Easterbrook on the AIG Fiasco

It's not often you get the clearest financial writing from a football column, but Greg Easterbrook segues into the AIG fiasco in Tuesday Morning Quarterback today. (The link is for the entire column, scroll down to the sub headline: Regrettably, TMQ was Right About Something to find the entire AIG commentary.)

On the big outrage, of the $172 billion taxpayer-funded giveaway, we now know much of it used to cover credit-default swap debts AIG refused to honor. Large amounts went to foreign banks, such as Deutsche Bank and Societe Generale of France. AIG simply handed over payment in full, without negotiating. When AIG was days from insolvency, it should have said to Deutsche Bank and others, "If we go bankrupt, you will stand in line with all the other creditors at the bankruptcy court and be lucky to get 10 cents on the dollar. Would you accept 50 cents on the dollar to settle instead?" Negotiating with creditors to avert bankruptcy is a standard business tactic; General Motors and Chrysler have been doing this for the past few months. As the Wall Street Journal recently reported, a year ago Merrill Lynch was owed credit-default swap payments by an insurer called XL Capital, and after negotiations, Merrill accepted 13 cents on the dollar.

But instead of negotiating a reduction of debt, AIG simply immediately handed over full value. After all, the money was coming from taxpayers' pockets, and when has anyone cared how much taxpayer money is wasted? Goldman Sachs was the largest single recipient of AIG's paid-in-full taxpayer-funded gift, receiving $13 billion. Merry Christmas! And now we learn that [CEO Edward] Liddy owns at least $3 million worth of Goldman Sachs stock -- whose price was shored up by the paid-in-full taxpayer gift. AIG's tax-funded gift to Goldman Sachs couldn't possibly have had anything to do with Liddy's stock, could it? The worst sin is that the Washington muckety-mucks running the tax-money giveaway team did not require AIG to negotiate down its counter-party obligations. Bernanke and Henry Paulson, who approved AIG's actions last fall, deserve to be run out of town on a rail for their irresponsibility in management of public funds. Meanwhile, can anyone imagine that if a French or Germany insurer owed money to an American bank, that the French or German governments would ever pay one single centime or pfennig, let alone cover the entire debt immediately?

Appalling Irony

Don't worry, sleep tight. It's all taken care of.

Remember this AIG commercial from a year ago?

Seriously, this is evil. This is Hansel and Gretel going into the gingerbread house.

Easterbrook on the Absurdity of the AIG Bailout

Those of us who are NFL fans enjoy Greg Easterbrook's column Tuesday Morning Quarterback. Football writing is his hobby, his day job is as a serious writer. He is a deft critic of govenment waste. In his TMQ column today he targets the AIG bailout. (scroll waaaay down to the section: Why Are Taxpayers Paying Lavish Bonuses to Retain the People Who Screwed Up AIG?)

The money being shoveled to AIG is simply vanishing -- AIG isn't even telling the Treasury Department what the money is for. When the General Services administration buys pencils, many layers of auditors check the deal. Isn't it a tad naive to think $152 billion can be entrusted to a firm with a demonstrated track record of financial mismanagement and that money is not going to be looted? The Treasury Department's handling of AIG appears to be spectacular irresponsibility with public money.

Now, about the $503 million in tax-subsidized bonuses to prevent "top employees" from "exiting the troubled insurance giant." The top employees of AIG are the ones who drove the company into the ground by making crazy deals, taking on bad debt or promising to insure bad debt when they knew AIG lacked adequate collateral. Those "top employees" at AIG are either cheats or incompetents -- we want them to leave! They haven't demonstrated any financial expertise. Yet the same AIG top managers who did a terrible, terrible job are set to receive huge bonuses: an example of the problem that corporate bonuses are awarded regardless of performance

This bailout mania is looking worse and worse. The money is going to evaporate.

Bonus: If you like great football writing, this column is must read. I never miss it.