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Was the TARP and the AIG Bailout Itself a Scam?

Politics / Credit Crisis Bailouts Mar 20, 2009 - 04:26 AM GMT

By: Submissions

Politics Best Financial Markets Analysis ArticlePaul Craig Roberts writes: Professor Michael Hudson (CounterPunch, March 18 ) is correct that the orchestrated  outrage over the $165 million AIG bonuses is a diversion from the thousand times greater theft from taxpayers of the approximately $200 billion "bailout" of AIG.  Nevertheless, it is a diversion that serves an important purpose.  It has taught an inattentive American public that the elites run the government in their own private interests.


Americans are angry that AIG executives are paying themselves millions of dollars in bonuses after having cost the taxpayers an exorbitant sum.  Senator Charles Grassley put a proper face on the anger when he suggested that the AIG executives "follow the Japanese example" and " resign or go commit suicide."

Yet, Obama's White House economist, Larry Summers, on whose watch as Treasury Secretary in the Clinton administration financial deregulation got out of control, invoked the "sanctity of contracts" in defense of the AIG bonuses.

But the Obama administration does not regard other contracts as sacred.  Specifically: labor unions had to agree to give-backs in order for the auto companies to obtain federal help;  CNN reports that "Veterans Affairs Secretary Eric Shinseki confirmed Tuesday [March 10] that the Obama administration is considering a controversial plan to make veterans pay for treatment of service-related injuries with private insurance"  ;  the Washington Post reports that the Obama team has set its sights on downsizing Social Security and Medicare.  

According to the Post , Obama said that "it is impossible to separate the country's financial ills from the long-term need to rein in health-care costs, stabilize Social Security and prevent the Medicare program from bankrupting the government."

After Washington's trillion dollar bank bailouts and trillion dollar gratuitous wars for the sake of the military industry's profits and Israeli territorial expansion, there is no money for Social Security and Medicare.

The US government breaks its contracts with US citizens on a daily basis, but AIG's bonus contracts are sacrosanct.  The Social Security contract was broken when the government decided to tax 85% of the benefits.  It was broken again when the Clinton administration rigged the inflation measure in order to beat retirees out of their cost-of-living adjustments.  To have any real Medicare coverage, a person has to give up part of his Social Security check to pay Medicare Part B premium and then take out a private supplemental policy.  The true cost of Medicare to beneficiaries is about $6,000 annually in premiums, plus deductibles and the Medicare tax if the person is still earning.

Treasury Secretary Geithner, the fox in charge of the hen house, has resolved the problem for us.  He is going to withhold $165 million (the amount of the AIG bonuses) from the next taxpayer payment to AIG of $30,000 million. If someone handed you $30,000 dollars, would you mind if they held back $165?

PR flaks have rechristened the bonus payments "retention payments" necessary if AIG is to retain crucial employees.  This lie was shot down by New York Attorney General Andrew Cuomo, who informed the House Committee on Financial Services that the payments went to members of AIG's Financial Products subsidiary, "the unit of AIG that was principally responsible for the firm's meltdown."   As for retention, Cuomo pointed out that "numerous individuals who received large ‘retention' bonuses are no longer at the firm."

Eliot Spitzer, the former New York Governor who was set-up in a sex scandal to prevent him investigating Wall Street's financial gangsterism, pointed out on March 17 that the real scandal is the billions of taxpayer dollars paid to the counter-parties of AIG's financial deals.  These payments, Spitzer writes , are "a way to hide an enormous second round of cash to the same group that had received TARP money already."

Goldman Sachs, for example, had already received a taxpayer cash infusion of $25 billion and was sitting on more than $100 billion in cash when the Wall Street firm received another $13 billion via the AIG bailout.

Moreover, in my opinion, most of the billions of dollars in AIG counter-party payments were unnecessary.  They represent gravy paid to firms that had made risk-free bets, the non-payment of which constituted no threat to financial solvency.

Spitzer identifies a conflict of interest that could possibly be criminal self-dealing.  According to reports, the AIG bailout decision involved Bush Treasury Secretary Henry Paulson, formerly of Goldman Sachs, Goldman Sachs CEO Lloyd Blankfein, Fed Chairman Ben Bernanke, and Timothy Geithner, former New York Federal Reserve president and currently Secretary of the Treasury.  No doubt the incestuous relationships are the reason the original bailout deal had no oversight or transparency.

The Bush/Obama bailouts require serious investigation .  Were these bailouts necessary, or were they a scam, like "weapons of mass destruction," used to advance a private agenda behind a wall of fear?  Recently I heard Harvard Law professor Elizabeth Warren, a member of a congressional bailout oversight panel, say on NPR that the US has far too many banks.  Out of the financial crisis, she said, should come consolidation with the financial sector consisting of a few mega-banks.  Was the whole point of the bailout to supply taxpayer money for a program of financial concentration?

Paul Craig Roberts [ email him ] was Assistant Secretary of the Treasury during President Reagan's first term.  He was Associate Editor of the Wall Street Journal .  He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington ; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy , and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice . Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Steve L.
18 May 09, 20:09
The TARP trap

The TARP trap was a brilliant financial maneuver by the Wall Street banking giants. They were able to sell TOXIC financial derivative bonds based on mortgage interests to gullible companies, cities and states throughout the world, earning huge commissions, until the housing bubble burst. Now these same banks, who happen to finance political elections too, are being bailed out by Washington DC of any losses they might sustain by not having sold every one of their derivates to the gullible public. Even the (formerly) great insurance giant AIG is being bailed out for having insured many of these derivatives from catastrophic loss, even though they never imagined that the millions of dollars they collected as insurance fees would ever lead to them taking any losses...which is a business expectation for any other financial businesses that were considered Too Big to Fail (TBF).


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