The Real Scandal of AIG

The real scandal of AIG isn’t just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail — the most money ever funneled to a single company by a government since the dawn of capitalism — nor even that AIG’s notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle, are planning to give themselves over $100 million in bonuses. The scandal is that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money.

The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG’s chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But it turns out that most will be paid anyway, because, according to AIG, the firm is legally obligated to pay them. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needs to be able to retain talent.

AIG’s arguments are absurd on their face. Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid (they would have had a lower priority under bankruptcy law that AIG’s debts to other creditors); 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 laughing weren’t already so expensive.

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. To whom should they be accountable? As long as taxpayers effectively own a large portion of them, they should be accountable to the government.

But if our very own Secretary of the Treasury doesn’t even learn of the bonuses until months after AIG has decided to pay them, and cannot make stick his decision that they should not be paid, AIG is not even accountable to the government. That means AIG’s executives — using $170 billion of our money, so far — are accountable to no one.

Originally published at Robert Reich’s blog and reproduced here with the author’s permission.

5 Responses to "The Real Scandal of AIG"

  1. Anonymous   March 16, 2009 at 8:06 pm

    It Is difficult to believe that the parasitic mentality of Wall Street and Main Street will allow this nation go on into the future with any resemblance of the shining Star that our forefathers fought for. I fear that they just do not know what they do not know.

  2. Anonymous   March 16, 2009 at 9:53 pm

    If a person owes a bank a thousand dollars, the bank owns the person. If a person owes a bank a thousand million(billion), the person owns the bank. Let it be known- ‘we the people’ surround AIG,AIG does not surround us. United we stand, let AIG fall.

  3. John Slater   March 17, 2009 at 6:24 am

    Mario Puzo’s The Godfather begins with the following epigram:“Behind every great fortune is a great crime”-BalzacA little research produces other translations of the quote including:“The secret of a great success for which you are at a loss to account is a crime that has never been discovered, because it was properly executed.””The secret of a great fortune made without apparent cause is soon forgotten, if the crime is committed in a respectful way”Another quote which has received currency recently is Mark Twain’s observation:”It could probably be shown by facts and figures that there is no distinctly native American criminal class except Congress.”Under the rubric of “systemic risk”, a political decision has been made to loot the federal treasury to protect the unsecured creditors of major U. S. financial institutions. Call it what you will: oligarchy, crony capitalism, national socialism; it has not ended well in other times and places and it will not end well here.