March 15, 2009--A.I.G. Rant

In the Green Owl Early last week I was having coffee with Bob. He would describe himself as a “regular guy.” After military service he went to work for a telecommunications company, moved around a lot, and about ten years ago retired from AT&T. From his navy days he still sports a brush cut; he keeps himself fit; and has a pretty good, secure pension.

Like the rest of us, he’s been hit by the decline in stock values but is still comfortable. Bob was and is a good saver and shrewd investor.

After a few perfunctory hellos and chit chat about the weekend basketball results, he leaned over close to me and poked his finger almost into my chest to let me know how worked up he was about the government and all the bailouts. “If the government would only stay out of things, we’d be fine. It’s not their business to interfere with the economy.”

“Don’t they have to, Bob?” I said, “If they don’t get involved won’t everything come crashing down?”

“Tell me one thing the government‘s ever done right. Katrina?” He snorted. “Iraq?” he scoffed again. “They’re making a mess in Afghanistan, and so you think the same people who made all these messes can fix the banks?” He looked at me.

“Who’s gonna pay for all this?” Adding more half-and-half to my coffee, I didn’t respond. I knew where this was going. “I’ll tell you—you and me.” With that he actually poked me.

I instinctively lurched back on my stool, almost toppling over, and since I didn’t have a good answer for him I averted my eyes and resumed concentrating on my coffee. But, without looking up, still I tried, “One thing I can tell you, Bob, is that we’ll pay either way—if we continue to bail out the banks and if we don’t.”

“How’d you figure that?” he asked.

“Well, we’re already paying for the initial bailout money and if the banks and A.I.G. go bankrupt we’ll pay for that too by further declines in the stock market, the free fall in the value of our houses, and when we see our 401(k)s continue to shrink.”

“And where will all that money come from? Please don’t tell me from the Chinese.”

“From them, too. They’ll keep buying our T Bills. If they don’t, the ones they already have will go down in value. They too have to protect their investment.”

“I’m not buying any of that. What the government’s doing is running the printing presses day and night. You mark my words, soon it will cost $25 for a cup of coffee here.”

We went back and forth about this, with his ire more and more directed at A.I.G. “Why the hell did we give them any money in the first place? Who cares if an insurance company goes out of business.”

“They’re more than an Insurance company,” I tried to say, “They’re also a version of a bank. I think they’re the ones that invented those credit default swaps, which . . . “

“I know all about them. I’ve been reading up on the situation. I don’t care what they invented. Enough is enough. I say let them go.” I resumed saying nothing. “To make things worse, they’re a French company aren’t they? So let France bail them out.”

For his central argument and raw emotions I had no adequate response, though I did try to correct his assertion that it is a French company. But my attempt to defend what the Bush and now the Obama administration have been doing were to no avail. I wasn’t even able to convince myself that what I was saying made any sense.

And now, a week later, I am convinced that that defense, call it an explanation I was attempting to offer last Monday for the government’s action no longer pertains. I am tempted to say that after learning on Sunday that A.I.G., which has thus far received $170 billion from the US government—let me correct that, from us—has continued to blithely pay out bonuses to its executives. When they are done with the current round in March 2010, these bonuses will add up to at least $450 million. (See linked New York Times article for the details.)

When he learned about this, Treasury Secretary Tim Geithner was outraged and called A.I.G.’s chairman to complain. After all, because of the bailout, the U.S. government now owns 80 percent of the company’s value and the Treasury appointed the current chairman. So the government should have some leverage in the situation.

The chairman did agree to reduce some of the bonuses, but not all the way back to zero. Quite the contrary. He informed Geithner that almost all of them are contractually obligated. There is nothing anyone can do about that—a contract is a contract. And further, they are necessary to keep top performers from leaving A.I.G.

Well, I’ll tell you what can be done. I know that I am speaking emotionally, but what we the people, our government should do is unilaterally break the contract. If we can go to war unilaterally, we can break contracts that way.

And then let the people who claim they are entitled to the bonuses sue. Let them go to court, publicly identify themselves, tell us where they live, and then try to convince the judge—and the America people why they deserve the money. Not salary money, but bonus money.

Let them make their case. Especially those who worked in the credit default swap unit who are in line to get most of the bonus money. The very division that was central to bringing down the company and the U.S. and world economies.

And, though I know it’s not his thing--to express populist anger--I want to see my otherwise cool president on TV, not his surrogates, without his teleprompter, look straight into the camera and tell us how outraged he is and what he plans to do to quell his and our fury.