US Elections

The AIG tragedy

By Nina Blackwell in San Francisco

19 March 2009

AIG bonus rage is sweeping across the U.S. like a tidal wave. The nation's understandable resentment at having to bail out Wall Street has found a very real and very lamentable target. AIG's recent payment of $165 million in bonuses to employees in its Financial Products group is deeply troubling on many levels and the nation is justifiably outraged.

A deep blow was dealt to the nation's psyche when it was revealed that we have rewarded many of the people who took AIG to the brink of collapse and threatened to take the entire U.S. banking system down along with it. A number of these employees in the Financial Products group, who caused the losses, were then paid more to stay at the firm and undo them. Even more depressing is the realization that the taxpayers will really never get that money back. Talk of contract abrogation or retroactive taxation systems targeted at a particular group may make lawmakers and voters feel temporarily better, but in reality would create a precedent that should probably not be set.

The truth of the AIG mess is even more menacing than just the payment of bonuses to the very same people who helped orchestrated the largest quarterly loss in corporate history and cost the taxpayers billions of dollars. AIG now threatens to destroy any kind of positive feeling that the public might have had following the Presidential election about the role of government and more importantly, AIG threatens to undermine the credibility of Treasury Secretary Geithner, the Administration and the President himself.

Republicans are doing their best to blame the current Administration for this crisis, pinning their party's future hopes on the economy's collapse as the only way they can rise to power again. The other substantial and promised reforms that the Obama Administration has achieved in its first 50 days in office have been completely overshadowed by AIG.

The reality is that these bonuses should have been dealt with before the first money went to AIG, back when George W. Bush was President. And then there's the other problem - AIG was an insurance company - it should never have held almost $3 trillion dollars in financial derivatives like credit default swaps. Republicans in Congress and the previous Administration have a lot to answer for in their failed quest to free the financial sector from regulation. However, despite the fact that the initial AIG bailout under which the bonuses were approved was engineered by the Bush Administration and the Federal Reserve, the Obama Administration has been left with the very serious problem of picking up the pieces and must bear some of the responsibility.

Consensus is that AIG will probably need more bailout money, as will the rest of the banks. The President must also take some very real and serious steps to regulate the financial system. However, if the nation's confidence has been lost, not only in Wall Street but in Washington's ability to fix the problem, it will be more difficult for the President to ask Congress and the electorate to approve any subsequent bailouts or actions that cost taxpayer money.

The President and his Administration are right to tackle this problem head on. The President has again taken personal responsibility for the fate the nation and is working to shore up confidence in his Treasury Secretary and the economy. The President must now be allowed to move forward with fixing the situation and preventing the collapse of the entire financial system.

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