AIG Bonuses

There is a lot of talk about the AIG bonuses that are now being paid for the second year in a row.  The 100 million is a very large sum of money to come from an organization that would not even exist if not for a public bailout.  I understand the anger, but what do you expect? 

The AG for Connecticut was on the Kudlow Report last night talking about these bonuses and about his attempts to get them back.  Where was he when the bailout was occurring?  Where was the Fed making sure that bonuses were discontinued at the inception of the bailout?  Perhaps they did not know that AIG gives bonuses.  Perhaps they did.  This is the classic stance of governmental bureaucrats.  They stick their heads in the sand until a calamity happens.  They were warned about the looming mortgage crises (that they created), and did nothing.  Barney Frank and many other Democrats actually opposed legislation introduced in 2000, 2003, and 2004 that could have seriously mitigated the meltdown saying that worries about Fannie and Freddie were "overblown." 

Clinton: I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.

Why would you assume that someone who takes enormous risks, gets in trouble, gets bailed out with "no strings attached"; would learn a lesson?  Depository banks traditionally operate in a low-risk environment.  It is exactly that type of environment that makes a depositor feel safe.  However, investment "banks" (you should really use the work financial institutions) operate in a high-risk environment.  This is precisely the environment people turn to in "up" times to get the most return for their money.  When you reward this high-risk behavior with bailouts, you prove to these managers that their taking risks can have huge rewards with only minimal downsides.  What are we trying to teach here?  It flys directly in the face of the constitution to void these bonus contracts.

The financial institutions have been rewarding their employees the same way for well over 20 years, they have been preying on the upper and middle class for decades before that.  Why would the government think that these zebras would change their stripes now?  The government did nothing to stop these bonuses when they crafted TARP.  I don't understand why they act so indignant now.  If they had wanted these contracts broken, they should have done so as a condition of TARP funding.  They also could have provided back-stop funding for a managed restructuring of debt and all other contractual obligations (bankruptcy).  That option would have been the best for the American people since it would have allowed us to buy into these corporations much more cheaply.  The government chose to forgo these options.  It is a little more than a bit disingenuous to complain about things now.

I can guarantee you that the same people that the government "hopes" has learned their lesson have not.  More importantly, what I am hoping is that "we the people" have learned how our "protectors" play their games (and games they are).  There is not much more than CYA (cover your a$$) going on in politics.  As long as we have a culture that punishes the self-sufficient, independent man and rewards the selfish lay-about; we will have no shot whatsoever at becoming the great country that the US was intended to be.