POLLIWOG (Tadpole): the early stage of an animal that will eventually become a frog, hoping to be kissed by a princess, turning into a prince! POLIBLOG (Political Blog): the early stage of a center-right political blog that may eventually become a full blown blog of the center-right. Join in if you find any merit in the comments. If you are on the left and disagree, feel free to straighten me out! Who knows, with effort from all of us this blog may turn into a prince!

Location: San Diego, California, United States

Wednesday, March 18, 2009

AIG - a couple of columns that are important to understanding the problem

"The AIG Outrage" column by Larry Kudlow today explains clearly the culpability of the BHO administration, regardless of their feigned outrage. the important point:

  • "And as for the $165 million or so in AIG bonus payments, the Obama administration -- including the president, Treasury man Tim Geithner, and economic adviser Larry Summers -- knew all about them many months ago. They were undoubtedly informed of this during the White House transition.

  • So there's no big surprise. Nobody should be shocked. But President Obama is doing his best play-acting ever. He knows full well that the nationwide outcry against federal bailouts and takeovers is only going to get worse on his watch. His poll numbers are already falling, and this AIG episode is going to pull them down more.

  • Incidentally, has anybody asked Team Obama why it is more than willing to break mortgage contracts with a bankruptcy-judge cram-down, but won't cram-down compensation agreements for AIG, despite the fact that the U.S. government owns the company? Kind of odd, don't you think?"

And one of their own, Maureen Dowd, in "No Boiled Carrots" seems to be seeing through the fiasco:

  • "Geithner, who comes from the cozy Wall Street club, and Liddy believe it’s best to stabilize the company and keep on board the same people who invented the risky financial tactics so they can unwind their own rotten spool.

  • Isn’t that like giving bonuses to the arsonists who started a fire because they alone know what kind of accelerants they used to start it?"

Who knows where it will end! But it is not good for BHO or the country! WHERE'S THE CHANGE?



Blogger Curt said...

The bonuses are certainly outrageous (despite being a drop in the bucket in the big picture), but I think this topic raises a few interesting questions.

Kudlow is claiming that a switch in accounting rules from 'mark-to-market' to 'cash-flow' would make a big difference to the banks' solvency situation... is it really that simple?

The market prices on the majority of the 'toxic assets' are still very low - what is it that the market is missing? Are these assets truly undervalued, and if so why isn't someone jumping in to buy them up?

Also - the bonus contracts seem to provide evidence that folks in these industries are able to ensure themselves high pay regardless of performance... is that consistent with a free market view that high pay is commensurate with high 'value-add' performance?

12:14 PM  
Blogger Jim said...

I agree they are outrageous - we should be questioning the administration why they let this happen! Obviously they knew about it. Wouldn't it have made since to have this as condition of the TARP? Could it be because the three largest receivers of political donations were Chris Dodd, BHO and McCain?

If the government is going to run businesses, they better learn how to do it! Big trouble if they don't!

Kudlow's belief in eliminating mark-to-market and going to cash flow is suggested due to the housing market volatility and the high level of bank involvement in this security market. Many believe he is correct, including at some level Bernanke.

The market will not touch these assets until they know the BHO administrations plans. They are quite delinquent - it was announced yesterday, a month or so late - so you cannot say they are under valued yet - it depends on the government plans! (Value is a very complex concept when discussing this type of investment)!

Human beings will get what they can get legally - that is why the administration should have stopped it and why the concept of a Board of Directors of all employees was discussed in the recent past.

The market is never perfect and needs not only external, but internal controls to make it run efficiently. Internal controls have been lax for several decades and external controls need periodic review from a government which understands business, and we seem not to be able to get that!

10:25 AM  

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