The white-hot anger over AIG continues to radiate heat beyond any politician's worst nightmare. The announcements of bonus payouts for AIG executives prompted Republican Senator Charles Grassley to spew this invective, "But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide. And in the case of the Japanese, they usually commit suicide before they make any apology."
No word whether he was riding a tricycle with a red bow tie. He has since apologized, but the damage was done. Can't wait to see the AIG CEO testify today!
Yesterday, we had US Treasury Secretary Geithner promising to do everything to "wind down" the AIG situation as fast as possible. U.S. Secretary of the Treasury Timothy Geithner said Tuesday the ongoing financial troubles with insurance giant AIG show the government needs to have "resolution authority" for systemically important firms according to Reuters. "To that end, he announced that he is working with AIG's CEO, Edward Liddy, to wind down the company in an orderly way to protect taxpayers from losses." Geithner also pledged to force AIG to pay the government back for the bonuses they paid out.
This is what happens when friends don't let friends go into bankruptcy.
The US government bailed out AIG and prevented it from going into bankruptcy. As the world's largest insurer, it was deemed too important to allow to fail and cause major disruptions through the market place. However, this "saving" means that no contracts were abrogated or renegotiated by a judge under a bankruptcy filling. This means the major constituents involved in a company such as the common shareholders, the debt holders, the management, and the employees were not forced to all "lose" and take reductions.
This means that the US government's bailout of AIG has caused the US taxpayer to be on the hook for contracts that could've been abrogated under a different method of bailout. While voters are incensed over this development, the worst is yet to come. Now, there is no reason/incentive/point for AIG employees who are highly skilled to stay on to help run the company. My guess, they begin to leave to other insurers if they can. This means that the US government's investment in AIG will be under further duress.
Taking a step back from the fray, there is a larger problem: taking focus away from fixing the financial system. Whether it's AIG or Obama's budget, this is the true danger of dealing with a brush fire like AIG while the entire forest of the economy burns. The Op-Ed in Politico "Don't Let Anger Stop a Financial Fix" is my view that cooler heads need to lead to solve the economy or we'll waste trillions in spending.
And yes, this is like cutting off your leg to save your self, but it needs to be done survive.
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