As the AIG controversy progresses we're seeing more and more anxiety from the right. They seem to feel that AmeriKa has been transported into a Red Dawn nation. That the country is unraveling because a charismatic scary black man is in charge. Recently we've seen Glenn Beck melting down on his show about his lost America. My friend KT seems to feel that the rule of law will be abolished because Washington might interfere with a handful of bonuses going to bankers who don't deserve them. Its that slippery slope thing the right loves so much. And that the productive people of the nation will jump ship - i.e. John Galt. And then there are apologists such as Rick Santelli who defends the AIG bonuses because its only one tenth of one percent of the bailout. These folks seem to be missing the point.
Its puzzling actually that these folks seem to have no memory of eight years under the Clinton's, or the economic policies of a member of their own party named Nixon. Regardless, the little point they ignore is the AIG is under fire for one reason and one reason alone, because it accepted bail out money. The right is trying to argue that a significant share holder of AIG stock, ( i.e. the Unite states), has no right to interfere with how the company is being run. Because certainly AIG has done such a wonderful job that they've in the mess they are currently in. And if the company had gone through bankruptcy instead, there is no doubt that the court would have installed handlers who would have reigned in any AIG's excesses. So is what the Obama adminstration proposing really that different?
7 comments:
AIG was a catalyst for the blog post, but not the big issue. I really don't care about the bonuses one way or another. The one that is really getting to me is allowing judges to rewrite mortgage contracts and things like that. Once government modification of private business agreements becomes normal, then it becomes very, very hard to make investment decisions. When investment money dries up, you're hosed.
Note that many Republicans aren't objecting to this on philosophical grounds. Hugh Hewitt has talked about variations on this idea on his talk show and he's as big an (R) honk as there is.
This isn't ideological to me, it's higher than that. It's populism running wild.
A little bit more. In the Stimuloid Porkgasm™, Senator Dodd put in a part that allowed bonuses to be paid, provided those bonuses were earned before some date in February. That includes the AIG bonuses. Now they're taking it away. An agreement was made, a contract (in this case a law) was signed and now it's all getting ripped to shreds and rewritten because one side, the government, didn't like it.
There are no rules any more.
In such an environment, how do you invest with any confidence? The best you can do is get out of industries as the government gets in.
Well as for your last question, yes stay away from anything that needs a bailout, if for no other reason than when it all fails, the government gets their money first.
I agree with you on the mortgages. Although I suppose that if they'd go into foreclosure anyway, the bank loses either way. My problem with it is that it just preserves the housing bubble rather than real estate being reset to more realistic values.
Why are mortgage contracts any different than the pay contracts?
These "bonuses" aren't "oh, what a good boy you've been!" pay offs, they are contracted payments triggered by things that happened.
Last time I checked, just because you own most of a company doesn't mean you get to just dump the contracts.
Anyone should be scared when a bill to retroactively tax a weak target gets passed committee, let alone the House.....
So easy to see other applications:
100% retroactive tax on tobacco products.
100% retroactive tax on alcohol.
75% retroactive tax on non-health food resturants.....
I suppose that if they'd go into foreclosure anyway, the bank loses either way
That's a pretty common argument and it has merit. The key difference is in who gets to make the call on the mortgage write down, the lowering of interest rates and so forth. The loan agreement is between the bank and the borrower. Presumably they know what's best for them. Getting someone unfamiliar with the situation into the middle of it seems like a bad idea.
On the other hand, Nouriel Roubini, major league Bear and predictor of this mess, sides with you. He thinks the government should come in and simply cram mortgage reductions down the bans' throats.
Meanwhile, a late-20s coworker of mine whose wife is pregnant and who has been saving money like mad, wants to see more foreclosures. Each one lowers the cost of housing a little bit and he is inching closer and closer to affording a house ...
KT,
yes that is my point exactly. Housing prices inflated unrealistically over the last decade and a half. The collapse in prices hurt those who bought at the peak, but it helps those who have waited until now to buy. Without the regularization in prices, places like coastal California become too expensive for any middle income family.
As for the mortgages, sounds like the devils in the details.
Sailorette,
welcome to my little place on the web.I think once coolers heads prevail, we're going to see something far less punitive. My point was that if the company had gone into foreclosure, the Judge would have. As I see it, effectively the government takeover is equivalent to bankruptcy. Why not go with traditional bankruptcy, the consensus seems to be that no one would loan them the money to make that work. This is exactly what happen with the auto companies, who in fact did throw out existing contracts. Then the only option would be liquidation, which is what they're trying to avoid. Now, would liquidation be better, I'm conflicted on that.
I'm pretty sure I've visited before... I just try to keep my gob shut unless I've got something worth saying. ;^p
Either the gov't is an owner, in which case they shouldn't get any special rights, or they're some kind of funky bankruptcy, in which case they should have to follow the same rules as normal bankruptcy or state exactly how they're different.
I'm a really big fan of breaking up union monopolies in the automotive sector, so I'll avoid that ATM lest I digress. ^.^
This whole "Trust us, we're here to help, now do exactly what we want, when we want, no matter what we said before and hey we've got a gun at your head" thing is...ah...bad juju.
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