This is crazy! Forget the bleating of Rush
Limbaugh; the problem is not with the quite reasonable and, if
anything, underfunded stimulus package, which in any case will be
debated long and hard in Congress. The problem is with what is not
being debated: the far more expensive Wall Street bailout that is being
pushed through--as in the case of the latest AIG rescue--in secret,
hurried deal-making primarily by the unelected secretary of the
treasury and the chairman of the Federal Reserve.
Six months ago, we taxpayers began bailing
out AIG with more than $140 billion, and then it went and lost $61.7
billion in the fourth quarter, more than any other company in history
had ever lost in one quarter. So Timothy Geithner and Ben Bernanke
huddled late into the night last weekend and decided to reward AIG for
its startling failure with 30 billion more of our dollars. Plus, they
sweetened the deal by letting AIG off the hook for interest it had been
obligated to pay on the money we previously gave the company.
AIG doesn't have to pay the 10 percent
interest due on the preferred stock the U.S. government got for the
earlier bailout funds because that interest will now be paid out only
at AIG's discretion, which means never. The preferred stock, which got
watered down, carried a cumulative interest, meaning we taxpayers would
have recaptured some money if the company ever got going again, but
that interest obligation was waived in the new deal.
We've already given AIG a total of $170
billion--an amount that dwarfs the $75 billion allocated to helping
those millions of homeowners facing foreclosures. And more will be
thrown down the AIG rat hole because President Barack Obama is blindly
following the misguided advice of his top economic advisers, who insist
that AIG is too big to fail.
"AIG provides insurance protection to more
than 100,000 entities, including small businesses, municipalities,
401(k) plans and Fortune 500 companies who together employ over 100
million Americans," the joint Treasury Department and Fed statement
declared while insisting that for that reason, plus the "systemic risk
AIG continues to pose and the fragility of markets today, the potential
cost to the economy and the taxpayer of government inaction would be
extremely high."
What about the cost of inaction by
Treasury and the Fed before this meltdown? If AIG were so important to
the American economy, shouldn't government regulators have been looking
more closely at its activities? They couldn't then, and even now they
don't understand what AIG has been up to, because the company was
allowed to operate in an essentially unregulated global economy in
which multinational corporations have their way. As the Treasury/Fed
statement concedes: "AIG operates in over 130 countries with over 400
regulators and the company and its regulated and unregulated
subsidiaries are subject to very different resolution frameworks across
their broad and diverse operations without an overarching resolution
mechanism."
Oh, really? And you're discovering that
only now, when you're making us bail AIG out? It wasn't that long ago
that a couple of hustlers operating out of an AIG office in London were
going wild making money off selling insurance on credit default swaps
that no one could understand, but the company execs loved those huge
profit margins. To challenge their maneuvering, as some in Congress
attempted, was said by their defenders, including Geithner, to put them
at an unfair disadvantage in the world market. Ignorance was bliss ...
until the bubble burst.
This was all belatedly conceded by
Bernanke in his Senate testimony on Tuesday: "AIG exploited a huge gap
in the regulatory system. There was no oversight of the Financial
Products division. This was a hedge fund, basically, that was attached
to a large and stable insurance company, made huge numbers of
irresponsible bets--took huge losses. There was no regulatory oversight
because there was a gap in the system."
AIG used to be in the conventional
insurance business, covering identifiable risks it knew something
about, until it took advantage of deregulation and a lack of government
surveillance to come up with contrived new financial products. Even
Maurice Greenberg, the man who built AIG from the ground up over a span
of 40 years before he was forced out amid corruption charges in 2005,
admits that he didn't understand the newfangled financial gimmicks that
the company was peddling. This week, claiming he too was swindled,
Greenberg sued in federal court, charging the AIG execs who forced him
out with "gross, wanton or willful fraud or other morally culpable
conduct," over the credit default swap portfolio that was part of his
settlement.
U.S. taxpayers now have ownership of
almost 80 percent of AIG, but with the company's once solid traditional
insurance business now suffering a steep loss of consumer confidence,
it's not likely that even the formerly healthy parts of the company
will be worth much. What we have here is all pain and no gain for the
taxpayers roped into this debacle, which is proving to be the story of
the entire banking bailout.