AIG outrage overlooks government's role

March 20, 2009|By Ron Smith

The latest craze sweeping America is to express outrage over those employee bonuses paid out by ailing insurance giant AIG. Rep. Barney Frank wants to fire some AIG executives; Sen. Charles E. Grassley said the recipients of tens of millions of dollars in performance bonuses should "resign or go commit suicide." He later "explained" his remark as being mere rhetoric.

Sens. Christopher J. Dodd and Charles E. Schumer, both big-time beneficiaries of Wall Street campaign contribution largesse in recent years, are demonstrating their eagerness to distance themselves from their contributors by suggesting if the AIG execs don't return their bonus money, they should have it returned to the American people - who now own 80 percent or so of the company - through special confiscatory taxes.

The TV newscasts this week have been rife with brief sound bites from "ordinary Americans" who understandably are joining in the outrage festival, angered by the fact that people who helped steer the world economy onto the rocks should be rewarded for their malfeasance or incompetence with more money in a single bonus payment than many of us will earn in our entire working lives.

But all of this anger over bonus payments also has a very useful function as a smoke screen, diverting attention from the far more serious scandal involving AIG and our government: the brazen, five-month stonewalling cover-up over who got most of the taxpayer-provided loot shoveled out to AIG because, we were told, without the bailout, the entire world economic system would cease to exist in a matter of days.

The Wall Street Journal's lead editorial on St. Patrick's Day focused on the long-delayed acknowledgment by the company as to how this $173 billion "rescue" package was parceled out. It pointed out that much of that money (newly created or borrowed, since we are actually broke) has been sent overseas to French and German banks to protect them from their own errors. But the juiciest morsel is the one sent across the street to Goldman Sachs, which got a $13 billion infusion even though it had claimed for months that the bets it made on derivatives with AIG were all adequately hedged. As a correspondent of mine points out, that should not surprise us when we consider the cast of characters at the heart of this immorality play. Goldman Sachs exerts extraordinary influence over Treasury and Federal Reserve decisions.

Look at some of the major players:

* Henry M. Paulson Jr., the former Treasury secretary, is a former chairman of Goldman Sachs.

* Neel Kashkari, administrator of the Troubled Asset Relief Program, is a former Goldman Sachs partner.

* Treasury Secretary Timothy F. Geithner, who was CEO of the New York Federal Reserve, is a protege of Robert E. Rubin, another former Goldman CEO.

* Stephen Friedman, the president of the New York Fed, is a former chairman of Goldman Sachs.

* Mark Patterson, the chief of staff to Mr. Geithner, is a former lobbyist for Goldman Sachs.

* Edward M. Liddy, the CEO of AIG (appointed by Mr. Paulson), is a former board member of Goldman Sachs.

Does a theme emerge? The government is desperate to cover up the fact that it played the role of enabler in the failure of AIG and other Wall Street firms. The Obama administration, the Democrats in Congress and people on the left in general like to maintain the fiction that the world economic meltdown is a result of capitalism run amok in a world absent regulations. They say the markets have lost the ability to self-correct. If so, that is not something caused by rampant greed alone but by the actions of governments - including ours.

Ron Smith can be heard weekdays, 3 p.m. to 6 p.m., on 1090 WBAL-AM and WBAL.com. His column now appears Fridays in The Baltimore Sun. His e-mail is rsmith@wbal.com.

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