Obsolete Certainty

It seems that AIG isn’t the only financial giant that is paying large executive bonuses after being bailed out by the U.S. Taxpayer.  Both Fannie Mae and Freddie Mac, the giant mortgage agencies, are reportedly set to pay over $210 million in bonuses over the next 18 months.

However, absent this time are the steady stream of the usual suspects denouncing the “obscene payments”. Apparently absent this time are the protests outside the homes of employees of Fan and Fred.  Interesting.

Apparently at least one Washington insider is upset.  Iowa Senator Charles Grassley is quoted as saying “It’s an insult that the bonuses were made with an infusion of cash from taxpayers. The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence.”

At least this time Grassley didn’t suggest that Fannie and Freddie executives go Japanese.

Well. Whaddayaknow!  It turns out that the Obama economic stimulus bill contained a specific clause that permitted the type of executive bonuses that are causing all this rage.  Of course we knew then that few if any one had read the stimulus bill before the vote. I guess that will jump up and bite some folks in the backside.

Link

Congratulations fellow American taxpayer. We are going to write a check fo $165 million to fund executive bonuses at AIG. That is right! And not just any division of AIG, but the AIG financial products division that wrote all those toxic credit default swaps and other derivatives that threatened a financial doomsday.

Edward Libby, the government appointed head of AIG stated that “We cannot attract and retain the best and the brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of American taxpayers – if employees believe their compensation is subject to continued arbitrary adjustment by the U.S. Treasury.”

In otherwords, keep sending us money but don’t tell us how to spend it.

The press and the blogosphere are abuzz concerning reports that much of the AIG bailout money went to other banks and financial institutions.  But should that really be a big surprise?

The fact is the bailout of AIG was never about bailing out AIG. It was to prevent a much bigger systemic problem.  AIG was a counterparty on numerous credit default swaps. The failure of AIG as counterparty would have resulted in untold losses throughout the financial system.  Whether or not the AIG bailout was the right thing, that was the real reason.

The question we have to ask is who is responsible for allowing AIG to get where they were.