Finally. A scandal we can relate to.
For the last year, something has been really wrong with the U.S. economy. But what, exactly? The collapse of Bear Stearns in March 2008 was the first indicator. The government stepped in with a $29 billion bailout, marking the first time many Americans may have heard of “mortgage-backed securities.”
After that, the indomitable housing market started to plunge. Fannie Mae and Freddie Mac became wards of the state. Lehman Brothers failed, with Merrill Lynch, Citigroup, and even Morgan Stanley at risk of falling next. Then AIG nearly collapsed, saved only by an emergency government loan of $85 billion that made Bear Stearns seem like a bargain.
[See the real harm caused by the AIG bonuses.]
Since then, we’ve heard all sorts of arcane explanations for what caused the problem, and what it will take to fix it. Subprime. Alt-A. Collateralized debt obligations. Credit-default swaps. Leverage. Deleverage. Credit freeze. TARP. TALF. EESA. If you’ve got a job or a family, chances are you don’t have time to get the finance degree required to understand what in the world is going on here. So we’ve developed a convenient shorthand: The problem is “toxic assets.” The solution is “bailout.”
There’s another part we understand a little bit better: Rich Wall Street bankers with multiple homes seem to be getting a lot of help. Somehow their firms, the ones that screwed up and sent the economy down a rathole, are getting billions of dollars in taxpayer money so that the economy gets healthy again. There’s a reason for this, but it violates the basic principles of rewarding good behavior and punishing bad behavior. Still, for the economy to recovery, we need a healthy financial system, and like it or not, we’re stuck with the one we have. So we grudgingly send our bailout money to Washington, wondering when or if it will make our lives any better.
[See whether the AIG megabailout is working or not.]
Then we start to learn about AIG’s Financial Products Division, where fewer than 500 reckless traders responsible for destroying a $100 billion company and triggering the largest corporate bailout in American history were paid $165 million in bonuses for their excellent work. Now this, we understand. These weren’t bonuses the way most people think of them – a reward for a job well done. They were payments guaranteed regardless of how well the job was done. A scam, in other words. A rigged system. Everybody knows schemers like this, content to enrich themselves no matter how unjust it may be. And now we’ve caught a few, just as they seem to be sticking their greedy fingers right into the pockets of middle-class taxpayers.
Thank you, AIG. America’s pent-up anger has been crackling across the country, looking for a lightning rod to strike. Now it has struck.
The $165 million in undeserved bonuses is irrelevant in an overall government rescue scheme that will cost $1 trillion or maybe even $2 trillion by the time it’s all done. But the AIG bonuses are inadvertently serving a purpose far beyond their monetary significance. They remove the cloak of quantitative sophistry that Wall Street has used to obscure its dealings from lesser mortals. They validate the outrage of ordinary Americans, in terms everybody understands. And they give us a chance to vent. Which we richly deserve to do.