In order for insurance giant AIG to survive the consequences of its habit of speculative investment guaranteed by money it didn’t have, topped by investment insurance policies AIG couldn’t cover, the federal government has bailed out the monstrously big corporation to the tune of $170 Billion.
Remember when we all complained because we thought the war in Iraq might cost something like this? Of course, Bush’s war ended up costing a lot more, but at least with that you could pretend — if you closed one eye and squinted the other one while standing on one foot and looking at reality through a pinhole camera — that the money would go to the building of a Miracle Mesopotamian Democracy and the end of the threat of nuclear weapons that didn’t actually exist. With the same-scale AIG bailout, taxpayer money is going to… what? Keep liquidity in markets for really rich people so they can trickle something down to the rest of us if they feel like it. Even if you stuff your ears with marshmallows, that still doesn’t sound good.
And what did the U.S. government get for its $170 infusion of cash into AIG? It got a nominal 80% ownership stake, but without ownership control, because that would be… nationalization! Socialism! Communism! Barack Obama would have to shave his head, bleach his skin, pound his shoe at the United Nations, and rename his daughter Malia Barakiovich, and we Can’t Have That! No, no, no. So instead the United States got ownership of a huge mess of a problem at AIG without the commensurate say in how AIG should get out of its self-created mess. How special.
The American financial sector has demanded that it be bailed out by the United States government, but has demanded that it should be able to continue carrying on just as it has, running itself into the ground just as it does, without the taxpayers having any say into the corporations like AIG they’ve rescued. So what do you think the American financial sector will do?
Let me give you a little insider story to help frame what American financial sector giants like AIG are actually going to do. Half a decade ago, I was teaching Wall Street’s future finest at a prestigious university that I won’t name (two hints: you’ll find that university’s name plastered all over March Madness promotional materials, and the stonework there suggests huge Princeton and Yale envy). My first inkling that something wasn’t right came when chatting with the latest group of 18-year-old freshmen. I asked each of them, “So what do you want to do when you graduate?” I expected to hear people telling me about some craft or travel or adventure or crazy creative ventures of some sort or another. Instead, these 18 year old kids told me they wanted to be hedge fund operators, venture capitalists, wealth advisors and investment bank managers when they grew up. Holy crow. Isn’t that the answer some 23 year old arrives at after ditching their other dream first? No, these 18 year old kids, fresh out of prep school, had their eyes all aglow — I kid you not — at the prospect of working at an investment bank or a hedge fund. I still remember one kid, wearing her Laura Ashley sweater set like she was already some kind of 40-year-old doyenne in training, eyes moist with anticipation as she explained to me that according to her Wall Street Dad, she could have her retirement nest egg all set by the time she was in her mid-thirties if she picked her summer internships right and got herself a good position with the wealth management group UBS. Is this what an 18 year old should be getting giddy over?
It was when I taught the juniors that I really saw where these kids were headed. The university I taught at had developed a number of courses for these kids who wanted to become hedge fund managers and investment bankers. It was an academic concentration I’ll call “Moneytrading and Moneywatching,” and I challenge David Horowitz to find a liberal bias there. To keep teaching, professors were encouraged to develop coursework about Moneytrading and Moneywatching, and eager to keep teaching I did just that for a number of semesters. I’ll never forget the course during which the importance of the distribution of information across a market came into question. The Moneytrading and Moneywatching juniors, two years into the program, saw an immediate connection to the insider trading scandals of the 1980s and early 1990s and came out with their defense of inside information. You see, they said, the main problem was that people with no knowledge of markets were getting involved in trading directly. How could someone like Madge Johnson of Hicksville, Iowa know what was going down with the buyout of Corporation A or the executive crisis of Holding Company B? She couldn’t, they concluded, and so Marge and people like Marge should just butt out. Ivan Boesky shouldn’t be jailed for inside trading, the Moneytrading and Moneywatching juniors decided. Rather, outsiders to Wall Street should either hire private detectives to figure out what corporations were up to, or give their money to investment managers who knew the inside score, or simply stay out of the direct investment game and stick to savings accounts at banks. Government regulators? Why, considering the power they wielded they were even worse, these students asserted. Regulation would just slow everything down. If only everybody would let the big investors and money managers do what they did best, why, everything would through the magic of the marketplace come up roses and daffodils. Bright lights and lollipops!
We see how that turned out.
When you put people in charge of massive investment corporations who think of outsiders as buffoons to be excluded, who believe the development of insider information is to be encouraged, whose working staffs are in it to get rich by age 35, what do you think is going to happen when the big $170 Billion bailout comes along?
With the question of oversight resolved to AIG’s satisfaction, the delivery of $100 Million bonuses — to the very same executives who sunk AIG with their speculative investments — comes as no surprise.
The justification — that without $100 million in bonuses, AIG cannot “retain the best and the brightest talent to lead and staff the AIG businesses” — is no surprise, either. You or I might ask why executives who ran a corporation into the ground are worth the financial expense to be “retained.” But from the moral vantage point of these high financiers, the best and the brightest are those who make hay for themselves free of fetters from the little folk. In that regard, these AIG executives have a sterling record of accomplishment.