Topic: Economics
It’s Washington’s Fault! It never ceases to amaze me how the U.S. government can make a huge mistake, blame it on others, and have a large portion of the American people either believe it or just not care.by Kenn Jacobine
(libertarian)
Sunday, March 22, 2009
This past week, with grand theatrics, official Washington raised a huge fuss over the spending by AIG of $165 million of taxpayer bailout funds for bonuses to top executives. On NBC's Today Show Rep. Barney Frank, D-Mass charged that the decision by the economically impaired AIG to pay millions in executive bonuses amounts to "rewarding incompetence." On 60 Minutes, Fed chairman Ben Bernanke stated, "It makes me angry. I slammed the phone more than a few times on discussing AIG. It's it's just absolutely I understand why the American people are angry." House Speaker Nancy Pelosi assured the public that Congress was working on legislation that would correct this injustice quickly. And of course the Administration weighed in with a guarantee that the financially feeble insurer would be forced to repay the U.S. taxpayers before it gets the next $30 billion from taxpayers approved on March 2. All of this and several dozen quotes from lawmakers that all included the word "outrage" in its various conjugations and you have good theater coming out of Washington.
Let's make one thing perfectly clear, if you are angry with AIG for using your hard earned tax dollars to pay millions out to incompetent executives in the form of bonuses then your ire is severely misplaced. The "retention" bonuses were contractual agreements that had to be honored by AIG. They were not performance bonuses like Congressman Frank through his "rewarding incompetence" remark would like us to believe. They were bonuses paid to people who put in the time and effort to finish a task. Under our system of government, contracts cannot be arbitrarily broken. I give kudos to AIG for upholding that long standing American tradition.
Your anger and vengeance (peaceful of course through the ballot box) instead should be directed toward official Washington. As we are all well aware, the Federal Reserve, Congress, and two administrations have been very generous with our money by giving huge amounts of it to many failed banks. Of course, they had neither the constitutional nor logical authority to do so. The AIG bonus scandal is just the beginning of many to come because of the government's reckless spending. AIG has already given almost half of what it has received to Goldman Sacs and several foreign banks for financial obligations. Executives at other financial firms receiving bailout money have also been paid bonuses - these firms include Merrill Lynch and Morgan Stanley. Fannie Mae, one of the largest culprits in the whole financial crisis, is expected to pay retention bonuses using taxpayer funds worth between $470,000 and $611,000. Freddie Mac also has bonus plans not yet announced. Citigroup is going to use $10 million of taxpayer funds to build a new office building and according to Rep. John Lewis, D-Ga at least 13 firms that have received or will receive taxpayer funds owe a total of more than $220 million in back taxes. These are the outrages we know of. Certainly there will be more announced in the future.
Of course, if Washington had not appropriated the money in the first place we wouldn't be talking about any of this. As this columnist has maintained all along, these irresponsible firms should have been left to fail. Bankruptcy would have been the efficient way to clean up the mess they made. Mal-investment in the economy would have been avoided as productive firms would have purchased the good assets of the failed banks at market rates and taxpayers would not be on the hook for what will eventually amount to trillions of dollars in new debt spent on failed enterprises. The integrity of the dollar and the future purchasing power of American consumers would have been preserved. Yes, some folks would have suffered, but we are not supposed to be living in a communist society. The government has no legal or moral right to take from one to give from another. If that were true than why doesn't Uncle Sam right the injustices to investors caused by Madoff and Stanford?
This week's events in Washington amount to nothing more than a smokescreen by policymakers to cover their own butts. They gave our money to AIG and did it with no strings attached. Paulson, Bernanke, Geithner, Bush, Obama, and any member of Congress who has voted for these bailouts should be held to answer for their actions. In terms of Congress, hopefully by the next election cycle there will be enough Americans who blame them and care enough to make that happen.
Kenn Jacobine teaches internationally and maintains a summer residence in Haywood County, North Carolina. Visit his blog site online at: The View from Abroad.
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Hi Kenn, Another excellent article, I agree the whole thing is a travesty.
There is one idea that keeps getting brought up tho, that is not a logical thought.
"Under our system of government, contracts cannot be arbitrarily broken. I give kudos to AIG for upholding that long standing American tradition."
The first part, of course, is true. Contracts are law and law must be followed.
On the other hand, this entire mess was created by the fact that AIG could not uphold their end of countless contracts and because of that, they had entered into them fraudently. They were short at least some 100 billion. For them to act as if a hundred million dollars worth of bonus contracts [backed in both cases by government money] is somehow of vital importance while they skate on 100 billion and have the government pay it out is a bit absurd to put it nicely. And, it is the government that is both paying the bonuses and the original contracts, so i see no reason to give any credit to AIG. As you mention at the end, AIG is in exactly the same bucket as Madoff.
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