Tuesday, March 17, 2009

Folly & Washington Finger Pointing

A very interesting story is told today in a WALL STREET JOURNAL commentary:
"Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG 'rescue.' This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties around the world. This includes at least $20 billion to European banks. The list also includes American charity cases like Goldman Sachs, which received at least $13 billion. This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout." Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts."
Have you ever been suspicious when the those in the Washington political class are out in front of the cameras pointing fingers? I've come to suspect that when this happens the finger pointing is about trying to play offense to cover up the mistakes of government. The WSJ suggests this is the reason for the fingers pointing and wagging over greedy others right now:
The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.
Here is the bottom line to the commentary:
The Washington crowd wants to focus on bonuses because it aims public anger on private actors, not the political class. But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for blowing a mountain of taxpayer cash on their AIG nationalization.
Of course the people of government will not blame themselves. They will instead try to help us overlook their accountability. As Ronald Reagan famously said, government is not the solution, government is the problem. It seems folly to turn to government thinking government can fix a mess it's earlier actions helped create.

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