Top of the News: Suddenly, everybody in Washington is a populist, as the backlash hits over $165 million in retention bonuses being paid out to top executives of the AIG unit that did so much to bring on the crash. American taxpayers have spent $170 billion to keep American International Group afloat, and we now own about 80 percent of the company. If only other government employees, say teachers, were paid so well. Part of AIG is, we hope, a well-run insurance company. The other is the Financial Products unit, which was insuring risky derivatives without the resources to actually pay out if the market went south. It did, and here we are. So big was AIG’s role in derivatives, that its failure would have caused the entire financial system to collapse.
Retention bonuses? Why would we want to retain the brainos who caused the mess in the first place? The administration started by saying the bonuses were guaranteed by existing contracts. Now its backtracking, under heavy pressure from everyone from Republicans, who were recently arguing against any limits on executive pay, to Stephen Colbert. The scandal makes Treasury Secretary Tim Geithner look even more in over his head — especially since he has known about these bonuses for some time.
The reality is these abuses — from deregulation to the rise of worthless derivatives to outrageous compensation — have been embedded in the system for years, thanks to aggressive lobbying by the securities and banking industries. Congress has happily gone along, including slipping a provision into the 2005 bankruptcy bill to give special treatment to derivatives. Whatever becomes of the AIG bonuses, only large-scale reform — including smart regulation, transparency and the breakup of “too big to fail” institutions — can prevent another calamity like this.
And would it be petty of me to ask where was all this gaming of the casino when Seattle’s Washington Mutual was in trouble? Was the gaming working to drive WaMu shares down to nothing and cause a run on the bank through naked short selling? We don’t know. Sure, WaMu’s executives made their own trouble — but so did AIG’s head shed. Now we’ve lost a premier corporate headquarters, but the money — from taxpayers — keeps flowing to Wall Street.
The Back Story: After months of canceled and delayed orders for commercial jets, Boeing finally got some good news this week. The Obama administration approved the $2.1 billion sale to India of eight Boeing Co P-8I maritime patrol aircraft (built from the 737). This marks the largest U.S. arms deal with India. This is Boeing’s first major arms contract with the nation, and the planes will be assembled in Renton.
Today’s Econ Haiku:
It’s in the PI
That ‘You’ve meant the world to us’
Made me cry. And you?