Will AIG be Obama's Bay of Pigs?

The scandal over $165 million in retention bonuses paid to AIG executives goes beyond the rhetoric of cheap populism -- including among Republicans who steadfastly deregulated the financial sector, defended outrageous executive compensation and thought the Greenspan-driven housing-derivatives bubble was just dandy. I know this much: It is the biggest test yet for President Obama. Will it be his Bay of Pigs?

The bonuses are being paid out to "retain" executives at the Financial Products Unit at AIG that nearly brought the world economy to collapse -- leading the U.S. government to pump in so much taxpayer money to rescue AIG that we own 80 percent of it. These executives who created the house of cards of credit-default swaps are now government employees, for all intents and purposes. If only our teachers were paid so well. And "retain"? The teenagers working in the AIG mail room would be more prudent than these Masters of the Universe. But the government claims it has little ability to stop the payments. Contracts must be honored, don't you know.

Funny, when working people are involved, contracts mean nothing. The bankruptcy and labor law systems have been gamed over 25 years so companies can easily abrogate labor contracts and pension obligations. They can leave workers with nothing. And the meme has long been how awful those union workers are. How they -- not the highly paid executives -- brought the automakers and other manufacturers to their knees.

But every time -- from the airline industry to the Big Three -- that companies needed to keep delivering their big margins to Wall Street, the contracts involving working Americans meant nothing. Contracts for pay raises, job security and health benefits -- amounting to chump change compared to the money looted on Wall Street -- were torn up. All this has happened as the gap between the super-rich and average Americans has reached levels not seen since the eve of the...Great Depression.

Obama can't let this stand. But the bonuses are small compared to the real reform that's needed: re-regulation; breaking up "too big to fail" institutions; winding down and eliminating many derivative "products," and prosecuting the people who created this mess -- with hard time in real prison.

But I come back to the Bay of Pigs analogy. President Kennedy -- another young, coolly detached leader -- allowed the ill-conceived "invasion" to proceed into the jaws of disaster. He came out looking callow. Khrushchev took his measure there and at the Vienna summit, and felt emboldened to bring on the Cuban missile crisis. The Obama administration has known this AIG mess was coming. Tim Geithner has been a part of the "rescue" from day one. Obama will have to do more than "take responsibility." He must roll up his sleeves and take control. A good first step: Geithner's resignation.

Comments

[eclecticdog]

I'll say it again -- Geithner can go and so can Summers. They are in over their heads. Being a gofer for the greed-heads Kissinger, Greenspan, and Goldman Sachs is no substitute for intellignce.

And about labor "contracts" and company policies -- I was at Honeywell when they decided to outsource their publications. I was entitled to 6 or so months of severance based on my age and time served, but since they forced us on the new supplier, ipso facto no serverance would be paid (there was no choice -- whether you went or not -- no severance package or unemployment!). On top of this there were a few who could retire, but they would not reveal when the change would happen so they could get their retirement requests in PER THE COMPANY POLICY. Convenient isn't it?

[Buford]

Where would the bonuses come from if the bailout didn't happen. When bankruptcy occurs, creditors get re-negotiations imposed on them and dine-on-the-dollar returns. If anyone deserves to lose money, it's the people who created the mess. Why they are being retained instead of fired shows that the fools in charge are trying to regain the old status quo.

[soleri]

I'm worried the Democrats are wedded to Wall Street not so much by ideology but more by campaign contributions. I have no idea whether Obama feels beholden to them for that reason or whether the Clinton/Rubin/Summers axis exercises such strong gravitational pull that any kind of rupture would imperil Obama's own power.

Geithner understands the nature of the problem in ways that highlight the disconnect between the winners and losers in this Randian economy. It's a huge economy in its own right and sits on top of the productive economy like so much flotsam. The power in that can only be guessed at but must be awesome given Obama's respect for it.

There isn't much market share for left-wing populism so Obama may be leery of taking on Wall Street. I'm worried that the main show is still on the right where disgruntled burghers can be whipped into a frenzy by their talk-radio masters. Obama would have to go over their heads, the MSM's, and significant elements in his own party. Right now, I don't see it happening. If it does, some momentous sea change has occurred. So far, we're still in the same doldrums.

[webreader]

I was stationed at the Naval base in San Diego in early 1961 when we had a barracks full of cubans training for "whathaveyou." They were not allowed to integrate with we regulars. I found myself stationed at Gitmo in 1963/64 when Castro cut off our water supply. I worked in communications during the day with a security clearance and as an announcer at night on WGBY. My commander was Admiral McCain. What we put out to the American public was completley opposite to what I was receiving with my secret clearance. From that time to now, I have believed little that the goverment reports. On Geithner, I have prepared tax returns for over thirty years, and he damn well knew what he was doing when he did not report FICA due on his wages that did not withhold FICA taxes. Mr Geithner should not be in any position of goverment power and especially deciding monies to be divied. We are going to see a BOSTON TEA PARTY that makes the original BTP look like a meeting of kindergartners.