More Politically Expedient, Progressive, Populism

Obama, the Treasury, Congress, the media and most of literate America are morally indignant at the bonuses being paid to the AIG managers and financial engineers largely responsible for the company’s failure. The appalled have even advanced one credible argument for their indignation. Had AIG been allowed to fail none of the boobs either managing the company or responsible for its financial distress would presently have jobs or be in line for contractually assured bonuses. Those claims would have been dissolved in an orderly bankruptcy. It is only because Congress and the Treasury committed huge sums of taxpayer dollars to saving AIG that these people maintain their extraordinarily gainful employment.

This is EXACTLY, PRECISELY the reason why you don’t do bailouts. And who is responsible for the decision to preserve these jobs and bonuses? How about Congress and the Treasury who agreed both to write the check and to the terms of the capital infusion?

The national anger over AIG bonuses is misdirected. The problem is not that a bailed-out AIG is spending $150 million to fulfill its contractual obligations and retain employees. The crime is that the Government has spent $150 billion of our money on a string of AIG bail-outs which continue to prop up a failed entity. The lesson is that bail-outs, past and future, don't work. And as the company continues to demonstrate its inability to survive without endless taxpayer capital infusions, pitchfork wielding populists should focus their anger on pressuring the Government to allow AIG to fail, not perpetually criticizing an endless string of corporate actions.

The Government’s Options as Companies Continue to Fail

None of the laundry list of companies propped up by the government should have been overtly bailed out. These companies failed. There should be severe consequences attached to such failure. If the Government decided that these were important institutions and couldn’t just cease operating, Congress and the Treasury could have structured an orderly dissolution supported by federal backing and guarantees.

Those companies with business models that didn’t work would have been broken up, sold off or shut down. Other businesses with better models would have been in the position to buy the surviving pieces and/or grow organically to meet demand. New companies would form with potentially better business plans and compete on equal footing to serve market demand.

If the Government decided that a company was “too big to fail” it should be nationalized with the goal of being broken up and returned to the private sector as quickly as possible. Nationalized companies should be completely insulated from the influences of politicians seeking to use the entities to pursue their social agendas. Since this condition is unlikely to be enforced in the politically expedient morass we presently find ourselves, nationalization should be avoided at all cost.

In the case of a direct bail-out, the exact terms and conditions of Government funds must be precisely articulated in advance. Companies must know what they are getting into by accepting taxpayer dollars. Only then can a distressed company make an informed and efficient decision about its future.

Our Government’s Incompetence Knows No Bounds

As usual, our politicians have done the wrong thing and selected the worst possible solution. They have foolishly bailed out companies, perpetuating the bad behavior of failed institutions. Then, they have retroactively and arbitrarily placed “moral” restrictions on bailed-out entities. Now our politicians have decided to express indignation and launch a public inquisition each time activity is exposed within a bailed-out entity that isn’t politically correct.

If Congress wanted bail-out recipients to put their employees up at Best Western, conduct business lunches at McDonalds and ride their bikes to work to achieve Carbon harmony, they should have specified those conditions in the terms of the agreement. A company can not run itself if every decision it makes is second guessed by the President, every member of Congress, the Treasury and every news organization in America.

How much money is morally acceptable to pay a manager? How does a company politically justify having a corporate jet? Should bail-out recipients serve meat in their cafeterias? Why can’t these companies use only electric cars? They should be forced to hire only minorities and single mothers?

They whole thing is ridiculous. When AIG received bail-out money, authorized by the Congress and Treasury, their agreement specified that all of AIG’s contracts would be legally enforced. Now, after the fact, to arbitrarily attempt to violate contract law every time the political lynch mob gets lathered up is a joke.

Get Government out of our way. Let the markets do their work. Pain is unavoidable and the Government is consistently making this crisis worse.