The economic news since before the election last year has been mostly bad. Numerous well-known companies have shuttered permanently or come close to it. Auto companies are teetering on the edge. Yet one previously little-known company has captured the imagination and the ire of the nation: AIG. The big story is the bonuses, but the sideshow is noteworthy on its own.
First: How did AIG get here? From the NYTimes
A.I.G.’s problems rest in its London-based financial products unit, part of its financial services group, which is exposed to securities tied to the value of home loans. The financial products group sold credit-default swaps, complex financial contracts allowing buyers to insure securities backed by mortgages. As home values have fallen, the value of the underlying mortgages has declined, and A.I.G. has had to reduce the value of the securities on its books.
That's it in a nutshell - they insured not the mortgages
on the houses, but the value
of the houses. They assumed that house values would only go up. Once the housing bubble burst and values started dropping, they were screwed.
What never seems to get mentioned is that:
- Most of the company is doing fine, it's just the one unit that's dragging the rest of the company down
- The unit is based in London, not the U.S.
- The head of that unit is a contract employee, still earning $1,000,000.00/month, even after the meltdown.
What has everyone upset of course is that the execs in this unit that is causing all the trouble are still getting their bonuses. First the company said it needed to provide bonuses to attract and keep the best people they could. Once the irony of THAT statement sunk in, they are now saying they are contractually obligated to pay the bonuses.
This has led to both Obama and Congress trying to negate that obligation. Obama is also placing the blame on the previous administration
"The Secretary of Treasury did as much in his legal power at the time to lessen the impact of what we all understand is outrageous," Gibbs said during a Tuesday afternoon press conference. "Let's make sure that everybody understands that there was a change in administration between September of 2008 and what we were talking about sometime last week,"
Obama has said he will pursue "every single legal avenue" to either prevent the bonuses from being paid, or to recoup the bailout funds in the same amount. Congress in turn is pursuing options from its end, and will have AIG CEO Edward M. Liddy testify before them
later today. Expect grand displays of righteous indignation...
What's more disturbing (yet not unexpected) are the responses from the right-wing. Senator Grassley (R-IA) suggested the AIG execs commit harikari
I suggest, you know, obviously, maybe they ought to be removed," Grassley said. "But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide.
"And in the case of the Japanese, they usually commit suicide before they make any apology."
(naturally, he later backtracked on his comments
And those fabulous folks at FAUX News had their own fabulous comments to make. After Krauthammer made a rather well-reasoned explanation as to the AIG situation, the crazy came out:
Time marches steadily... backwards... for these folks...
So we'll see what happens on the Hill today. There will linguistic tarring and feathering; of that I am certain. This has all the makings of the theatre absurd, with everyone trying to one-up their fellow congress critters for the folks back home.
Welcome to the circus - and in the center ring...