Tuesday, March 3, 2009

Follow The Money

The Times ran an editorial today about the monster that is the American Insurance Group and the now-tired phrase, "Too Big To Fail". Not only did the Treasury throw more money at AIG, they loosened the restrictions on their prior bailout attempts.

In a joint statement with the Federal Reserve on Monday, the Treasury justified the move, saying that “the potential cost to the economy and the taxpayer of government inaction would be extremely high.”

That’s a textbook rationale for any bailout. What no one is saying — the Bush folks wouldn’t, and the Obama team seems to have taken the same vow of Wall Street omertà — is which firms would be most threatened by an A.I.G. collapse. The Treasury and the Federal Reserve noted in their statement that A.I.G. is a “significant counterparty to a number of major financial institutions.”

That means that by enabling A.I.G. to avert bankruptcy proceedings, the taxpayer is also bailing out — whom exactly?

Sorkin writes about AIG in his column too, only he is more of a man to toe the Wall Street party line. He drones on about the unspoken catastrophe that will occur should AIG collapse:

In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion.

If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.

How we got here is a well-worn tale that others have detailed extensively: A.I.G. used its triple-A rating from the insurance part of its business to run a huge casino that then overwhelmed the entire business.

He disposes of the colossal piracy examined in great extent by his colleagueJoe Nocera, in three words. Two if you count "well-worn" as one. Joe is asking the same question as the editorial: Who is really getting bailed out in the AIG fiasco?

Sorkin pretends that it's the good ole insurance policyholders. He cries, if the U.S. doesn't step in, there will be a run on all that $19 trillion worth of insurance, and the little old lady won't get a deal anywhere else. What he doesn't mention is that nothing will prevent a run on policies in any case, especially if policyholders are leery about the government's plan working. The plan seems to be pour as much money down the bottomless pit of human greed.

Andrew, Andy Boy, don't pretend it's the taxpayers. It's those goddamned counterparties. And who are they? No transparency at all. Are they European hedge funds? Or Goldman Sachs itself, whose CEO Lloyd Blankfein sat in on the original Fed-AIG transfusion plan, and from whom came Hanky Panky Paulson? Haven't all these parties profited hugely from AIG's coy leveraging of its Triple-A rating? If they have (and certainly that can be looked into, I hope) then they should shoulder some (if not all) of the losses. If we, the taxpayers, have to participate forcibly in lemon socialism, why can't they participate in some of the losses? If that kind of deal, that the profiteers must commit to some loss, shakes the foundation of our financial system, then we truly are doomed. Because there has to be a tipping point.

At least Sorkin admits that the Treasury should have taken over 100% ownership. For a man who speaks well of Wall Street (and it is reciprocated--remember, the WSJ tried to lure him away when Rupert first took over the helm) that was a hard thing to claw out of his throat.

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