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Great Idea, Let’s Let AIG Thieves Blackmail Everyone

by twolf1

We’ll be delivering our petition to Congress when Barney Frank’s House Financial Services Committee holds a hearing on AIG at 10am tomorrow. You can sign it here and leave your comments.

Andrew Sorkin writes a completely incoherent defense of paying out bonuses to AIG in the New York Times. It would hardly be worth consideration were it not for the fact that it may very well be what Timothy Geithner was thinking when he negotiated the deal to pay the bonuses out in the first place:

A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

It certainly explains the white paper obtained by FDL on Sunday which AIG wrote to explain its legal rational for paying the bonuses. Marcy Wheeler interprets it (rightly I believe) as a ransom note: Pay us or we blow the whole thing up.

Let’s look at the implications of what Sorkin is saying. The markets have seized up for various reasons, but ultimately due to the fact that people have no confidence in the entire system. There were huge conflicts of interests when agencies like Moody’s and S&P were paid by issuers to rate structured securities backed by subprime mortgages. They handed out AAA ratings like they were Pez, and because certain firms could only put their money in such "investment grade debt," facilitated the spread of the subprime cancer that riddled the entire system. It’s just one example of why nobody trusts anything right now. There’s no confidence that if you put money into something, you’re able to assess that what you’re investing in has real value, and isn’t just another ponzi scheme designed by crooks to enrich themselves.

So what Sorkin is saying is that we should just admit, in a very public way, that we have no ability to regulate the system. That if someone commits fraud and theft on such a massive scale, there’s nothing we can do but pay everyone off or they will use their knowledge to steal even more money. He’s saying that there is no authority, no viable regulation, no legal structure that can right this mess. All we can do is keep writing checks, pay off the blackmailers and hope that if we let them continue to get rich they won’t make matters worse.

Geithner seems to share that assumption, namely that there is nothing wrong with this system that piles of money won’t fix. That if you keep shoveling cash into it, some day things will get better. He has not addressed the crisis of public trust, the critical lack of faith that everyone — both inside and out of the financial industry — is gripped with right now. He wants to pay the very bankers who created this mess in order to buy up "toxic assets," which the public views as just another way for him to funnel billions to his Wall Street pals. As if the systemic problems that led to this crisis will just go away and the same thing won’t happen all over again.

People are outraged at the injustice of paying out billions in bonuses to AIG bankers, but they’re also irate (and freaked out) about what it says about those in charge — that they are so much a part of the fabric of the problem that they’re incapable of seeing what it is, much less solving it. Paying off blackmail notes from architects of the fall is a great way to make things worse.

If the AIG executives have information they’re not telling us, that’s what grand juries are for. That should be the starting point of any negotiation. You don’t let someone off the hook just because they tell you where the bodies are buried, you just agree not to fry them.

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Jane Hamsher

Jane Hamsher

Jane is the founder of Firedoglake.com. Her work has also appeared on the Huffington Post, Alternet and The American Prospect. She’s the author of the best selling book Killer Instinct and has produced such films Natural Born Killers and Permanent Midnight. She lives in Washington DC.
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