Why AIG Bonuses Make The Case For Nationalization
Why AIG Bonuses Make The Case For Nationalization
Despite receiving $170 billion in taxpayer funds — and being confronted by Treasury Secretary Timothy Geithner — insurance giant American International Group (AIG) still plans to pay out $165 million in employee bonuses and retention pay. AIG’s chief executive Edward Liddy expressed “grave concerns” about the company’s ability to retain staff if the bonuses — allegedly promised before AIG accepted taxpayer money — were renegotiated.
The bonuses have sparked considerable outrage in the administration and on Capitol Hill, and the White House is seeking “mechanisms” to recover the money. But this episode represents more than just AIG’s apparent blindness to public and lawmaker opinion. As Robert Reich pointed out, this “sordid story…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”:
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.
Indeed, we’ve noted before that Treasury’s strategy of pumping money into financial institutions without taking outright control would result in “sinking a lot of money…without gaining authority and accountability over the use of taxpayer funds.” And even with 80 percent of the company owned by the government, Geithner is powerless to do anything other than pressure AIG to rescind the bonuses.
Nationalization, meanwhile, would mean outright control over the hiring and firing of executives and the payment of bonuses and dividends. Treasury wouldn’t have to try to coax or embarrass institutions into voluntarily cutting back.
Of course, the ultimate decision regarding whether or not to nationalize financial institutions should be made on the basis of the stress test that Treasury is making them undergo. If the banks are rendered insolvent by the test (as many likely will be), the government will have every rationale for swooping in and taking over.
But in the meantime, AIG’s decision is symbolic of the current financial rescue: toxic assets are still clogging the system, while the financial institutions are unaccountable to anyone but themselves.
5 Responses to “Why AIG Bonuses Make The Case For Nationalization”
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The bonus payout excesses at AIG are just the tip of the iceberg of what is happening with the other Wall Street bailouts including Bank of America. Working productive Americans are bailing out the same crooks that destroyed our economy along with 45% of the wealth in the world and now the American taxpayers and our children will be forced to live a far lower standard of living with reduced prosperity and opportunities due to this but only we pay the price.
Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasuries, the dollar, gold and the stock market and how this is a better alternative than Washington’s plans to monetize the debt in future years and tax and destroy our remaining wealth by depreciating the dollar.
The Campaign to Cancel the Washington National Debt By 12/21/2012 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
March 16th, 2009 at 5:36 pmI expect Obama and his advisors want to do just that, Nationalize AIG & other entities, but have to wait till the right amount of outrage is aroused in Dem and Repug breasts.
March 16th, 2009 at 5:46 pmAbsolutely yes. If the scoundrels pay bonuses to those incompetent managers, NATIONALIZE the AIG and any other financial institution that behaves in this irresponsible way, and FIRE all those managers!!!!
March 16th, 2009 at 7:44 pmTake AIG over, cut its losses, and break it up into tolerably sized pieces that engage in distinct businesses (e.g., banking, insurance, etc.). The sooner the better.
The bonuses illustrate that management’s incentives, first and foremost, are focused on management’s and traders’ well being. They also demonstrate that the wage/bonus practices of Wall Street are incompatible with the expectations of a democratically-elected government. A government that shovels money to keep AIG alive is treated as a deep-pocketed chump, not an investor whose interests are aligned with the company’s or at least its management. Apparently we cannot expect “star” traders to stick around after an abysmal year if they aren’t rewarded with lavish bonuses. In short, the company will not survive unless it gets unlimited amounts of money without any meaningful restraints. Time to cut our losses. (This may deprive Treasury of a device for secretly passing money to companies like Goldman (by reimbursing AIG for losses generated by paying off bad CDOs), but that’s ok too.)
March 16th, 2009 at 8:16 pmI agree. IF worker’s contracts are up for grabs then AIG execs should have to endure the same. Plus, the government already owns what…80% of AIG? WHy aren’t they in charge of all this anyway. As majority owner, the government should be able to say no way.
March 23rd, 2009 at 12:57 pm