Last year, Treasury Secretary Henry Paulson of the Bush Administration gave us a single untested reason why the federal government should pump billions into AIG. Under President Obama, current Treasury Secretary Timothy Geithner continues to endorse that policy: It is that AIG is too big to fail. The theory holds that because of its size, an AIG failure poses “a systemic risk” which would spread throughout the financial system.
This is like telling us that the financial system resembles a set of dominoes all lined up half an inch from each other. AIG, it’s implied, is the first domino in the string and, if that one is knocked down, all the others will collapse in succession. We are presented with no other options. In the 1960’s the nation fell for that line of reasoning and paid dearly for it.
Those of you who are old enough to remember the months preceding the Vietnam War (and you young ones who should have been taught the causes of that war in school) may remember that Americans were told the same thing.
The rationale for war was officially called “the domino theory.” The United States could not afford to let Vietnam fall to the communists. To do so would result in other Southeast Asian countries to be overrun by communism.
To assure that this would not happen, the U.S. dispatched thousands of young American soldiers to Vietnam; failed to support them in a bungled military operation; spent billions; and lost the war. All that and, after a disorderly American retreat, Communist North Vietnam took over the entire country.
The infamous domino theory used to justify the Vietnam War was a feckless assumption. The other dominoes did not fall.
See the connection? We are now being sold a similar financial domino theory that if AIG is allowed to go down, the other firms in the financial world will go under. Perhaps. But Americans have not been presented with alternative, less costly and more market-oriented alternatives.
Like the Vietnam era domino theory, we are expected to blindly follow the “experts,” just like those Johnson era presidential advisors, Robert McNamara and McGeorge Bundy who kept President Lyndon Johnson in that war to its bitter end, and ruined his chances for re-election.
Showing posts with label AIG. Show all posts
Showing posts with label AIG. Show all posts
Tuesday, March 24, 2009
Monday, March 23, 2009
Obama’s New Move
When President Barack Obama recently submitted his budget proposal to Congress, he also inserted a contingency for another $750 billion for more bailout funds. Had Obama stayed on that path, Congress would have been required to debate and to consider approving that additional sum. But those plans have now gone down the tubes.
The Washington anger over AIG bonuses has now spread throughout the country like a plague. This has made it functionally impossible for Obama to publicly secure a Congressional stamp of approval for the hundreds of billions of dollars of additional money that his administration needs to stimulate the purchase of currently unmarketable asset-backed securities. Should he attempt to obtain Congressional approval now, he will incite even greater outrage among Americans.
The administration’s solution is crafty: Make an end run around Congress by devising a plan which can be implemented through the executive branch. This removes the arrangement from public debate and the need for approval by the legislative branch.
Congress thus gets handed its own special bonus by being absolved of responsibility. No more personal embarrassment for the likes of Nancy Pelosi, Harry Reid, Chris Dodd, Barney Frank, Charles Rangel, etc.
President Obama’s revised plan will rely heavily on public-private partnerships which will require the full voluntary participation of Wall Street hedge funds, pension funds and insurance companies. Therefore, look for the Obama administration to tone down its rhetoric about corporate bonuses.
Why? Because the managers of Wall Street firms which will be requested to participate in the program will pick up their marbles and leave the playground, if their yearly bonus checks or alternate forms of compensation are at risk. To succeed with his new plan, President Obama needs Wall Street, but he can’t go public with that admission. Ironic, isn’t it?
NEXT: The Obama administration’s new stimulus plan.
The Washington anger over AIG bonuses has now spread throughout the country like a plague. This has made it functionally impossible for Obama to publicly secure a Congressional stamp of approval for the hundreds of billions of dollars of additional money that his administration needs to stimulate the purchase of currently unmarketable asset-backed securities. Should he attempt to obtain Congressional approval now, he will incite even greater outrage among Americans.
The administration’s solution is crafty: Make an end run around Congress by devising a plan which can be implemented through the executive branch. This removes the arrangement from public debate and the need for approval by the legislative branch.
Congress thus gets handed its own special bonus by being absolved of responsibility. No more personal embarrassment for the likes of Nancy Pelosi, Harry Reid, Chris Dodd, Barney Frank, Charles Rangel, etc.
President Obama’s revised plan will rely heavily on public-private partnerships which will require the full voluntary participation of Wall Street hedge funds, pension funds and insurance companies. Therefore, look for the Obama administration to tone down its rhetoric about corporate bonuses.
Why? Because the managers of Wall Street firms which will be requested to participate in the program will pick up their marbles and leave the playground, if their yearly bonus checks or alternate forms of compensation are at risk. To succeed with his new plan, President Obama needs Wall Street, but he can’t go public with that admission. Ironic, isn’t it?
NEXT: The Obama administration’s new stimulus plan.
Sunday, March 22, 2009
Barack’s Barrage
Well, it was bound to happen: The week-long diatribe engaged in by President Barack Obama and the Congress against AIG bonuses has so fomented a populist desire for revenge, that Obama’s next move to ask Congress for another $750,000,000,000 in bailout funds has been pulled off the table and will resurface in another form.
Don’t misunderstand. I’m not now and never was in favor of AIG executives getting bonuses within a company that is in severe distress, while it simultaneously accepts billions in federal cash infusions. But there is a big difference between justice and vengeance. And there is just as big a difference between seeking accountability and trotting out the guillotine.
This is America, not revolutionary France of the late 18th century where opponents’ heads were chopped off by an outraged populace. Nor is this Japan of the Samurai era where the seppuku honor code of death was employed to remit shame.
Don’t take my word for it: Republican Senator Charles Grassley of Iowa has already called for AIG executives to either “resign or go commit suicide” by falling on their swords hara-kiri style.
Grassley has since backed off from his original statement, subsequently saying that, “we need to show some act of contrition on the part of CEOs that run their corporations into the ground.” And what, Senator Grassley, do we do about Washington politicians who run their country into the ground?
MONDAY: President Obama’s Next Move.
Don’t misunderstand. I’m not now and never was in favor of AIG executives getting bonuses within a company that is in severe distress, while it simultaneously accepts billions in federal cash infusions. But there is a big difference between justice and vengeance. And there is just as big a difference between seeking accountability and trotting out the guillotine.
This is America, not revolutionary France of the late 18th century where opponents’ heads were chopped off by an outraged populace. Nor is this Japan of the Samurai era where the seppuku honor code of death was employed to remit shame.
Don’t take my word for it: Republican Senator Charles Grassley of Iowa has already called for AIG executives to either “resign or go commit suicide” by falling on their swords hara-kiri style.
Grassley has since backed off from his original statement, subsequently saying that, “we need to show some act of contrition on the part of CEOs that run their corporations into the ground.” And what, Senator Grassley, do we do about Washington politicians who run their country into the ground?
MONDAY: President Obama’s Next Move.
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