AIG: How Others See Washington and Our Future

As an aghast world – from China to Chicago and Chihuahua – watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America? Is This The End of America, Terence Corcoran, National Post, 3/19/2009

Accompanied by a chart that shows the US monetary base trending straight up from the fall of 2008 to the present, Corcoran doesn’t mince words. It’s not the U.S. economy that’s going crazy. It’s the United States government under the leadership of Obama, Pelosi, Reid, Frank, the Fed, and the Treasury.

The AIG bonus firestorm is a diversion from real issues, but it puts the ghastly political classes who make U.S. law on display for what they are: aging, self-serving demagogues who have spent decades warping the U.S. political system for their own ends. (Is This the End…,Corcoran, National Post, cont’d)

Put that in a frame and hang it on the wall – without doubt the finest description of government out of Washington, DC, that the writer has heard since P.J. O’Rourke described Congress as a “parliament of whores.” O’Rourke’s remark is actually insulting to the sex worker business. The worst, burnt-out, track-marked tart on the Minnesota strip would take offense at being compared to Congress’s Democrat leadership.

We’ve survived this before, Corcoran says, but this time, in the new McCarthyism where the IRS is being openly used to target individuals with tax penalties, we may not survive. One reason is the dictatorial, Hugo Chavez-like arrogance of the current administration.

Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America. (Is This the End…,Corcoran, National Post cont’d)

Since domestic coverage of this disaster is so heavily biased in favor of the notion that if Obama says it’s good, it must be good it is necessary to look outside of MSM, and even America itself, for revelations about what the White House and Congress are doing to our country. And the bold fellows on the Hill and at 1600 Pennsylvania may have a rude surprise in store for them.

A paper just published by the Federal Reserve Bank of St. Louis..says that the Fed will have to be prepared to absorb all the excess money it has poured into the U.S. economy. It will be a technical and political challenge unlike any central bank has ever undertaken. The future of America is at stake. (Is This The End…,Corcoran, National Post, cont’d)

What would absorbing the money entail? Look at the price of anything. Close your eyes. Then look again after the Fed does this. That $1.58 milk? It’s $3.16 now. That $26,000 Prius? It’s $52,000 now. That nice $95,000 salary you have? It’s worth what $47,500 used to be worth. This is called inflation, when too much money chases too few goods, the inevitable result of printing money. You could ask any refugee from Argentina what that’s like.

Luther

AIG: Owner Rage

The bonuses AIG wants to pay its employees are a pittance compared with the $170 billion it has received in government bailouts, a trifling .097 percent. But nothing so angers the gods of populism as the word “bonus” (surely some genius is formulating a suitable euphemism even as we speak). Pres. Barack Obama wants to try to block the bonuses, and other administration officials talk of making AIG pay back the government for the amount of the bonuses. Fine, but where do we go to get the other $169.835 billion back?...AIG Shame, Rich Lowry, 3/17/2009

In Parkinson's Law, a wonderful satire written by C. Northcote Parkinson in 1955, one law is that "the time spent on an agenda item is inversely proportional to the amount of money involved." As Rich Lowry makes vividly clear in this sane article about an insane policy, there have been few better examples than the populist hysteria about bonuses that AIG just happens to be contracted to pay.

Contract law doesn't stipulate that bonuses included in a contract must reflect good performance. If that were true, half the overpaid ballplayers in major league baseball would be earning about 40% of their current salaries. Contract, however, once agreed upon and signed, is a lawful arrangement between consenting parties, and held as being as strong as a law passed by Congress. Scorn for a contract is no different than scorn for a law. Doing so yields economic, political and cultural chaos.

Would that the Obamastration would pay attention to restructuring the law surrounding credit default swaps, an outlandish financial instrument (see other entries below) that is currently neither regulated by any agency, nor comprehensible to buyers or brokers. Exposure to these instruments, made vastly worse by the bizarre mark-to-market rules that force daily valuation of assets which may be unsaleable at a given time, while still generating income, is what sank AIG (indirectly) and may yet sink Citibank. $167 million in bonuses for officers and employees who've wrecked a company is a scandal, but this mess is about hundreds of billions of American taxpayers' money, not ill-gotten gains in the millions. And we've been lied to about those.

AIG has been the bailout from hell, dysfunctional and opaque. The government has had to restructure its rescue over and over, throwing billions more into its maw. Only now have we learned the identity of the true recipients of the bailout, the so-called counterparties to AIG’s credit default swaps, financial firms strewn around Wall Street and the globe, from Goldman Sachs to Deutsche Bank and France’s Société Générale...(AIG Shame, cont'd)

That's right. The "bailout" of AIG is about paying holders of credit default swaps, themselves a barely legal and totally unregulated instrument. There is virtually no bottom to this mess; these securities are measured in the tens of trillions! AIG wants another hundred billion for the same purpose. And the asset sale promised by new CEO Edward Liddy back in October of 2008 has been a complete bust.

American International Group Inc may scrap a plan to repay a $60 billion US government loan by selling businesses, after failing to find enough promising bidders, Bloomberg said, citing people with knowledge of the matter...AIG Chief Executive Edward Liddy, who took charge in September and unveiled the strategy the following month, has concluded it will not work...AIG May Abandon Asset Sales Plan, Reuters, 2/25/2009

You want reason for outrage. There are two. It's bad enough to give these losers bonuses, but that's not even a crime compared to putting the entire United States, and world, economy at risk to make some 25-year-old MBAs a few million bucks.

As to why these credit default swaps were invented, they were designed to help ease the risk of the trash mortgages forced upon Fannie Mae, Freddie Mac and most of the other mortgage brokers by the expansion of the Community Reinvestment Act -- a political intervention in what used to be a free market in mortgages.

The list of people who should be arrested and jailed for this robbery of the American taxpayer goes right to the top slot in AIG, to the economic advisors in the White House (Robert Rubin, Larry Summers, who promoted credit default swaps), to the Secretary of the Treasury, Tim Geithner, who arranged (with Ben Bernanke) the original bailout of AIG.

The further the country dives into this abyss, the more it seems that these columns should be written in French.

Luther