I had lunch today in a diner that keeps several TVs tuned to various news channels. As I was exiting, I heard, “Next up on CNN: What can Barack Obama learn from Ronald Reagan?”
I thought, “Besides serial dissembling and how to maintain power while in the grip of Alzheimer’s, you mean?” But my main thought was, “Gee, I hope Obama ain’t watching.”
From the comments on Idle Musings: The Inflection Point below:
Of course we are here talking about an amount of money equal to 0.1% of the total amount of bailout money given to AIG… Maybe smart people should spend some time thinking about and discussing nationalization schemes that would allow the government to recoup some of the money given to the banks instead of engaging in cheap (and rather boring) moralism.
It isn’t about moralism, it’s about being stunned at the hubris. This isn’t Oliver Twist asking for more gruel, it’s Oliver Twist asking for more gruel AND the keys to the car AND a change of underwear, and seemingly being unaware or uncaring of the appearance of the thing and its consequences to themselves, to those keeping them in business, and to the bailout in general. I think the President actually put it well today when he said, “I think Mr. Liddy and certainly everybody involve needs to understand that this isn’t just a matter of dollars and cents. It’s about our fundamental values. All across the country, there are people who are working hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. We’ve got a bunch of small business people here struggling just to keep their credit lines open. They are going without pay…. In some cases, they are mortgaging their homes, doing a whole host of things just in order to keep things afloat. All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic we must demand.”
That’s what I’m on about, not the small change. And here’s the funny thing… Maybe at the root of this, moralism is what it’s all about.
In the Great Depression, unemployment outstripped what we have going now, but at some point between here and there people started acting crazy–well, not crazy, but out of character for a fairly docile nation–subscribing to a long list of radical ideas to solve the problem and acting out/protesting/rioting. I keep wondering when we might get there in the present crisis, or if we might get there. I also wonder if AIG might be the thing that pushes us there. I’ve already run into more than my fair amount of people who view the bailout as charity for billionaires, and this latest development isn’t going to change anyone’s minds.
It does seem increasingly odd that the Geithnerites would fail to exercise any of their considerable leverage over AIG to terminate those benefits, which would involve those on the receiving end volunteering to give them up rather than breaking the contract, on the theory that the company might never see another dime if they took them. It’s difficult not to conclude what many have said already: that Geithner and pals are too close to the self-entitled financial class to fight for the rest of us.
Earlier today, I read this quotation from Upton Sinclair: “It’s hard to make a man understand something when his job depends on him not understanding it.”
I immediately thought of Harold Reynolds trying to talk about PECOTA… Though I suppose it could have applied to almost anyone involved with the former administration. Bush is too easy. John Yoo?
More on the AIG bonuses. From the LA Times:
AIG said there were two categories of payments: One was for senior executives, the other for 2008 retention bonuses for employees that the company agreed to pay before the federal bailout, the official said. AIG said the retention bonuses were legally required to be paid despite the bailout, a view the Obama administration concluded was correct after a review of the contracts.
Breaking those contracts would have led to greater costs for taxpayers, the official said.
The economic stimulus legislation that President Obama signed into law last month includes strict new limits on bonuses and other compensation to executives of companies that received money from the $700-billion Troubled Asset Relief Program. But the provision specifically excludes any bonus payments “required to be paid pursuant to a written employment contract executed on or before February 11, 2009.”
Given that exemption, the administration’s hands were tied, the official said. But the government will be seeking to recover the bonus money as it restructures the terms of AIG’s bailout. The company has committed to working to develop a way to do that, the official said.
First, if AIG leadership had any sense, which it clearly does not, it would have done everything it could to encourage those employees to forgo those bonuses, because they are clearly the last they will ever get and will severely damage the company’s chances of getting further handouts — the damage to the prestige of the administration over these latest abuses will be immense. Second, I’m glad to see that Geithner and the Geithernites will be looking to claw the money back, but I have my doubts.
From the NY Times (and everywhere else):
The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.
In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.
“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.
In plain English, fuck ‘em. How ironic that Liddy is (1) named Liddy, and (2) that he invoked the words “Best and Brightest,” the same phrase being the title of David Halberstam’s classic book on the self-styled geniuses who led us into another national disaster. If AIG needs to retain these people, we might as well cut off the funds now and deal with the inevitable.
The “rapid disenchantment” referred to above, however, does not refer to AIG, but to the administration, one I would like to be fervently cheering for, by the way, which continues to enable these geniuses.
Why is it that whenever I’ve flipped on the TV and am about to tuck into a pint of Ben & Jerry’s, something about being overweight and heart attacks comes on? It doesn’t matter what channel I’m on; even old Laurel & Hardy shorts pause to ruin dessert.
Still thinking about this bit from the New York Times I quoted yesterday:
“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”
If this fellow is right, then those jobs aren’t coming back when/as/if the economy gets back on its feet. Yet, those that lost jobs are still going to need to work. Unless we’re assuming that the U.S. economy has just gone on a permanent diet and we’re going to have a large class of permanently unemployed citizens, something has to replace the lost jobs. But what is it? Hovercar production?
How do we purge the toxic chocolate chips from the system so that those who want to consume cookies can do so without fear that they’re going to end up with a pile of worthless desserts?
…The banking crisis may be something that’s well over my head. This is all just instinct: I’m pretty sure that the present ad-hoc response to keeping these damaged institutions alive isn’t going to work, because it doesn’t address the underlying problem of asset sheets overbalanced with worthless derivatives. I’m pretty sure that, as Paul Krugman wrote this week, that the Obamadministration is mistaken in thinking that they can assume these debts on behalf of the banks and re-sell them at some point when their value becomes known, because they may have very little value overall. I’m not sure that nationalization works, because I’m not clear what that does besides take their (the banks’) problem and make it our problem. In addition, the risks to nationalization in terms of government credibility seem huge if indeed the Geithnerites are wrong in their valuation of the toxic assets. In short: I have no suggestions.
That leaves me with two questions, two possible paths that haven’t been explored:
1. Why can’t the government charter new banks, pristine virgins flush with taxpayer cash, that can get about the explicit mission of lending dough and getting the economy going, while letting these cancerous old banks fend for themselves, to live or die on their merits? Eventually, these new banks can be sold to the public. We’ve done this kind of thing before, with Fannie Mae, for example.
2. Failing that, why can’t the government lend the banks a sufficient amount of cash to take the toxic stuff off the books, lend it to them at a nominal interest rate, and let them pay it off over time, a hundred years if necessary? That way, the banks can just dispose of the assets. Flush. They got the money for them, they’re gone. The government makes a few bucks on the transactions over time. I guess you still have the same problems with valuing those assets that the Geithnerites do now.
As I said, this isn’t my area of expertise. That said, it doesn’t seem to be anyone’s area of expertise.
Following up on yesterday’s post on the dulling of the retail world, this bit on the remaining US Virgin megastores closing up. Apparently they were profitable, but the owners of the spaces can make more money off of other tenants. Thanks, guys. As Heidi MacDonald wrote, “Yet another case of greedy real estate developers chipping away at the fabric of life as it was once lived.” I often wandered into the Union Square store when in the neighborhood, though rarely bought anything because of the prices. It was still a fun place to go because of the vast selection on offer, and if the prices had been just a shade lower, I would have bought more frequently. Unfortunately, the retail chains most likely to snag my rare bits of disposable income–books, music, DVDs–have yet to cotton to the reality imposed by the existence of Amazon and other on-line vendors. Fellahs, you have to drop your prices and make up the difference on volume. If a store offers free shipping, I can wait. There’s rarely an item I need so badly I can’t hold off for a couple of days while it’s send to me by eighth-class mail.
…But I digress, as that’s not what’s happening here. This is just something interesting being turned into something boring. Fortunately for me, the Strand is still just a block away from there, and that’s always my main destination in the Union Square neighborhood (sorry, Chat ‘n’ Chew).