AIG Bonuses

A loud public outcry is being heard about the AIG bonuses, with the Obama Administration chiming in and stirring up the crowds and acting as chief cheerleader.  It seems anything the Obama Administration does can be traced back to polling in an effort to feed the populist movement.  When you hear the Obama Administration take on a part of society, whether it is big oil, Wall Street, enemy combatants – pardon me, I should say those fine, but misguided fellows picked up on the battlefield trying to kill our soldiers, it is either to appease the left or to cover up its own complicity in causing the problem.  

Let’s look at the AIG bailout.  There were three principal players involved in developing the bailout program, during the Bush Administration, subsequently called TARP.   The principal players were Secretary Henry Paulson, Federal Reserve Board Chairman Bernanke, and New York Federal Reserve Bank Chairman Timothy Geithner, now Treasury Secretary Geithner.  President Obama felt that Mr. Geithner’s capabilities made him the guy to run the nation’s Treasury Department, during what is arguably the most complicated fiscal crisis this nation has ever experienced.  Did Mr. Obama make a good pick?  As Chairman of the Federal Reserve Bank of New York, Geithner’s responsibilities included (taken from the overview section of its web site)

“…broad policy responsibilities and the effects of its operations on the nation’s economy.

The New York Fed has supervisory jurisdiction over the Second Federal Reserve District, which encompasses New York State, the 12 northern counties of New Jersey, Fairfield County in Connecticut, Puerto Rico and the U.S. Virgin Islands. Though it serves a geographically small area compared with those of other Federal Reserve Banks, the New York Fed is the largest Reserve Bank in terms of assets and volume of activity…”

What is important about the geographical jurisdiction of the New York Federal Reserve Bank?  Take note of the headquarters location of Citi Group, AIG, Bear Sterns, Merrill Lynch, J.P. Morgan Chase, and Lehman Brothers – all in the financial district of New York commonly called Wall Street.  Essentially the New York Federal Reserve Bank is located a little less than 1,000 feet from Wall Street and the New York Stock Exchange.  So how do we explain that the then Chairman of the New York Federal Reserve Bank on whose watch the collapse began, who was one of three influential people in designing the TARP bailout, and who is now Treasury Secretary administering the bailout for the Obama Administration is surprised along with President Obama about these dastardly executive bonuses to AIG?

The following is an excerpt from the Wall Street Journal of September 16, 2008:

“…The final decision to help AIG came Tuesday as the federal government concluded it would be “catastrophic” to allow the insurer to fail, according to a person familiar with the matter. Over the weekend, federal officials had tried to get the private sector to pony up some funds. But when that effort failed, Fed Chairman Bernanke, New York Fed President Timothy Geithner and Treasury Secretary Paulson concluded that federal assistance was needed to avert an AIG bankruptcy, which they feared could have disastrous repercussions.

Staff from the Federal Reserve and Treasury worked on the plan through Monday night (September 15th). President George W. Bush was briefed on the rescue Tuesday afternoon during a meeting of the President’s Working Group on Financial Markets…”

One would think that when arranging a multi-billion dollar loan to a failing business that some due diligence would be done to insure that the loan money all goes where it is supposed to go.  A simple question to the leadership of AIG, whether there were any monetary obligations to management would have sufficed.  If the answer was no, the government was mislead and this was not a good faith transaction, then now the TARP money could be recalled and AIG forced into a pre-packaged bankruptcy.  This would effectively preclude the contracted bonuses from being realized.  If the answer were yes, then the bonus contracts could have been reviewed at that time and if they could not be negated, a pre-packaged bankruptcy should have been fast tracked.  Not optimun competency here!

So why again is the Obama Administration so over the top on these bonuses when their chief financial guy, Secretary Geithner, was a principal architect of the bailout?  Yes, Paulson and Bernanke are also to blame, if you are in the blame game, as it appears President Obama is in.   As is becoming the game plan for the Obama Administration when it is caught with ineptidude, e.g.,  Geithner’s mishandling , they find a scape goat and make it loud.  In this case, it is those dastardly executives and their bonuses.

The same people who failed while on watch, then failed on creating a fix, are the same people entrusted to steer us out of these dangerous waters.  Doesn’t this just give you a warm feeling all over?   Our country has been and is being led by politicians and bureaucrats who more often than not, have no capability to succeed outside the confines of the political bureaucracy.  Yet, President Obama wants to expand this country’s government and have the government take care of our needs. 

Today, we still do not have a detailed plan for the stabilization of the banking system, promised back in January by Mr. Geithner.  Of the top eighteen positions in Treasury only one has been filled – Treasury Secretary Geithner.  The other seventeen top positions are vacant with scant nominees to be considered.  Maybe Mr. Geithner should try Career Builder to find candidates?  The actions of this Treasury Secretary have not and do not exude confidence and excellence.  Yet Mr. Obama is worrying about bonuses that amount to a fraction of one percent of the AIG bailout.  Perhaps his Administration should focus on filling the positions in the Treasury and stabilizing the banking system?

UPDATE: March 18, 2009

Our Congress and White House are embarassed and over the AIG bonuses and are ramping up the mob mentality of populism.  They are trampling the Constitution in their attempt to look like smart people.  They apparently have never heard about bills of attainder.  Bills of attainder are integral to our economic system.  It is sacred, yet in an effort to look like good guys and not the dim bulbs they are showing us they are, they are talking about retrieving the AIG bonuses with legislation.  What is worse is that our Treasury Secretary Timothy Geithner knew about the AIG bonuses before the TARP money was handed out, and he knew that $68 Billion of AIG’s taxpayer funded TARP money would be funneled through AIG to foreign banking companies - he apparently was okay with both.