Clearly, the bailout of AIG was a mistake. Not because they paid out contractual bonuses when the taxpayers owned 80% of the company, but because no company is too big to fail.
AIG should have filed Chapter 11 bankruptcy and then the light of day could have exposed the problems. If that had happened, today we would already be six months down the road to reorganization.
Yesterday, everyone from President Obama to Senator McConnell to the convenience store clerk was outraged about the company bonuses paid out. I understand the sentiment, but it is emotion — or “irrational exuberance” — that got us into this mess. We need solid free market business practices to get out. The new CEO of AIG, Edward Liddy, is working without a salary. When Secretary Geithner asked him about the bonuses, he said there was no way to get around them without violating contractual agreements. In theory that would stand, but I would very much like to know whether Liddy even tried to renegotiate the amounts paid out.
When Liddy, the retired Allstate CEO, was tapped to steer AIG from the edge of insolvency, the markets loved him. He had vast experience, including experience when it comes to successful restructuring of major companies. When Liddy was appointed, the Chicago Tribune reported, “The government’s pick hadn’t been made official as of late Wednesday, but one major AIG customer applauded the expected move, saying Liddy will help foster confidence in a company teetering on the edge of collapse.” There is something fundamentally wrong with that — the idea of “the government pick” to head a large corporation.
While I am sure that Liddy is competent, there is no way a free market warrior like Liddy can survive in a “government pick” world. The government shouldn’t be picking CEOs or determining contracts. Underlying and undermining this is the fact that the fastest growing segment of workers is government workers, and the only union that is adding members is the union representing government workers. This growth of the public sector is why our economy is out of balance. We are outraged at AIG — but not at the government worker who is getting a pension that is guaranteed by us with no risk to him or her.
We are living in an alphabet soup world today — but it’s a different brand of alphabet soup than in the Great Depression’s New Deal.
Today, corporations, unions, and government programs bear the labels of AIG, UAW, or TARP. The argument goes: if 80% of AIG is held by the taxpayer through the allocation of taxpayer dollars, then “we, the people” have the right to say what’s fair in executive compensation, bonuses, and expenditures. But if that is so, the same should be true of government workers and their bonuses and pensions, starting with Congress and the president. Let the president and all the other elected millionaires forgo their salaries and pensions for a year for the good of the country.
Similarly, since “we, the taxpayers” bailed out GM and Ford, and then we ought to have the right to review the benefits of the UAW. This slippery slope is the problem with the parceling out of free market principles and picking winners. Either we are a free market or we are not.
There is no doubt that there are excesses in the free market system. However, after trillions of dollars in spending and guarantees from the government, thousands of pork projects, and earmarks, is the White House and those who support their tactics supposing that this waste is justified and the $165 million dollars in AIG bonuses are not? Hypocrites, all of them.
The Obama administration may once have had solid ground to stand on in its criticism of the Bush financial policies, but no longer. The problem that got us into this mess is still there. The fundamental problems with the housing markets, the credit markets, and the banking system have not been addressed. The administration dealt with what they thought were the easy fixes first, like AIG, and haven’t dealt with the underlying issues. And if you don’t pour the foundation first, the house will not stand.
President Obama must listen to the free market forces and look at history. The shortest depression in our history was in 1920, not 1929. It was the shortest because the government allowed the markets to work and it led to one of the biggest booms in our history. All booms are going to bust; we have cycles up and down about every 10 years. It’s how you handle the bust that determines whether the next boom cycle will come sooner — or much later.