The AIG Smokescreen

If you really want to know how Washington works look for the story behind the story.  In other words, the big story of the day is many times a cover for another story that they DON’T want people talking about.

Take all of the faux rage being displayed, by members of both parties, over bonuses totaling 165 Million, or LESS THAN ONE-TENTH OF A PERCENT of the 173 billion of taxpayer monies given to them. 

We are throwing TRILLIONS of taxpayer dollars out the door yet we are getting upset about a measly 165 million.  Now don’t get me wrong, I don’t think the taxpayers should be forced to pay these bonuses either but the question still remains.  Are Obama and the others in Washington really that upset about the 165 million or are they hoping that we miss this;

 

President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. He and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.

Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government’s AIG “rescue.” This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

American Investors are getting screwed. Ironically, the very same people that will be a big part of restoring our nations wealth.

Let’s see where that money went, shall we?

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counter parties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no “bailout.” Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.

[my emphasis]

Goldman Sachs obviously has the right connections in Washington. We already knew that.  Goldman Sachs gave enormous amounts of cash to politicians during the last election cycle.  They were the second largest contributor to Obama.  Think that has anything to do with this diversion?    Furthermore, why are we bailing out foreign banks?  Don’t those countries have tax payers to bend over?  It gets worse;

The politicians also prefer to talk about AIG’s latest bonus payments because they deflect attention from Washington’s failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, “This is a corporation that finds itself in financial distress due to recklessness and greed.” That’s true, but Washington doesn’t want you to know that various arms of government approved, enabled and encouraged AIG’s disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG’s infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a “college” of global bureaucrats.

But what about that supposedly rogue AIG operation in London? Wasn’t that outside the reach of federal regulators? Mr. Polakoff called it “a false statement” to say that his agency couldn’t regulate the London office.

Our progressive leaders in Washington have been pushing the narrative that the root cause our fiscal problems is lack of government oversight, justifying the recent and seemingly unchecked expansion of our federal government. When, in reality, it lays bare the fundamental flaw with excessive government oversight; the increased ability to game the system and win campaign contributions for said gaming.

And his agency wasn’t the only federal regulator. AIG’s Financial Products unit has been overseen for years by an SEC-approved monitor. And AIG didn’t just make disastrous bets on housing using those infamous credit default swaps. AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG’s shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency “should have taken an entirely different approach” in regulating the contracts written by AIG’s Financial Products unit.

 

Obama and his administration has, at every opportunity, made CEO’s and executives of large companies the boogie man. They have been telling us that unchecked greed on wall street has been the driving force behind this financial mess. They have told us that deregulation was to blame.  Capitalism is to blame. They have told us that the only saviour to this mess is the federal government.

My only response to that is this; In a truly capitalist society we would not be, in essence, laundering money through AIG to give to Goldman Sachs to cover their bad bets. In a capitalist system Goldman Sachs would have failed as a result of those bad bets. Many others too, as they should. If you do bad business or make bad business decisions you fail. That’s how it works for those of us that do not have a high level washington insider on speed dial and that is how it should work for every company.

Bottom line is this, if you would like to know who in congress is knee deep in this AIG mess, find the ones that are screaming the loudest about the bonuses.

Update 2: Apparently Obama knew about the bonuses the day before the were paid. Which makes his righteous indignation a bit more hypocritical then it was before. Hey Obama! Next time read the damn thing before selling it to the American people and certainly before signing it. I have a BIG problem with ANY legislation that is pushed through under the cover of night under any circumstances and lets face it, Pelosi could have, and should have, rescheduled her trip to Rome for something as significant as an $800+ billion  spending bill. Furthermore they promised the public would have 48 hours to view it online and only allowed a few hours on the Friday it was signed. What’s worse is the spending bill that had to be signed in a big hurry to avoid financial catastrophe sat on Obama’s desk for 4 freaking days before he signed it. Had to be rushed eh?

Furthermore, Senator Dodd who inserted the language allowing the bonus contracts be upheld received more money from AIG and it’s executivesthen any other politician. Coincidence. Hard to swallow that. Of course Obama received almost as much. But I suppose that is just a coincidence too.

I have lost all confidence that this administration will be any more competent then the last one.  In fact they seem to be going the other direction.

Update 3:  Dodd now admits to adding the language that protects the AIG bonuses.  Which makes all of his faux rage when the story broke all the more pathetic.  Although he admits to adding the language he says that the treasury dept officials told him to add it. Uh-huh sure they did.  

This is what I like to call the  beltway natural selection two-step.  Here is how it works:  Dodd gets caught red handed, but instead of taking the blame he throws the treasury under the bus because he perceives Tim Geitner and his staff – what little there of it there is -  to be easy prey.

Update 4:  On closer review I think that Dodd may be telling the truth.  I know. Wow right?

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