You've already recommended that thread.

[90-percent]

77. rambler_american

I like it.

Was "Studebaker Hawk" already taken?

"Studebacher Hoch" is the Zappa spelling, by the way. (Just another band from L.A. was my first Mothers album)

-90% jimmy