- I've never seen such outrage against the Powers That
Be (PTB) in Washington. It's not just AIG that is in trouble for paying
out hundreds of millions from bailout money in bonuses, it's the bailout
itself that has suddenly become tainted. There are so many politicians
expressing outrage that one has trouble telling the fakers from the sincere
(if there are any). The PTB want something done to placate the public and
they want it done yesterday! Their entire credibility as well as their
ability to keep bailing out their friends depends on putting out this raging
firestorm of protest. One thing is for sure, AIG is toast if it doesn't
get a continuing flow of bailout money and no politician is going to get
away with giving them another dime unless this bonus issues goes away.
This week I cover the growing list of attempts by the PTB to excuse their
inability to get back the bonus funds paid to "the best and the brightest"
of AIG, or to penalize these rascals. As one pundit put it, "if these
are the best and the brightest" that brought AIG to ruin, "give
me the dummies." They couldn't have done worse!
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- No one could outdo the feigned outrage of the president.
"President Barack Obama declared Monday that insurance giant American
International Group is in financial straits because of 'recklessness and
greed' and said he intends to stop it from paying out millions in executive
bonuses. 'It's hard to understand how derivative traders at AIG warranted
any bonuses, much less $165 million in extra pay,' Obama said at the outset
of an appearance to announce help for small businesses hurt by the deep
recession."
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- Well said, if it were sincere, but it isn't. When Mr.
Obama was a Senator from Illinois he received over $103,000 in campaign
contributions from AIG. Then Obama made it all the more unbelievable by
offering to accept the total blame. That's easy to say when he knows there
are no consequences anyone can apply to him. George W. Bush pulled that
same stunt during his presidency.
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- The Obama mea culpa may have been aimed at diverting
blame from Treasury Sec. Timothy Geithner who ran the initial bailout of
AIG as head of the NY Federal Reserve bank. As Deborah Solomon stated,
"Lawmakers in both parties Wednesday questioned why Mr. Geithner didn't
do more to derail the bonus payments and two Republicans called on him
to resign." I think they are after the right man, but there are plenty
of yes-men to the establishment who could replace him. Nothing would change.
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- If the AIG bonuses are not enough to poison the public
on bailouts, the announcement that bailed out Fannie Mae was delivering
more than a million in bonuses to its executives should keep things stirred
up. As Elizabeth Olson wrote, "Government-controlled mortgage giants
Fannie Mae and Freddie Mac are paying six-figure bonuses to retain the
executives who presided over the loss of more than $100 billion last year
alone."
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- Rep. Barney Frank (D-MA), chairman of the House Financial
Services Committee, "charged that the move to pay bonuses amounted
to 'rewarding incompetence.'" Then threatening them with their jobs
he said, "These people may have a right to their bonuses. They don't
have a right to their jobs forever."
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- The government was bemoaning the fact that AIG had "legal
contractual obligations" to pay these bonuses because they were part
of the employee compensation agreement --Nonsense on two counts. First,
bonuses are based on performance and no performance in 2008 could have
justified these bonuses given the losses AIG suffered. Second, no insolvent
company is obligated to pay bonuses or salary when the money isn't there.
Had the government-installed executives not been in league with this whole
scheme, they could have declared all contracts in abeyance based upon insolvency.
All the executives would have had to get in line with other creditors to
divvy up what little remains of AIG's assets. The fact that government
money comes flowing in as a bailout doesn't change the fact that the company
is in de facto insolvency-or so the executives could have argued. Instead,
they claimed "their hands were tied" and paid out these outrageous
sums.
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- And, how about their legal obligation to pay taxes? Evasion
is getting to be a habit with insiders. According to Matt Jaffe/ABC News,
"At least 13 companies who have received some of the $300 billion
in TARP funds owe hundreds of millions of dollars in back taxes, it was
revealed today. Two of the companies owe more than $100 million in taxes,
said Rep. John Lewis, D-Ga., chairman of the House Ways and Means Subcommittee
on Oversight. Altogether, the 13 companies owed the government more than
$220 million in unpaid taxes, he said. Lewis' committee discovered the
unpaid taxes in a review of tax records from 23 of the firms receiving
the most money, Lewis said. 'If we looked at all 470 recipients, how much
would they owe?'"
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- Next, Congress proposed a targeted 90% tax on all of
the bonuses of these executives, but that turned out to be a "bill
of attainder" and "ex post facto" law expressly prohibited
by the Constitution. Notice how they only invoke the constitution when
it serves their purposes. But the big news yesterday was that Congress
itself was responsible for this bonus mess. FoxNews found out that, "In
a dramatic reversal Wednesday, Sen. Chris Dodd, D-Conn., confessed to adding
language to the stimulus bill last month (and lying about it Tuesday) that
exempted all bonuses that bailed-out companies had promised to employees
before Feb. 11, 2009 [from the limitations on Executive pay]. Dodd told
FOX News that Treasury officials forced him to make the change."
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- While those "we had no choice" arguments may
yet be the only way the government may have to back away from this scandal,
it would only heighten the public outrage and insistence that there be
no more bailouts to AIG or any other firm. That's why I think AIG is turning
to its latest tactical lie. AIG announced it will reimburse the government
for the $165M in bonuses. Yes, but with whose money? AIG doesn't have any
money of its own to reimburse--only the government's own money. Some rebate!
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- Then AIG CEO Edward Liddy told a startled committee hearing
in Congress that "executives and account managers have begun returning
all or part of bonuses totaling $165 million." I'm skeptical --maybe
on the surface, but not without a secret promise that it will be made up
to them when this all blows over. That's the way these unscrupulous men
work. But it may well be a brilliant and tactical move to deceive the public.
If the executives of AIG are perceived as humble and penitent in "voluntarily"
returning the money, it might well snooker the public into agreeing to
more bailouts for AIG--which is what the PTB really want.
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- Here's the bottom line, courtesy of Paul Craig Roberts:
"Professor Michael Hudson (CounterPunch, March 18) is correct that
the orchestrated outrage over the $165 million AIG bonuses is a diversion
from the thousand times greater theft from taxpayers of the approximately
$200 billion bailout of AIG. Nevertheless, it is a diversion that serves
an important purpose. It has taught an inattentive American public that
the elites run the government in their own private interests."
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- US REASSURES CHINA--BUT SOME MARKETS AREN'T BUYING IT
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- Just as China was complaining about its increasing worries
about the stability of US debt and President Obama assures China that "All
is well," the US announced new moves that appear anything but reassuring.
In fact, the markets thought they looked a bit like moves of desperation.
The plan by the Federal Reserve to purchase $300B in US government debt
sent shock waves through the Forex and Bond markets. This move was an all
too clear admission that the bailout wasn't working and that foreigners
are no longer buying sufficient bonds. If it was meant to reassure China
of the continuing value of US debt, it didn't work. The dollar itself immediately
fell 2.3% against the Euro and the Yen.
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- To make matter worse at home, the FDIC announced it will
persist in its intent to apply surcharges to its member banks to cover
its shortfall. Reuters said that "The Federal Deposit Insurance Corp.
said Tuesday it is phasing out a program to guarantee certain bank debt
and approved surcharges to replenish the agency's deposit insurance fund
until the program ends. The surcharges, ranging from 10 to 50 basis points,
would be targeted at institutions that take advantage of the extension
of the program. The FDIC established the guarantee program in October.
It provides a government guarantee on certain senior unsecured debt, mandatory
convertible debt and on banks' transaction deposit accounts. The program
was created to boost confidence in the banking industry and reduce the
risk of bank runs. The board voted on Tuesday to allow banks and other
participants to continue issuing guaranteed debt until Oct. 31, 2009. The
previous cutoff date was June 30, 2009."
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- Peter Schiff, head of Euro Pacific Capital decried President
Obama's claim that "credit is the lifeblood of a healthy economy...
restoration of credit is my highest priority." "Despite his seemingly
earnest intentions, the president and his economic advisors have misdiagnosed
the ailment. Savings, not credit, is the lifeblood of a healthy economy.
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- California budget faces new $8-billion shortfall: Despite
all the bailout money, apparently California isn't out of the red yet.
The LA Times reports that "Plunging revenue has already put the new
budget plan out of balance, the state legislative analyst says. The plan
that Gov. Arnold Schwarzenegger and lawmakers approved last month to fill
California's giant budget hole has already fallen out of balance with a
projected $8-billion shortfall, the Legislature's nonpartisan budget analyst
said Friday. After analyzing recent data showing rapidly rising unemployment
and lower-than-expected economic growth, Legislative Analyst Mac Taylor
said the state is on track to have even less money than lawmakers anticipated
in February. State leaders said then that they had ended the financial
crisis through $42 billion in lowered spending, increased taxes, borrowing
and accounting shifts. California's economy in is such bad shape that Taylor's
office anticipates that residents' combined personal income will be lower
this year than it was last year, leading to fewer tax dollars for state
coffers." This comes as no surprise as it was well known that California
was overstating its potential income and understating its deficit.
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- End Excerpt
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- World Affairs Brief - Commentary and Insights on
a Troubled World
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- Copyright Joel Skousen. Partial quotations with attribution
permitted.
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- Cite source as Joel Skousen's World Affairs Brief
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