Not only did he admit that he was responsible for adding the language to the stimulus bill that is preserving the AIG bonuses, he apparently started off by claiming he wasn’t:
On Tuesday, Dodd denied to CNN that he had anything to do with adding the language, which has been used by officials at AIG to justify paying millions of dollars in bonuses to executives after receiving federal money.
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I didn’t know much about credit ratings until I read about them in Naomi Klein’s latest book. Then I realized exactly how politicized they can be and how explosive.
Anyways Zaid,
The part in the Taibbi piece that caught my attention (and I’ve heard this in other places) that the real triggers for disaster were the changes in credit ratings. It wasn’t until cash requirements changed that counterparties began to realize just how screwed they are.
Nationalization won’t entirely put that genie back in the bottle, but it is a lot cheaper to borrow Uncle Sam’s AAA rating than it is to simply plow cash into these guys. Sell off everything that is actually worth something, kill a few players (and break all of them up), and go ahead and let the Feds play financial SuperFund. They’re the only ones patient enough to see what these things are actually worth, and will probably help a lot of people get their debts in order.
And, so as not to point too fine a point on it … The main reason to be pissed at people like AIG-FP is not that they blew up their portfolios – even makes some bad calls.
It is the fact that AIG-FP encouraged others to wipe their ass with every guideline and established good practice in both lending and insurance. They did willingly stupid things with other people’s money for self-enrichment.
“But working hard should be rewarded.”
That’s the same thing that I hear undergrads say when they want an A on their paper even when it didn’t go so well.
In my line of work, it doesn’t matter how hard you try. If you fail to tackle the laws of physics and develop something that works, you fail. No bonus, no “ata boy,” just a “damn, that’s too bad.” And if you try to wave your hands to hide what physics plainly tells you, you become the goat for two decades’ worth of undergraduate lectures (see Challenger, Columbia).
It is also becoming more and more clear that what happened at AIG wasn’t innovation or an improvement in the financial world in any objective way. It was essentially an innovation in lying, cheating and preying on people, and I’m sure we’ll reach stealing before too long.
Now, as for the huge mountain of debt that is choking this country, yes, it did originate from ordinary people. Mortgages, living on the credit card, and so on. That debt was bad.
However, one must also fess up that all of that easy money kept a lot of people from being thrown up against the wall that should have been quite some time ago. We made huge leaps in productivity via technology, and that bounty was not shared beyond the executive suite with maybe some good table scraps for those that invented the new technology.
“but at the same time you have to give Dodd credit for at least trying to come to a mutually acceptable agreement.”
No, when you are bankrupt, you don’t get mutually acceptable agreement. You get “get the fuck back in there and fix this thing.”
Isn’t that the response you would get if you walked into the office of management with a travesty on your hands?
Want to know what’s even grosser than AIG handing out multi-million bonuses to its derivatives department? Irrational ranting and screaming about blaming Wall Street for things that are just as much a fault of the American people as a handful of old fat white guys in the boardroom.
Dodd has his faults, and he’s a bit creepy. But the biggest problem in America today is the complete gap between public policy/gov’t and corporate America. Obviously no one wants a shill for industry, but at the same time you have to give Dodd credit for at least trying to come to a mutually acceptable agreement.
As someone who works in the very industry that is now so popular with mainstream media to skewer, I have to wonder at what point people are going to take responsibility for their own actions and the state of their own lives rather than blame others. That goes for everyone from Chris Dodd, Ed Liddy, and Jim Cramer…to the people screaming up and down about corporate bonuses just because they’re unhappy with someone earning more than they do. Newsflash: Excessive greed is wrong, yes. But working hard should be rewarded. Just because you want a trust fund doesn’t mean you deserve one. And if you aren’t financially independent yourself, be it on a man, your parents, or lobbyists, then for the love of God, shut up.
Matt Taibbi is like literary sex. We’re actually facebook friends but the only communication we’ve ever had is how he thinks facebook is absurd.
I’m not reflexively for nationalizing anything except for maybe some basic essentials, but I think when it makes sense we can’t have this ideological tendency to just kneejerk against it that we see from so many pundits, or the Schumer-style objection, which comes as a result of being paid not to support it by Wall Street (interesting to see Sen. Graham and Greenspan be open to it and not northeastern Democratic senators).
PS Zaid –
I think I’m now pretty much on board with you on the nationalization front. I’ve finally come to understand the problem well enough that I think some of the problem is actually vapor and would be pushed aside by government fiat.
Although, I have a feeling that a lot of this vapor also means that woefully undercapitalized banks probably exist and need to be patched up. Of course, FDIC has been doing that to many smaller banks, IIRC.
For reading enjoyment:
http://www.rollingstone.com/politics/story/26793903/the_big_takeover/print
As for the right wing populism, epic luls inside:
http://www.bloomberg.com/apps/news?pid=20601039&sid=a0olyim4out4&refer=columnist_baum
“What if the company feels it needs the people who know what the hell is going on to stay for the company to survive?”
It really doesn’t. Especially in the case of AIG. Their derivatives people? The folks who dropped an atom bomb into the machinery of the global economy?
Dodd’s gotta step down. We can’t tolerate a (nother) Republican from CT in the senate. Whether you blame him or the white house more for this, it really is destroying him in the court of public opinion and will have electoral results.
“What if the company feels it needs the people who know what the hell is going on to stay for the company to survive, but they feel the urge to jump ship? How does the company achieve both goals?”
Hire some H1-B’s or fresh college students. I’m sure they would perform better in this instance.
Unions across the country have bent over backwards in their contracts or just been straight-up bent over. People in a variety of jobs are being involuntarily furloughed in order to keep the number of people working somewhere constant. My eyes are completely dry for those who precipitated this mess and now have to surrender bonus pay.
Okay, let’s say a company has a set retention bonus structure in place, and then it decides it wants to receive bailout money from the government. Without the language it either needs to somehow retract its bonus structure (which will probably involve payments of some kind) or give up the potential bailout payments which could cause it to go under.
What if the company feels it needs the people who know what the hell is going on to stay for the company to survive, but they feel the urge to jump ship? How does the company achieve both goals?
“And my fear here is that the right wing is the group that is mobilizing populism about this, and blaming all the wrong people for it.”
Except that when things like this bonus business come up, the people I would put in the Yearbook as “most likely to be mentioned next to Joseph Goebells in a history book” are actually out there defending the AIG bonus pay as properly earned bounty for succeeding in the brutal winner-take-all arena. They may wise up eventually (or a new crossbred comes into play), but for now they are blunted a little by the asses they have their noses stuck in.
Re: Nationalization – it’s going to be important not simply to cast aspersions, but to address the psychological problem, which is drawing the wrong lesson from Lehman Brothers. Paulson killed Lehman Brothers for no reason other than spite and moralizing, to prove an example to other banks of what they did wrong and why and how they should pay for their sins. Perhaps momentarily satisfying, but it unleashed a serious crapstorm.
Geithner may appreciate the elegant complexity of the dance he is doing to avoid nationalization. However, at this point, ALL ideological outlooks, including our own should be considered desirements rather than requirements. The only requirement should be to get a functioning lending facility operating in this country again. There are many ways to construct a lending facility, and the system of the 80’s seems to be the choice.
However, the list of desirements currently seem to be:
-Don’t go to Congress for more money
-Don’t nationalize the banks
-Don’t induce fundamental restructuring of the current financial system
It is worth pushing for the set to become:
-Minimize federal money injected into the system
-Minimize Federal Reserve money injected into the system
-Minimize built-in risks of inflation and global currency battles
-Maximize public confidence in plan’s effectiveness and honesty
Time to go Dodd. GTFO.
Time to go Dodd. GTFO.
Dodd: “I was changing the amendment because others were insistent.”
It’s like a bad romance novel: Dodd tried to resist Geithner’s advances, but he was too insistent!
I’d like to believe that this is like Lieberman, but Lieberman could count on pro-war Republicans to return him to the Senate. I don’t think Dodd can count on pro-bailout anyone. If he can’t turn this around, he should step aside.
Otherwise, I hope everyone in Washington learned their lessons from this: 1) the worst details of the bailout will become known at the worst possible time, and since 2) the majority party will be held accountable for them, 3) the majority party should ensure that those details are defensible.
But I don’t see evidence that they have yet. Congress and the White House have decided to clean up the mess that AIG made, but they haven’t decided to demand the power they need to prevent future messes.
By now, any decision made by any bailed-out company should be subject to veto by the White House or Congress before it goes into effect. Clearly, that isn’t the case, and until it is, AIG et. al. will continue to do what they do best – create an unprecedented mess – and the White House and Congress will continue to shoulder the blame.
And I don’t want any more politicians who are against nationalization and for “public bears the costs, private corporations get the profits” acting like they’re surprised when they hand these big companies tons of money and they abuse it because we haven’t wiped out their executives and put them under direct control to forcibly do what needs to be done with bad assets and cleaning out the bad apples.
I mean, we have examples of countries that tried to do it the public-private route (Japan) that failed miserably and companies that briefly nationalized (Sweden) who did it well. We have Lindsey Graham and Alan Greenspan of all people coming out for nationalization, and yet the Wall Street Dems. keep twiddling their fingers. Why?
It’s pretty obvious why.
http://www.democracynow.org/2009/2/25/stieglitz
AMY GOODMAN: Why is Obama saving these bankers?
JOSEPH STIGLITZ: Well, we could all guess about the politics. We know one of the problems about American politics is the role of campaign contributions, and that’s plagued every one of our major problems. Under the Bush administration, we couldn’t deal with a large number problems, like the oil industry, like the pharmaceutical, the healthcare, because of the influence of campaign contributions. Now, my view is, one of the problems is that whether it’s because of that or not, it lends an aura of suspicion. The fact that there was so much campaign contributions from the financial sector at least raises the concern.
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And my fear here is that the right wing is the group that is mobilizing populism about this, and blaming all the wrong people for it.
Whatever they do, they ought to do it fast. Obama’s first term could end up being known as the one that took on the financial crisis and lost, and the kind of extreme Republican that could rise out of that with right-wing populism would make Bush/Cheney look like Feingold/Kucinich.
There is one “fire Geithner” scenario that may work, but it’s got to be done very soon, and very roughly.
Namely, rather than put up new Treasury officials one by one, Obama will have to draw up a “slate” of nominees (I don’t know if this is even possible, even with a friendly Congress) to get Treasury totally restaffed in a hurry. I don’t know if anyone is going to like that, since it will involve a lot of back-room dealing, horse trading and of course spook the markets for another couple of months with a No Confidence vote in Treasury.
Too damned many bad choices.
I think in the short term, Geithner et al’s approach may work. Get the machinery that has carried the debt load (although without the craziest aspects like 30 or 35:1 leveraging, default swaps used as side bets rather than insurance) back up and running to keep the ship going. At any rate, we’re looking to be too deep into it to switch course rapidly without blowing the thing up and starting totally from scratch. Test cases for the new government-primed security markets (kind of the financial version of the stimulus to replace private spending with public) seem to be starting to open.
After the engine starts working again, though, I’d definitely ax Summers. Geithner may or may not be worth keeping, but he definitely needs more adult supervision. At this point, we can deal with the root critiques of Stiglitz and others (which, in Stiglitz’ case boils down to securities smearing away information and amping up moral hazard and other such bad things) in terms of what we want our lending facilities to look like.
At that point, I think there needs to be a very serious examination as to whether or not the financial industry can actually generate profits or if it is purely a facilitator or thief. In that second case (which I lean toward myself), the goal should be to totally redesign the spectrum of risk / agility to match our economy. And create separated institutions to handle each.
We do need risky capital out there, but it should be for enterprises that have large and real upsides like technological development or experimental towns or the like, not just for risk’s own sake.
Update:
“Dodd is the biggest recipient of AIG political contributions over the past decade, taking in $280,238, about $80,000 more than the second largest recipient (George W. Bush).”
http://www.harpers.org/archive/2009/03/hbc-90004578
And I think odins’ narrative also is at play here. It seems Treasury really leaned on him as well to not try to cap AIG’s bonuses.
These people are pathetic. Literally pathetic. They ought to learn how people who don’t have their luxurious lifestyles live one day.
And a big f’ing F U to these people, the Senate Undermine Obama Caucus
As for Geithner, Summers, etc. they all need to be fired and replaced with people who aren’t so ideologically neoliberal. For someone who emphasized having a cabinet with diverse views, Obama staffed it full of center-right deregulators, and this is not going to work out. Their ideological fixation on not nationalizing is awful.
Dodd’s one of the financial industry’s best friends in the Senate. Why is anyone surprised at all?
Those Democrats who claimed we should be more pro-wall street and all that to be “moderate” or whatever and that this would ensure safe seats definitely have to be eating crow now. The Republican could beat him out using left wing populism, literally.
Eh … I dunno. I’m getting mixed reports:
http://firedoglake.com/2009/03/17/treasury-attempts-to-blame-dodd-for-aig-bonuses/
Dodd may have acquiesced, but it sounds like there was pressure involved. Geithner’s got himself a Treasury Department running at half-strength, so I disagree with Sirota’s characterization of him as “incompetent” for not knowing about the bonus loopholes.
However, Geithner and Summers need either to show some results or feign some interest in what non-experts think of their maneuverings. Like a lot of wunderkinden, they may think that the key psychology is that of the experts. In most cases, they’d probably be right. But, when the fourth wall is lying in rubble on the ground, it’s going to be important to keep up confidence that taxpayer moneys are going to good use.
I’m really hoping that those guy’s deep love for securitization has some basis in the mechanics of finance.
Well this isn’t exactly a secret. But we were all watching a different show back in the fall. I remember some of the uber liberal bloggers being all over this when the TARP was first rolled out. He took major hits at the time.
His seat was at risk before this; when he moved his family from CT to Iowa during his ill fated presidential campaign.
But voters in Ct are a little odd, they re-elected Liebertoast.. so who knows.. bet he has a couple serious challengers though..
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