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AIG Bonuses Have You Pointing the Finger in the Wrong Direction

| March 18, 2009
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The media is getting all up in a hissy-fit about AIG issuing bonuses after having to be bailed out by the government, and when the media tells you to care, you listen.  In turn, now the public is mad.  Since the public is mad, now Obama has to waste time pretending to be mad.  

Why did AIG give those bonuses knowing full and well we’d get angry?
Simply put, they had no choice.  Unless investigators find some conspiracy, all we’ll learn is AIG was legally bound to give these bonuses.  It is no different than you having a contract with a landscaper.  If he doesn’t do the work, you can sue him for your money back.  If you don’t pay him, he can sue you for the money.  If AIG didn’t pay these bonuses, they would face lawsuits that would cost the company more money than just giving out the bonuses.  You can talk until you’re blue in the face about using government money, but even the Supreme Court will uphold a contract that costs the country millions.  You can mumble to yourself about how bad these contracts where, but the fact of the matter is these contracts existed prior to many of these problems, and they are legal.

Now back to the finger-pointing. This debacle has raised all of those questions about corporate greed that come up at least every 35 seconds once again.  The simple fact is the government could have stopped this from happening in two different ways and did neither.  Whose fault is that?  Geithner’s, and the Fed and Geithner’s predecessor – Hank Paulson.  You see as head of the NY Fed, Geithner was one of the engineers of the first bailout of AIG, and has since been involved in every AIG matter since.  Now he’s basically in charge of it, and, as AIG claims, he approved the bonuses just last week  

There were two ways Geithner and his pals could have kept these bonuses from happening:

            A)  Force AIG into bankruptcy.  Had they done this from the start the AIG executives would have had to get in line to receive what is                    contractually theirs.  In a controlled bankruptcy backed by the federal government, they could have at least reduced the bonuses if not                eliminated them altogether.

            B)  Blackmail.  You dangle the money over the heads of AIG and force them to renegotiate their contracts with the executives.  Then                   AIG could just go to the execs and say, “renegotiate your bonuses or we go into a non-government-sponsored bankruptcy and you’ll                   lose your job and your bonus.”

But the government didn’t make any requirements like that.  The three architects of this bailout were Bernanke, Paulson, and Geithner.  Paulson is gone, Bernanke is too well respected for everything else he’s done, which leaves Geithner to burn.  So if you want to grab your pitchforks and torches and go on a witch hunt, walk passed Wall Street and head straight towards Pennsylvania Avenue.

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