The bonuses aren’t the big scandal at AIG

I meant to write this before, but Eliot Spitzer beat me to it.   I agree that we should force the folks who got bonuses at AIG to give them back (Doug Henwood blogs about how to do that), or tax them at 150% percent. 

However, the real scandal is that while millions of people have been laid off, UAW members are forced to renegotiate their contracts, and the US government is bailing out the banking sector seemingly without any upside, AIG paid out tens of billions of dollars to banks, hedge funds and others making good on the poorly setup Credit Default Swap (CDS) contracts that AIG entered into.

As he writes:

It all appears, once again, to be the same insiders protecting
themselves against sharing the pain and risk of their own bad
adventure. The payments to AIG’s counterparties are justified with an
appeal to the sanctity of contract. If AIG’s contracts turned out to be
shaky, the theory goes, then the whole edifice of the financial system
would collapse.

But
wait a moment, aren’t we in the midst of reopening contracts all over
the place to share the burden of this crisis? From raising taxes—income
taxes to sales taxes—to properly reopening labor contracts, we are all
being asked to pitch in and carry our share of the burden. Workers
around the country are being asked to take pay cuts and accept shorter
work weeks so that colleagues won’t be laid off. Why can’t Wall Street
royalty shoulder some of the burden? Why did Goldman have to get back
100 cents on the dollar? Didn’t we already give Goldman a $25 billion
capital infusion, and aren’t they sitting on more than $100 billion in
cash? Haven’t we been told recently that they are beginning to come
back to fiscal stability? If that is so, couldn’t they have accepted a
discount, and couldn’t they have agreed to certain conditions before
the AIG dollars—that is, our dollars—flowed?

The appearance that
this was all an inside job is overwhelming. AIG was nothing more than a
conduit for huge capital flows to the same old suspects, with no reason
or explanation.

The US government owns 80% of AIG, right.  It would have gone bankrupt without our money potentially taking down the economy.  So why don’t we force AIG to renegotiate the CDS contracts it has entered into.  What are the parties on the other end of the CDSs going to do, have us call in the money they have borrowed from us?

Hat tip to Dollars & Sense for citing Spitzer’s article.

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