AIG execs don’t want to talk about the bonuses they continue to pay themselves, but they did release a list of the banks and financial institutions that received federal bailout money through AIG. This is, I assume, their way of saying they are putting most of the money to good use.
Still, what about those bonuses? Robert Reich said,
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.
Put another way, AIG already has failed. The question in front of us is not whether AIG should be “allowed” to fail, but what role government should play in softening the broad economic fallout of the failure. It’s not about rescuing AIG, but about rescuing everybody else. It may be that propping up AIG somehow is a sensible move, but the execs who took it into failure need either to be removed or made to understand that they are no longer in charge, and everything they do is now open to public scrutiny.
There is talk of a “bailout backlash.” Showing the AIG execs the door would be a hugely popular move right now, I think, and would reassure the public — well, that part of the public that thinks, as opposed to the brainless part — that the Obama Administration isn’t just throwing good money after bad.
Paul Krugman has some interesting comments about the financial crisis in Europe. In a nutshell, Europe is facing the same financial meltdown, but it’s doing even less than we are to deal with it.
Europeâ€™s economic and monetary integration has run too far ahead of its political institutions. The economies of Europeâ€™s many nations are almost as tightly linked as the economies of Americaâ€™s many states â€” and most of Europe shares a common currency. But unlike America, Europe doesnâ€™t have the kind of continentwide institutions needed to deal with a continentwide crisis.
This is a major reason for the lack of fiscal action: thereâ€™s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.
Strictly speaking, Europe is not a confederacy, but in some ways it acts like one. Confederacies of sovereign states have a long track record of quickly crumbling apart. Sometimes “big government” is a big advantage.
Update: Josh Marshall writes,
What’s really driving this forward — and what makes it such a dangerous moment for the White House — is the jarring image of the administration’s impotence.
Secretary Geithner found out about the bonuses. He told AIG CEO Edward Liddy it wouldn’t fly. And Liddy, in a curiously imperial letter, tells Geithner that much as he is pained by the situation — to blow it out his ass. Which he apparently proceeded to do.
I think the Obama Administration needs to take this situation in hand before public support for the President’s economic policies melts away.