Remember AIG?

Great short piece on AIG in yesterday's New York Times.  Essentially, in the negotiations over who was going to run AIG and how it was going to be managed, AIG beat the federal government.  We have loaned AIG billions and billions of dollars with no control over spending, much less management of this insurance behemoth.  

I think about my father, giving me an allowance.  Every week he would go over how I was going to spend the money, line by line, down to the candy I snuck from a local dime store.  But here, we lend money without any clue how to retain control.

And really the issue isn't the bonuses or the past, it's about the future.  It's whether this company can manage it's way out of a paper bag from here on in.  In a larger context is whether our government is being consistent in the micro-managing of the Chrysler and GM and yet hands off of the very culprits who were in the epicenter of this financial tornado.  While we can heap blame over the futurists at GM, Chrysler, and Ford not seeing an end to cheap oil and building smaller, more fuel efficient cars (and hello, who bought those cars?), 99.9% of the blame for this depression lies at the wing-tipped feet of the financial industry.  Yet they still seem amazingly in control of their daily work world and continue to lobby Congress and the Administration for lax regulation on them and tough bankruptcy laws on the very victims of their follies.  

What is up with that?

It's All Toxic Now

The Obama Administration's plan to help stabilize American financial institutions was announced just a few moments ago.  It calls for lending money to private investors who will purchase the so-called "toxic assets" from banks.  The idea is having those assets off the bank ledgers will free up cash and prime the bank lending pump.

The stock market, as I write this, is up over 300 points.  Wall Street goes wild, thinking, finally, the cavalry has come to the rescue.

But really, according to this fascinating article in Rolling Stone, it seems all we have done is rescue the very companies that continue to tell us they are too big to fail, that we are too naive to understand their products, and what is good for them is good for us.  All of these lines we have heard before.  I continue to believe that anything that is too big to fail is too big to succeed, and question the value of propping these behemoths up when really their foundations seem rotten.

What we are doing, by lending money to hedge funds and other private investors is continuing the desperate efforts to make money off of money off of leveraged money.  If these same financial institutions warn about the "moral hazard" of helping individual borrowers by lowering interest charged on credit cards or cram down provisions to modify mortgages in bankruptcy, how can they be so arrogant to not see the moral hazard they are asking us to endorse?  

I keep wondering where is the outrage?  Why are we not banging on the doors of this Administration, of Congress, telling them to forget focusing on the easy targets, the bonuses, and rather it's time to re-do the whole corrupt system.  We can not be held hostage, like the Americans in the Iranian embassy, by these corrupt and unethical corporations.  But oh, that's right, we don't have expensive lobbyists paid to make sure our interests are protected.

The AIG Debacle

And now, more news that really shouldn't surprise us.  AIG, the recipient of the largest amount of our money, taxpayer dollars, to allegedly bail them out of financial demise, is giving $165 million in bonuses to the very same Lords of Wall Street who sold the large insurance company on participating in credit default swaps.  In an amazing display of "deaf" the Chairman of AIG said: "we need to give bonuses to keep good people."  Predictably there is a populist uproar, fueled by the media who is thoroughly enjoying this type of news.  The villain wear pinstripes the good guys wear blue collars, it makes for easy stories.

In my email in box this morning came an inquiry from one of my friends who I consider extremely smart.  And his question, more an editorial than a genuine question, wondered why it is Congress (and I will edit here and add the Administration) is unable to write in conditions on the federal bail out money.  He said, with Congress filled with so many lawyers, you would think they could write contracts with conditions (and to the six folks on the email many lawyer jokes swirled around between us).   

He's right, of course.  But that "failure" to condition the bail out money on how it is used is not negligent.  Follow the money and follow the lobbyists.  You see, we can have all our populist anger we want.  Huff and puff.  And the Members of Congress will now, almost like a well directed play, call for hearings, yell at executives of AIG, demand someone's head.  But really, those same Members of Congress, presidential candidates, and even wanna-bees currently working in the Administration, get lots of money in their campaign coffers from AIG, Citibank, Bank of America.  Even now.  

So, this latest brouhaha, well, it's for show.  It gets us distracted.  It gets us upset.  Meanwhile, bankruptcy cram-down  provisions get watered down (which could really help troubled homeowners, you know, those blue collared folks), the mark-to-market accounting provisions that actually help tell individual investors what banks are solvent are probably going away...in other words, while the populist anger is storming off to the side, the real action to help us, is not happening.  

Score?  Banks and financial institutions - 10  Individuals - 0.

Get angry.  But keep calling and yelling at your Congressman or woman.  Tell them you're watching.  Not the showy hearings or press conferences, but their votes on issues that will actually help you, your friends, your kids, your neighbors.