Congress Conducts Weekly Inquisition
To the unbounded joy of the Daily Kos crowd, the Congress held their weekly inquisition of an American business leader yesterday. In this case the leader was Edward Libby, CEO of AIG. If anyone deserves to be raked across the coals it is certainly AIG and their irresponsible and overleveraged investments. Problem is that the CEO who got AIG into that position and who probably should be raked over the coals is long gone. Libby took the job of trying to steer the company out of it's morass for the salary of 1 dollar per year. But this made no difference to the House subcommittee as they heaped their show of indignation upon him.
There are several things that I find positively frightening about this last inquisition. First of all, I want to say that I don't approve of bonuses for failure. But is illegal and unconstitutional congressional taxation the answer. Let's keep in mind that these bonuses were legal. There was nothing in the TARP or the stimulus package that prevented them. It's another case of Congress fixing their bills after the fact; or should we say, after voter anger. In possibly the only insightful thing that Donny Deutch of CNBC has ever said in his life, he remarked that the bill that resulted from this inquisition was basically a bill where Congress legislated out of anger for the benifit of the angry. For clarity, let me add that the House passed a bill today that would tax 90% of the bonuses that these people received. And the bill extends to any company that has taken more than 5 billion of bailout money from the government.
The problem that should be quickly apparent is that Congress passed the TARP and the Stimulus bill; encouraged banks to take the loans in order to increase the availability of credit; and then made up the rules that the recepients were required to follow after the money had already changed hands. This is a powerful omen of things to come after we have nationalized health care. Congress will make the claim that they have a right to legislate how we conduct our lives because our healthcare is being paid by the taxpayer. As an aside, here is a powerful story about the workings of the British health care system.
http://pajamasmedia.com/richardfernandez/2009/03/19/here-to-help-you/
But before I ramble on any further, let me get to the gaping problem with the latest congressional inquisition. The 165 million that AIG paid in bonuses is less than one part in a thousand of the 170 billion that Congress has voted to give to AIG. Why all the sound and fury about less than one tenth of one percent of the total. Because it is a distraction for the way that the other 99% was spent. We are to believe that our Democrat led Congress is competent because they dealt so harshly with the rich guys, all the while ignoring the 99% of their appropriation that was misspent. In fact the largest part of that 170 billion was given by AIG to foreign banks. 60 billion of the 170 billion that US taxpayers sent to AIG went to non US banks. Had AIG never been bailed out, and had it simply been allowed to go bankrupt, as it should have been, then this transfer of US taxpayer money would never have happened.
But since it did happen, what is the result? The government now owns 80% of AIG. And AIG still has 1.5 trillion in unresolved credit default swaps and other dubious financial instruments. Some of the people who understand these complex financial instruments have agreed to stay on with AIG and unwind those positions. Oddly enough, the people needed to do this very complex unwinding are the same people that recieved most of those bonuses. What is their reason for staying with AIG now? Congress, along with Andrew Cuomo, have turned them into virtual criminals. Their compensation package will now be trivial compared to what other banks pay. Banks like Deutche Bank are offering them jobs with much better compensation. The answer, of course, is that they are going to leave. This means that the most sensitive financial transactions that AIG will be required to do will now be left in the hands of people that are simply too incompetent to get one of those higher paying jobs at some other bank. In other words, the financial well being of a company that is 80% owned by the government will be in the hands of the D squad. The losses that will be incurred by this D squad may well be hundreds of times as large as what the Government saved by retroactively taxing AIG employees, as well as other bank employess, at 90%.
There are many slippery slopes in this story, not the least of which is the use of putative taxation by the government. Class warfare has always been an obsession of the left, and this bill certainly opens the door to government abuse of power in the service of that war. Today they are using the excuse of rescuing taxpayer dollars - even though it is only one thousands of the total that they squandered on AIG. Tomorrow they will need no such excuse.
Then there is the issue of contract law. How meaningful are contracts in the US if the government feels that freedom to violate them at will. They are doing this now, and they have done it in the case of mortgage principal cramdown. How will America conduct business when contracts between private groups and individuals are no longer worth the paper they are written on?
Then there is the issue of financial punishment of the incompetent. But I don't see anyone punishing Barney Frank or Christopher Dodd for their responsibility for the subprime loan mess that brought all of the banks to this position to begin with. I don't see them being punished for wasting 170 billion of taxpayer money to bail out a completely non-viable financial institution like AIG. In the darkest of times for our country, our liberty, and our financial well being, the asylum is in the hands of the inmates.
There are several things that I find positively frightening about this last inquisition. First of all, I want to say that I don't approve of bonuses for failure. But is illegal and unconstitutional congressional taxation the answer. Let's keep in mind that these bonuses were legal. There was nothing in the TARP or the stimulus package that prevented them. It's another case of Congress fixing their bills after the fact; or should we say, after voter anger. In possibly the only insightful thing that Donny Deutch of CNBC has ever said in his life, he remarked that the bill that resulted from this inquisition was basically a bill where Congress legislated out of anger for the benifit of the angry. For clarity, let me add that the House passed a bill today that would tax 90% of the bonuses that these people received. And the bill extends to any company that has taken more than 5 billion of bailout money from the government.
The problem that should be quickly apparent is that Congress passed the TARP and the Stimulus bill; encouraged banks to take the loans in order to increase the availability of credit; and then made up the rules that the recepients were required to follow after the money had already changed hands. This is a powerful omen of things to come after we have nationalized health care. Congress will make the claim that they have a right to legislate how we conduct our lives because our healthcare is being paid by the taxpayer. As an aside, here is a powerful story about the workings of the British health care system.
http://pajamasmedia.com/richardfernandez/2009/03/19/here-to-help-you/
But before I ramble on any further, let me get to the gaping problem with the latest congressional inquisition. The 165 million that AIG paid in bonuses is less than one part in a thousand of the 170 billion that Congress has voted to give to AIG. Why all the sound and fury about less than one tenth of one percent of the total. Because it is a distraction for the way that the other 99% was spent. We are to believe that our Democrat led Congress is competent because they dealt so harshly with the rich guys, all the while ignoring the 99% of their appropriation that was misspent. In fact the largest part of that 170 billion was given by AIG to foreign banks. 60 billion of the 170 billion that US taxpayers sent to AIG went to non US banks. Had AIG never been bailed out, and had it simply been allowed to go bankrupt, as it should have been, then this transfer of US taxpayer money would never have happened.
But since it did happen, what is the result? The government now owns 80% of AIG. And AIG still has 1.5 trillion in unresolved credit default swaps and other dubious financial instruments. Some of the people who understand these complex financial instruments have agreed to stay on with AIG and unwind those positions. Oddly enough, the people needed to do this very complex unwinding are the same people that recieved most of those bonuses. What is their reason for staying with AIG now? Congress, along with Andrew Cuomo, have turned them into virtual criminals. Their compensation package will now be trivial compared to what other banks pay. Banks like Deutche Bank are offering them jobs with much better compensation. The answer, of course, is that they are going to leave. This means that the most sensitive financial transactions that AIG will be required to do will now be left in the hands of people that are simply too incompetent to get one of those higher paying jobs at some other bank. In other words, the financial well being of a company that is 80% owned by the government will be in the hands of the D squad. The losses that will be incurred by this D squad may well be hundreds of times as large as what the Government saved by retroactively taxing AIG employees, as well as other bank employess, at 90%.
There are many slippery slopes in this story, not the least of which is the use of putative taxation by the government. Class warfare has always been an obsession of the left, and this bill certainly opens the door to government abuse of power in the service of that war. Today they are using the excuse of rescuing taxpayer dollars - even though it is only one thousands of the total that they squandered on AIG. Tomorrow they will need no such excuse.
Then there is the issue of contract law. How meaningful are contracts in the US if the government feels that freedom to violate them at will. They are doing this now, and they have done it in the case of mortgage principal cramdown. How will America conduct business when contracts between private groups and individuals are no longer worth the paper they are written on?
Then there is the issue of financial punishment of the incompetent. But I don't see anyone punishing Barney Frank or Christopher Dodd for their responsibility for the subprime loan mess that brought all of the banks to this position to begin with. I don't see them being punished for wasting 170 billion of taxpayer money to bail out a completely non-viable financial institution like AIG. In the darkest of times for our country, our liberty, and our financial well being, the asylum is in the hands of the inmates.
posted by Tilo Reber at 6:11 PM
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