AIG, Bonuses and The Honeymoon Can’t be Over if You Never Had One

The Anymous Liberal has a very readable post on exactly why AIG figures so promiently in the financial straights we now find ourselves and why there is such justifiable outrage that AIG executives recieve bonuses,

That, in a nutshell, is the story of AIG, except of course that AIG was insuring a different type of investment. AIG was in the business of issuing credit default swaps, which are essentially insurance policies that protect lenders from defaults by borrowers. The availability of cheap credit default swaps turned mortgages into a seemingly risk free investment. Mortgages and mortgage-backed securities paid steady, consistent returns and any downside risk could be effectively hedged by buying AIG’s credit default swaps. So demand for mortgage-backed securities shot through the roof.

One writer, who I can’t find at the moment refered to AIG and credit default swaps as a Ponzi scheme that rivaled Bernie Madoff. It seems more like Wall Street became more like some back street gambling hall. But hey everyone has a degree from America’s most prestigious schools, wears nice suits and could numb the average human brain at fifty paces with statistics. It does not look like the Obama administration will be able to block the bonuses ( stories are being filed pretty fast on this story and things could change by the end of the day), Political Heat Sears AIG

President Barack Obama said Monday that he would “pursue every single legal avenue to block” $165 million in bonuses to American International Group Inc. employees who were in part responsible for the insurance giant’s near collapse. But hours later, administration officials said the payouts made Friday couldn’t be extracted from their recipients without a legal fight that would cost the taxpayers even more.

Instead, officials said the White House will focus on ensuring taxpayers recoup the cost of the bonuses and, going forward, executive compensation at AIG would be on a much tighter leash. As leverage, the government said it would apply new rules to the next round of AIG bailout funds, a $30 billion infusion pledged earlier this month.

I was wondering if the government couldn’t recover legal fees along with the bonuses, but AIG would just be paying the fees with bail-out money. This artcile is mostly an account of what Obama plans to do to battle back about the barrage of misocnceptions fuled largely by the medai, about his economic and health-care plans, but mentions that many people – certainly capitol Hill are just suffering from bailout fatigue.

News of the bonuses has threatened to stir a populist backlash against the rescue of AIG and other financial services, which in turn could raise voter concerns that the administration is squandering taxpayer money.

“There is a certain amount of bailout fatigue that’s settled on [Capitol] Hill, and something like this isn’t going to help,” said Jim Manley, a spokesman for Senate Majority Leader Harry Reid (D-Nev.).

“This is another outrageous example of executives — including those whose decisions were responsible for the problems that caused AIG’s collapse — enriching themselves at the expense of taxpayers,” said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee.

Remember last year when it was found that among several incidents of embezzlement and all those bundles of cash the Bush administration was sending over, $1 billion dollars of medical supplies was sold on the black market. The AIG bonus burhaha is bad,but Obama has a long way to go before he losses as much taxpayer dollars as his predecessor.

The Silliness at The Washington Post

On Sunday, the dean of the Beltway, David Broder announced in the Washington Post that it was over. It being the honeymoon. Over.

Two months into his presidency, it is far too soon to make any judgments about Barack Obama’s prospects. All we really know is that he has assembled the rudiments of an administration and launched a batch of ambitious but unproven initiatives.

Obama has been president for less then two months. Considering that he has in fact been remarkably successful at advancing the agenda which he campaigned on and the issues that meant the most to voters. he had a fight on his hands from day one in trying to reach out to recalcitrant far right Republicans in the House. So what honeymoon did he have exactly. Obama took his oath and the Right and so-called moderates like Broder declared war. All very predictable, but let’s not pretend that Obama got some slack from the fossilized mentality that stills rules the Washington press corps and most Republicans.

Another solid article that us non-economists can read without getting a headache, Real Capitalists Nationalize by Kevin Drum

The amount you can loan out depends on your capital ratio, a number that’s set in the US by the Securities and Exchange Commission. If you’re required to have, say, a 5 percent capital reserve, that means your loan portfolio can be as high as 20 times your capital. That’s $200 billion-and if you fudge things a bit, say through the creative use of off-balance-sheet vehicles, maybe you can loan out as much as $300 billion. If the average return on your loan portfolio is 5 percent, that means you’re making about $15 billion per year with only $10 billion of your own money at stake. Not bad.

But then a crash comes. Homeowners start defaulting on their loans, and you have to write off the losses. That cuts into your capital; plus, with the economy falling, it’s prudent to reduce your leverage. Instead of 30-to-1, maybe you’ll cut back to 20-to-1. The end result is that you’re lending way less money than you used to.

This is, roughly, what’s been happening to the global financial system. Loan losses have reduced capital. Everyone is hoarding money. It’s called deleveraging, and in plain English it means that credit markets are broken.

Beach Sunset wallpaper

The print press is struggling for a few reasons. The two major ones are the internet and 24/7 cable news. We can get the latest news without running out in the rain in our pajamas to get the newspaper the carrier threw under the car. Nope, not according to the Right.The Seattle Post-Intelligencer will roll off the presses for the last time Tuesday because they didn’t get down on their knees and genuflect for the Right, taking dictation from right-wing pundit and politicians. Its sad in a way. I still love reading my Sunday paper, but times change and the Seattle PI will continue as the nation’s largest net only newspaper. A site called Americandigest writes, Buh-Bye to the P. I.: Couldn’t happen to a more liberal paper. Check that. It can and it will. – gloating over a demise that is is only taking place in the writer’s fantasies – typical Conservative – goodness forbid we get anything other then the Right to right-center drivel  from the TeeVee and the David Broders. He also thanks Instapundit for a link. Those two blogs are point of fact part of the new media. The alternative to which crowds of intellectually curious readers are flocking because the PI is not cutting it. Ok, fair enough. Alexia gives Americandigest a trafiic rank of, drum roll please, 200,818. While Reynolds gets a traffic rank of  2,003,422. The Seattle PI, supposedly on life support has a ranking of 1,112 and DailyKos comes in at 9,653. Given a choice the vast majority of American seeking news leave Glenn and Americandigest eating dust. In the top fifty blogs at Technorati – The Huffington Post, Talking Points Memo anDailyKos all beat Reynolds, one of the more popular of the Right’s blogs.

And why go over and read the PI when you get all that fair and balancced bull from Fox, Fox’s Steve Doocy – Liar and Clown

Fox & Friends’ Steve Doocy falsely asserted that President Obama has proposed eliminating the ability of high-income taxpayers to take income tax deductions for their home mortgages. In fact, Obama has not proposed eliminating income tax deductions for any taxpayers; rather, a provision in Obama’s budget proposal would, beginning in fiscal year 2011, reduce the tax rate at which families earning more than $250,000 per year can take itemized deductions to 28 percent.

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