Frank Rich writes that an inability to manage populist anger could undermine everything Barack Obama hopes to accomplish. I agree. But in the process, he writes some stupid stuff that’s likely to encourage more populist anger. To wit:
Bob Schieffer of CBS asked Summers the simple question that has haunted the American public since the bailouts began last fall: “Do you know, Dr. Summers, what the banks have done with all of this money that has been funneled to them through these bailouts?” What followed was a monologue of evasion that, translated into English, amounted to: Not really, but you little folk needn’t worry about it.
Yet even as Summers spoke, A.I.G. was belatedly confirming what he would not. It has, in essence, been laundering its $170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Société Générale and Deutsche Bank abroad.
Rich apparently doesn’t understand that this was the entire point of bailing out AIG in the first place. The thought was that if AIG failed to fulfill its contracts with its counterparties, the entire financial system would probably collapse. So we bought the company and gave them a bunch of money so that they didn’t default on their obligations. That money was never for AIG, it was for paying off AIG’s claims.
I agree with Rich’s larger point, though. It’s up the government to explain in as much detail as possible what it’s doing, who benefits, and why it’s going to work. The fact that a New York Times columnist doesn’t know what the AIG bailout was fundamentally about illustrates that they’re failing at that.
March 22, 2009 at 3:47 pm
But did AIG need to pay off Goldman Sachs first? Or did Goldman get an inside deal? The public doesn’t know who AIG owes money to. Did other companies get screwed to the benefit of Goldman Sachs? What portion of Goldman’s bad assets were in AIG? If AIG insured all of Goldman’s bad assets, is Goldman actually coming out with a PROFIT from this ordeal? All of these are questions the public would like to know, and should be able to know since we have a majority stake in AIG.
March 22, 2009 at 6:40 pm
Sorry, it’s you who don’t understand, not Frank Rich.
The point was to prevent a cascading series of companies going bust. But that’s not what happened.
What happened instead was that all of AIG’s counterparties were made 100% whole even though they were fully capable of absorbing large losses.
Even if you buy the systemic risk argument (which in AIG’s case many people don’t), the government could managed that risk for a fraction of the money it actually spent.
Shame to see your otherwise excellent blog marred by such a stupid comment.
March 22, 2009 at 8:34 pm
To expand on Ryan’s point, why not just bail out AIG’s counterparties directly so everyone knows where the money is going instead of using AIG as a giant money laundering operation? Isn’t that what AIG has become now? I was hoping with Obama in office now things would become more transparent.
March 22, 2009 at 9:16 pm
I’m not really making an argument about whether bailing AIG out was a good idea or a bad idea, or whether it was necessary or not. I don’t know. (And that decision was made before Obama even won the election.) The US government took over AIG on September 26, 2008.
When we did that, the understanding was that the federal government would bear the financially responsibility of holding up AIG’s end of their contracts. All the money we have put in since has done just that.
You can go back and read blog posts going far back saying that in essence the bailout of AIG was really a bailout of its partners. I’m in agreement with anyone who says that we should know who AIG is giving the money to, how much they’re disbursing, and even what’s in the contracts in question. The company belongs to us now, there shouldn’t be any secrets.
But I’m sticking with the fact that when the government takes over an insurance company to prevent financial collapse, you can be sure that the bailout money will be spent paying claims.
March 23, 2009 at 11:00 am
They should check if AIG paying ordinary insurance claims of people at this point.or it just put other business on hold now and after transferring money to Goldman they are preparing to go bankrupt.
March 23, 2009 at 2:43 pm
Given that they’re owned by the US government, I don’t see them going bankrupt.
March 25, 2009 at 1:02 pm
Agreed. But CDS’s are NOT insurance.
AIG spent lots of money on lobbying to ensure that CDS’s are NOT considered insurance for regulatory purposes.