Tuesday, March 17, 2009

AIG and Congress

It's been amusing to watch the congressmen and women step all over themselves to condemn the $165MM in AIG executive bonuses. Of course, it's silly and stupid for the AIG employees to expect these bonuses: were it not for the fact that taxpayers have stepped in, the traunche for their bonuses would fit somewhere behind the janitor's salary in AIG's bankruptcy proceedings. If they get bonuses at all, it's from a sheer legal technicality.

But it's equally disingenuous for the members of our beloved Congress to insist, as I heard one member say, that "rewarding failure is not the American way." As John Schoen of MSNBC has pointed out in a recent article, the various laws passed by Congress, or not passed by Congress, have contributed to this mess just as much as any extra-fancy financing from AIG's trading desk. Most notably, in 2000, Congress (under Bill Clinton) passed the bi-partisan "Commodity Futures Modernization Act", which, among other things, dramatically loosened regulations on derivative financial products, and created the multi-trillion dollar bubble which recently imploded under AIG.

Chuck Grassley recently said that it would be the honorable thing for the AIG traders either to resign or commit suicide. It would seem convenient to request that our congressional representatives uphold similar standards. Unfortunately, we need them around, and for the same reason we need the AIG traders at their desks: the folks who got us into this mess are, regrettably, best positioned to get us out.

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