fbpx
03.01.2009 0

It’s Not the Bonuses, It’s the Bailout

  • On: 03/18/2009 10:23:35
  • In: Economy
  • By Robert Romano

    At the end of the day, the American people are not going to be wondering why they paid $165 million for contractual bonuses at AIG. Instead, they’ll be wondering whether they should even bother honoring any of their own financial commitments—at all.

    Taxes. Mortgages. Student loans. Credit card bills. You name it.

    Indeed, whether contracts will have any meaning at all at the end of the day is the larger, looming question for Americans from every walk of life to seriously consider.

    To be certain, the Obama Administration is taking advantage of a fact of life—that in the business world, contracts are honored. AIG paid out the millions of dollars in bonuses—because it had to. It didn’t have a choice.

    The White House knows this, but acts as if it is shocked—shocked—that after having been saved from bankruptcy, the company continues to operate in accords with its financial obligations.

    Yet, wasn’t that the point of the bailout? So that AIG would pay its bills?

    After all, the real travesty is not the bonuses. It’s the bailout.

    By all rights, a failed company that was foolish enough to insure a house of cards should have been allowed to go bankrupt. Because then, there would have been no bonuses. With no bailout, everyone would have taken their lumps. And rightly so.

    In the end, there really was no legitimate reason for forcing American taxpayers to give $173 billion in “loans”—more than a thousand times the bonuses as noted by the Wall Street Journal—to AIG and take an 80 percent share in (i.e. nationalize) the company. At the time, on September 16th, the bailout (then only $85 billion) was justified because of insurance policies the failed company had sold on the now-infamous troubled assets—mortgage-backed securities—that were being called in all at once.

    In hindsight, as we all now know, it was a silly “investment” for taxpayers. Congress then promptly set aside, on October 3rd, $700 billion for the Troubled Asset Relief Program (TARP). That was supposed to be used for the “toxic” assets themselves. So, in an escalating move by government, the taxpayers were responsible for both paying insurance on the devalued assets to the insured and for purchasing the same assets from the insured at full value.

    For example, as reported by the Journal yesterday, Goldman Sachs received some $13 billion from AIG in payouts. It also received some $10 billion in TARP funds. Other dual-beneficiaries include Merrill Lynch, Citgroup, Bank of America, and Wachovia. To make matters worse, some $20 billion is going to European banks that similarly had policies on the mortgage-backed securities.

    This only makes sense in Washington. And Wonderland. But, then, I repeat myself.

    In other words, now the “insurance” company of first, last, and only resort for any firm that had any connection to the “toxic” securities—including the company that insured the assets—is the American people.

    All of this is meant to ostensibly help AIG to honor its financial obligations. So that it can make good on its insurance policies. To allegedly help Bank of America, Goldman Sachs, and others to honor their own commitments to depositors. To supposedly help delinquent borrowers to honor their commitments to creditors.

    In other words, to uphold the contracts and commitments of those who made—as a result of malfeasance, or were forced to make by way of regulation—bad decisions.

    In fact, the only parties not receiving a bailout, in this case, are the American taxpayers. Nope. Instead, they get the total bill—now some $9.7 trillion—with the bright letters “Final Notice” on the envelope.

    And, in the end, the American people will wonder, “Why should we, in the final analysis, be the only ones left to honor our commitments?”

    Robert Romano is the Senior Editor of ALG News Bureau.

    Copyright © 2008-2024 Americans for Limited Government