March 19, 2009

AIG: Awash In Government

You may not have known that AIG once stood for American International Group. But we surely know what it now stands for now.

Awash In Government.

Suckered by then-New York Fed Chairman, one-time tax evader, now Treasury Secretary and always indispensable man Timothy Geithner, Washington pulled the bonehead play of bailing out the once-mighty insurance giant to the tune of more than 170 billion smackers. So now we’re treated to the spectacle of the political class foaming at the mouth over the fact that AIG paid out billions of those dollars to meet obligations to foreign banks and tens of millions more in bonuses owed the very financial wizards who dragged the company under.

We’re all agape as creative legislators one-up each other in over-the-top theatrics to claim the crown of BMOC (By-far Most Outraged in Congress). By suggesting, for example, tax bills designed to slam the extra pay with 100 percent levies. Or, in the case of my old boss and Prairie Populist, Chuck Grassley, calling on the bonus babies to off themselves.

To all of which I respond: Oh, grow up!

What did y’all think – that AIG would invest in yet another Bridge to Nowhere? That the insurer was gearing up to hang its logo on Nancy Pelosi’s military jet? Or maybe that the company was aching to pony up for some more ethanol subsidies? (Now there’s a real scandal, Senator Grassley. But that is another column. Or maybe two.)

Ladies and gentlemen (and I use the honorifics advisedly of people who advocate abusing the awesome taxing power of the state to target and punish a specific group of known individuals), this is not hard. If you want a failing company not to have to honor its IOUs to creditors, employees and other living things, a simple option presents itself: Allow the enterprise to go bankrupt.

Then a judge, a creditors’ committee and other wise individuals can get involved and determine how much money is available and who should reasonably get it. Ill-considered contracts can be canceled or rewritten, unconscionable debts can be settled, good parts of a company can continue as going concerns and bad parts can be shut down.

If, on the other hand, you keep an insolvent, 2-Big-2-Fail entity afloat with massive infusions of funds, it is required to pay its bills, whether or not we like the payees or think they deserve the money. And P.S.: Whether or not Geithner and the boys knew the detailed flight plan for AIG’s outlays, you had to figure that any entity that needed bucking up by an amount greater than the gross domestic product of several states combined wasn’t making the most discerning decisions.

But even that isn’t the real issue here. The big problem is that a whole slew of financial institutions that took bailouts must now run their businesses with a nasty case of SOS: Senators Over Shoulder.

Already we’ve had solons second-guessing a bank that was force-fed TARP cash for holding a golf tournament to woo clients – presumably needed to pay back the handout – and Citigroup for following through on its deal for naming rights to the New York Mets’ new park. Not to mention, even more ominously, heavy-handed suggestions by the feds that banks largely borne by the USA should be “shovel-ready” when it comes to money for favored constituencies such as equally failing auto companies or unqualified homebuyers.

AIG and the rest of the financial community are learning a frightful truth: Oh, what a tangled web we weave, when first we practice to receive . . . from Uncle Sam.