AIG Bonus Outrage=Fascism?

We have a winner for most hyperbolic defense of AIG: Holman Jenkins of the Wall Street Journal. While many Very Serious People in the establishment media have taken to print and the airwaves to lecture the public on how pointless, unproductive, and even counterproductive rage over the retention bonuses paid to AIG's Financial Products employees (some of whom no longer even work at AIG), Holman Jenkins is the first to nearly break Godwin's Law. At the conclusion of his jeremiad chronicling the veritable slings and arrows of outrageous fortune befalling AIGFP's employees, Jenkins informs us that Andrew Cuomo's investigation into AIG reminds us that "It can happen here." This is a reference to Sinclair Lewis' 1935 work It Can't Happen Here, imagining a fascist takover of the United States at the hands of a charismatic Huey Long-style pol. So anger over the employees of a bankrupt company on government life support receiving millions of dollars of bonuses in taxpayer money is the first step on the road to serfdom? Will Andrew Cuomo ask President Obama to set up FEMA concentration camps in the AIG building? And could the right wing be any more detached from reality?

Clawbacks, Taxes and Prosecution: Oh My!

Angry Bear captures the zeitgeist of the moment: we need prosecutions of Wall Streeters. Put insolvent firms into pre-packaged bankruptcy, and go after past bonuses as fraudulent conveyance. Or pass punitive, retroactive taxes on all firms that received TARP funds. It could just be the fixed income idiots who spawned this crisis (they accounted for nearly half of Wall Street profits at the peak of the bubble). Or, if Andrew Cuomo is really ambitious, start going after these firms with RICO cases. Get creative. Make arrests. Put the worst of them in jail, where they belong. Show them they are not above the law.

AIG: All Your Billions Are Belong To Us (And Our Counterparties)

This is the definition of looting. It would be one thing if employees who had good years despite AIG's implosion were receiving bonuses. Even that is hard case though. After all, taxpayers don't want their money going to pay for bankers/insurers' bonuses; the point of the bailouts was to stabilize the financial system, not bankers' lifestyles. But AIG is an entirely different story. They're giving $150 million to the wizards at Financial Products responsible for burning down the house (or, at the very least, pouring gasoline onto the burning house) - and by house, I mean the global financial system.

AIG has, of course, offered up all sorts of specious arguments about why they need to dole out these "retention" bonuses. The oldie-but-goodie is that the world will end if we don't give them every cent they demand. This is simply extortion. It is sociopathic behavior. The other spurious defenses of these payments - which Aaron Ross Sorkin the New York Times bought hook, line, and sinker in his column yesterday - are that if the government begins abrogating contracts, our entire system of rule of law will crumble, bringing - once again - the world to an end; as well as the claim that AIG needs to keep its supposedly in-demand employees in house to unwind their CDS positions. Here's Sorkin on Hardball reiterating his position.

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However, as John Carney notes, there are holes in these arguments large enough for any half-clever lawyer to push Rush Limbaugh through. AIG would not exist today were it not for its taxpayer-financed bailout, and if AIG had been allowed to go into bankruptcy, its employees, as unsecured creditors, certainly would not be receiving any bonuses. Renegotiating the bonus contracts in this case would not be an abrogation of contracts, but merely reflect the changed status of AIG as a ward of the state. As to the assertion that AIG needs to pay out these bonuses to retain its "top talent" - well, as Andrew Cuomo points out, paying "retention" bonuses to people who no longer work at AIG makes a mockery of that claim.

While the public has attached onto the bonus issue, the real outrage, of course, has been the billions funneled into AIG through the frontdoor going out the backdoor to Goldman Sachs and the rest. Eliot Spitzer nails it: why are taxpayers on the hook to make counterparties whole - especially at a time when people on Main Street are all taking a little bit less so that everyone can get by? That Goldman CEO Lloyd Blankfein was the only bank executive in the room when Paulson and Geithner decided to bail out AIG always reeked of pure cronyism, but amidst the warpspeed nature of the crisis in September, it did not receive the scrutiny it deserved. But in an environment where a senator suggests AIG executives should commit seppuku, perhaps we'll finally begin to demand the type of transparency we should have had from the beginning. We can only hope.