Somebody Stop The "Bailout Party"

Declan McCullagh Says Increasing Evidence Suggests AIG Should Not Have Been Bailed Out

(CBS)  It's reasonable to be outraged at the seven-figure bonuses that some of AIG's top earners received, courtesy of taxpayers. But save some ire for the government officials who let this situation develop in the first place.

We're starting to see more evidence that last September's government bailout of AIG was, contrary to what our esteemed leaders in Washington have been telling us, not exactly necessary.

Lucian Bebchuk, a Harvard professor of law, economics, and finance, wrote last week that claims of catastrophe if AIG filed for bankruptcy protection were "exaggerated." Larry Ribstein, who teaches business law at the University of Illinois, has gone further and argued that not only is an AIG bankruptcy possible, it's necessary to preserve what remains of the U.S. financial system.

Another bit of data that recently became public is a partial list of AIG's counterparties - including Goldman Sachs, Bank of America, and European financial institutions. Why can't those companies take "haircuts" and accept some losses? Instead, U.S. taxpayers are being forced to bankroll this effort to the tune of over $170 billion, so far, even as their own 401(k)s shrink and home values slide.

Unfortunately, the collective temperament of most Washington politicians - call them the Bailout Party, a term that includes Democrats and Republicans - includes a fondness for crony capitalism that dates back to the 1998 bailout of the hedge fund called Long-Term Capital Management. Not only is AIG likely to receive more handouts from the U.S. Treasury, but so are other firms that have yet to fail.

The best answer is to halt the rush toward bailouts. The second-best is to take the decision out of the hands of one or two individuals (Henry Paulson, Timothy Geithner, Ben Bernanke) and turn it over to the democratic process in the form of the U.S. Congress, which the almost-forgotten Constitution makes responsible for appropriating funds.

If that isn't politically feasible, there's one more option: prevent companies in the financial sector from becoming too big to fail. Keep them small enough to fail.

This is, admittedly, an unsavory choice. Although antitrust law might be one way to accomplish that objective, it brings with it a legion of other problems. Dominick Armentano, a research fellow at the Independent Institute and a professor emeritus at the University of Hartford, argues: "The weight of the general evidence is that the firms indicted under the antitrust laws were not abusing consumers, and that the laws have tended, instead, to protect competitors and reduce efficiency throughout the market."

On the other hand, modern antitrust law grew out of a belief that a check on "irresponsible" corporations was necessary. Worries about monopolistic behavior by railroads and Standard Oil Company are what, in large part, led to the creation of the Interstate Commerce Commission and the enactment of the Sherman Act. (If the word "irresponsible" doesn't describe AIG, I'm not sure what does.)

Another method would be to limit the dollar value of bets that a company like AIG can enter into. AIG was brought down by its exposure to credit default swaps - the total global market as of last fall was around $62 trillion - that allowed it to bet with other firms about whether a third party would default on debt.

If AIG's exposure to these bets was curbed, then it would have been likely to remain small enough to let fail. Bloomberg News estimated last fall that AIG provided $441 billion in backing for Wall Street trades involving credit default swaps; some fraction of that could be an upper bound.

All of these suggestions suffer from problems, including limiting what responsible firms can do because others will be less responsible, and a future administration could always declare that a set of smaller firms have collectively made bad bets and must be propped up for one reason or another.

But what they would do is reduce the ability of private firms to engage in what has come to resemble legalized extortion - the practice of telling regulators that if they don't cough up cash, catastrophe will ensue. The Washington Post has uncovered a secret AIG presentation to government officials that warned of a "chain reaction of enormous proportion" involving "a cascading set of further failures."

The consequences of these repeated bailouts are immense and historic. As of last month, the U.S. government has risked $9.7 trillion on bailouts, not counting the Treasury Department's new toxic asset-buying plan. To put that in perspective, the IRS collects only $1.36 trillion a year in individual income tax revenue.

Given a choice between a free market and where firms are constrained in size, I'll take the free market. But thanks to the Bailout Party, that's no longer an option, and may not be again for quite a while. Ed. Note: Declan McCullagh will be on vacation for the next two weeks.

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I encourage you to bookmark the home page for my Other People's Money column. An RSS feed is available too. If you have questions, feedback, or other suggestions, please feel free to e-mail me at [e-mail].

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Declan McCullagh is the chief political correspondent for CNET and an EconWatch contributor. Previously, he was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives with his wife in the San Francisco Bay area.

[cessna172_]

WOW,

Mr President (Barak)......................many people are disagreeing with your actions to the executives and corporate company's but I have to state keep up the good strong persistance in holding these individuals accountable even if their are contracts, your doing the right thing in this matter .
I'm GOP as well !

[sjc_1]

MalloryDavis,

If the rich made major contributions to society, they deserve a reward. If they got rich by lying, cheating and stealing from hard working people, they do not. We as a people decide who has made a major contribution to society.

[Really_Really]

If Americans were paying attention back in 2000...this mess probably could have been avoided:

http://www.gsereport.com/2000/April8-May5.pdf

This is how the report begins:

"May 5, 2000
The GSE REPORT ?
Contents of GSE Report ?
?Combined Fannie, Freddie, and the FHLBanks have $2.6 trillion ? T as in trillion ? of outstanding debt?I can?t
explain why the amount of outstanding debt is so huge. I would think that $2.6 trillion would be enough to provide
every man, woman and child in the US who doesn?t own a home with the equivalent of a custom-designed palace on
two acres in the Hamptons.? (Dow Jones Newswire, Jim Murphy, 4/12/00)
?Fannie Mae and Freddie Mac, the largest S&L?s the world has ever seen, want to have it all. They?re beyond the
reach of Congress and the voters. As for further expansion, you ain?t seen nothing yet.? (International Economy,
Peter Wallison, March/April 2000)" -© 2000 by Canfield & Associates

A must read for all Americans...we dropped the ball by not paying attention back then.

[jimmyc1955]

noloyalisti - Oh and so all the alternative policies pursued by the EU's democratic socialist states are so effective? They are in worse shape than the US. They have tax structures in the neighborhood of 50% for the average wage earner. They have rising debt for social programs they can't pay. Unemployment is, in most countries, pushing over 12%. Spain just announced they hit 15% and that is the OFFICAL number - meaning the real number is much higher.

Sweden - the supposed model for this system - has unemployment over 15% with most of those unemployed on a government paid "medical leave" - mostly for stress. I worked for a Swedish company and went there many times. It is horribly expensive to live there and there is no upward mobility.

Anybody who can believe that the Government is better suited to manage the wealth of a nation than the people of that nation is disillusion. For those who love to throw the Fascists name around - look back in history. Fascists love nationalizing industry and central control of the economy. How do you think the Nazi's took control to make the huge war machine? They took over industry and ran business.

Isn't that what the current administration is in the process of doing? That frightens me. That much power in the hands of a few who feel above us, the law and the common person? I will take an economic system run by people rather than government even if it means occasional economic upheaval, The alternative creates an opportunity for dictators - can you say Hugo Chavez?

[MalloryDavis]

Haters of the rich makes me want to HURL! Just look at your petty jealousy.

[platteman]

How come no one seems to care about GE getting a large bailout and Oberman is crabbing about AIG and yet he signs a 7.5 mil contract with MSNBC. Not only that, bonuses are being paid to GE execs and no one is crabbing about those. Even Chris, I got a thrill up my leg, mathews got a large raise and complains about AIG.
What a crock.

[noloyalisti]

Reagan started this insane and failed economic policy of privatization, trickle-down and deregulation. What I can't understand is how people in red states could back their own demise by voting for Republicans who are in up to their eyeballs in this ideology. I am going to Kansas to visit my brother and hopefully I will find out some information.

[sjc_1]

"This country is going to hell in a hand basket and the rest of the world is laughing at us. We are a joke."

When you have been downsized and outsourced for 30 years, this is the result. People listened to Reagan say that manufacturing jobs would be replaced by "service sector" jobs. They never told you that meant flipping burgers at a fast food outlet for minimum wage.

Now that America has been Walmartized...we can all wonder if we will have enough money to even shop at Walmart in the future. Corporations have gotten all the breaks since the 1970s because they convinced everyone that they create the jobs. They eliminate jobs because that cuts into dwindling profits. It has been a race to the bottom and are all getting there except the rich. They have enough to ride out a 10 year Depression, the working person can not and they know that...this consolidates power.

[justlookinitover]

OK, I don't have a problem with people who are having their upside down mortgages fixed because they were stupid. I don't have a problem with bankers getting bonuses because they were stupid. I don't have a problem with the government rewarding every to, dick and harry that supports them becauuse they are stupid.

I am a little worried about the fact that those of us who chose wiser paths are unable to benefit from all this free money going around. But it is only perceived as free if you are stupid. Also; are we promoting stupidity as an American cultural characteristic?

I have a question that is a little down a bunny path. If we have been outsourcing to China all these years and building up their coffers are we now borrowing back the same money that could have been in our own coffers?

I forsee the next president as paying a monthly rent check to property investors in China.

[nolies74621]

Wow I'm certainly not surprised of any ofthis. I dont trust bankers, i dont trust our govrnment anymore and YES I am scared where our country is headed , I guess paranoid is the better word , dang right because its all about the rich and screw the middle class and lower. Its just is. If i was younger i would bail out of this country we cant even give free socialized medical care for all because the rich dont want that. Other countries have it and they arent some slum country either. AIG should have just gone under. I live in a small 3 bedroom and its paid for. We didn't go for some $150,000 or more home because we knew if he lost his job we would be screwed unlike all these rich 2 story 3,000 sq ft homes these people bought and were losing them. Good, because they were living way beyond there means with all there credit cards and credit here and credit there. We dont even have a credit card. I have my bank card and if i dont have the money , well I dont buy it. Sure the governemnt want you to get morgages and get credit cards because they say thats what makes our country stronger...hogwash!!!! It makes there pockest stronger. Most of you speaking here are probably college educated, well im not, but i think I have more sense than the very people that they went for loans on these huge show homes. I really get mad that my very taxes are bailing them out while im looked down apon but these very people i havemore money then they do because its mine, i dont have to pay and pay and pay and pay off one credit card with another nor am i losing my house because ITS PAID FOR!!! We are spoiled...well not me, but most of the people in this country are and have no clue whats it really like to want for anything. I even have my own vegi garden every year and can and do what ever it takes to save a buck. We dont have a gas hog SUV either. We didnt but into that craze either. I like what one person said here about we needing to go into a depression. I agree then all you riches out there would finially know what life is really all about , its not about showing off you mansions and your huge over the top SUV's. its about just living life and enjoying it. if any of you are christians OMG by having all what Ive said you are the very sinners hahahaha, and im not religious at all. To have more than you need to sustain life is a sin. But thats right you justify that all the time.You take what is really said and twist it to benifit your purpose and sit in that church every week. AIG and every bank that has coned the public should have to go under and ...OMG those suits themselves would be out of work and lose there 5,000 sq ft homes and there 6 or more figure imcome. Im just sick of all this crap. Im sick of the this country is run and Im sick of the rich getting richer and the middle class and poverty level people getting more into poverty. This country is going to hell in a hand basket and the rest of the world is laughing at us. We are a joke.
Posted by titans58 at 7:21 AM : Mar 26, 2009

You sound mad and I do not blame you. Our government is becoming too large. The constitution does limit government but congress seems to want to trample on it. As americans many, many are spoiled. Banks and home buyers are to blame for giving loans that people can't afford and the home buyer signs the contract and crosses thier fingers.. I also bought a average sized house because I am an average american. I earn in the upper middle class range but that does'nt mean that I should spend that way. A good lesson I learned from my grand ma was save for a rainy day and I started saving when I got my first job at 15, I have saved and spent thriftly for 32 years and it paid off, I just wish the americans that got in over thier heads would have planned for a rainy day...actually for the c-rapstorm that is hitting the nation right now.

[titans58]

Wow I'm certainly not surprised of any ofthis. I dont trust bankers, i dont trust our govrnment anymore and YES I am scared where our country is headed , I guess paranoid is the better word , dang right because its all about the rich and screw the middle class and lower. Its just is. If i was younger i would bail out of this country we cant even give free socialized medical care for all because the rich dont want that. Other countries have it and they arent some slum country either. AIG should have just gone under. I live in a small 3 bedroom and its paid for. We didn't go for some $150,000 or more home because we knew if he lost his job we would be screwed unlike all these rich 2 story 3,000 sq ft homes these people bought and were losing them. Good, because they were living way beyond there means with all there credit cards and credit here and credit there. We dont even have a credit card. I have my bank card and if i dont have the money , well I dont buy it. Sure the governemnt want you to get morgages and get credit cards because they say thats what makes our country stronger...hogwash!!!! It makes there pockest stronger. Most of you speaking here are probably college educated, well im not, but i think I have more sense than the very people that they went for loans on these huge show homes. I really get mad that my very taxes are bailing them out while im looked down apon but these very people i havemore money then they do because its mine, i dont have to pay and pay and pay and pay off one credit card with another nor am i losing my house because ITS PAID FOR!!! We are spoiled...well not me, but most of the people in this country are and have no clue whats it really like to want for anything. I even have my own vegi garden every year and can and do what ever it takes to save a buck. We dont have a gas hog SUV either. We didnt but into that craze either. I like what one person said here about we needing to go into a depression. I agree then all you riches out there would finially know what life is really all about , its not about showing off you mansions and your huge over the top SUV's. its about just living life and enjoying it. if any of you are christians OMG by having all what Ive said you are the very sinners hahahaha, and im not religious at all. To have more than you need to sustain life is a sin. But thats right you justify that all the time.You take what is really said and twist it to benifit your purpose and sit in that church every week. AIG and every bank that has coned the public should have to go under and ...OMG those suits themselves would be out of work and lose there 5,000 sq ft homes and there 6 or more figure imcome. Im just sick of all this crap. Im sick of the this country is run and Im sick of the rich getting richer and the middle class and poverty level people getting more into poverty. This country is going to hell in a hand basket and the rest of the world is laughing at us. We are a joke.

[cutthroatdna69]

do you not studty history? this goes back a lot further as far as government taking business's side..

The Ludlow massacre refers to the violent deaths of 20 people, 11 of them children, during an attack by the Colorado National Guard on a tent colony of 1,200 striking coal miners and their families at Ludlow, Colorado in the U.S. on April 20, 1914. These deaths occurred after a day-long fight between strikers and the Guard. Two women, eleven children, six miners and union officials and one National Guardsman were killed. In response, the miners armed themselves and attacked dozens of mines, destroying property and engaging in several skirmishes with the Colorado National Guard.


Ludlow massacre monumentThis was the bloodiest event in the 14-month 1913-1914 southern Colorado Coal Strike. The strike was organized by the United Mine Workers of America (UMWA) against coal mining companies in Colorado. The three biggest mining companies were the Rockefeller family-owned Colorado Fuel & Iron Company (CF&I), the Rocky Mountain Fuel Company (RMF), and the Victor-American Fuel Company (VAF). Ludlow, located 12 miles (19 km) northwest of Trinidad, Colorado, is now a ghost town. The massacre site is owned by the UMWA, which erected a granite monument, in memory of the striking miners and their families who died that day.

Contents [hide]
1 Background
2 The mine strike
3 The massacre
4 Aftermath
5 Legacy
6 Victims of the massacre
7 Post-restoration images
8 See also
9 Notes
10 References
11 External links



[edit] Background
Mining firms had long been able to attract low-skill labor, in spite of modest wages and stiff cost-cutting policies designed to maintain profits in a competitive industry. This made conditions in the mines difficult and often dangerous for the workers, and the sector became a ripe target for union organizers. Colorado miners had attempted to periodically unionize since the state's first strike in 1883.

The Western Federation of Miners organized primarily hard rock miners in the gold and silver camps during the 1890s. Beginning in 1900, the UMWA began organizing coal miners in the western states, including southern Colorado. The UMWA decided to focus on the CF&I because of the company's harsh management tactics under the conservative and distant Rockefellers and other investors. As part of their campaign to break or prevent strikes, the coal companies had lured immigrants, mainly from southern and Eastern Europe and Mexico. CF&I's management purposely mixed immigrants of different nationalities in the mines to discourage communication that might lead to organization.

As was typical in the industry of that day, miners were paid by tons of coal mined and not reimbursed for "dead work," such as laying rails, timbering, and shoring the mines to make them operable. Given the intense pressure to produce, mine safety was often given short shrift. More than 1,700 miners died in Colorado from 1884 to 1912, a rate that was between 2 and 3.5 times the national average during those years. Furthermore, the miners felt they were being short-changed on the weight of the coal they mined, arguing that the scales used for paying them were different from those used for coal customers. Miners challenging the weights risked being dismissed.

Most miners also lived in "company towns," where homes, schools, doctors, clergy, and law enforcement were provided by the company, as well as stores offering a full range of goods that could be paid for in company currency, scrip. However, this became an oppressive environment in which law focused on enforcement of increasing prohibitions on speech or assembly by the miners to discourage union-building activity. Also, under pressure to maintain profitability, the mining companies steadily reduced their investment in the town and its amenities while increasing prices at the company store so that miners and their families experienced worsening conditions and higher costs. Colorado's legislature had passed laws to improve the condition of the mines and towns, including the outlawing of the use of scrip, but these laws were poorly enforced.

[nolies74621]

And who decides what is my property? Well, I cant believe any thinking adult would ask this question! If I legally went out and earned my income, it is mine. It belongs to me. If I then take my income and purchase something, that property is mine. it does not belong to anyone else.

Now, I know this is a little above your head, so pay close attention: One of the chief problems we have in law enforcement is determining when something has been legally purchased. We had an idiot here in TN who thought he had the 'right ' to sell silencers for guns. His excuse? "I never shot anybody! Also, even if not all of your revenues are illegally obtained, the state has neither the time nor the patience to sit down and decipher when or what you bought with legally obtained money. Hence, they take it all when they discover any of your 'property' was obtained via illegal means. I say again, going back to Bernie Madoff: It appears to be an open and shut case. He cheated nearly all of his investors, all of his employees were paid from proceeds of illegally obtained funds, and...no,w ait. Was ALL of his money illegally obtained? If not, he has a right to keep the funds he legally earned. It's just that he is so high up there and his assets are tied into thiose of his wife, and the government does not have the right to take it all, even thouhg that would be the easiest thing to do. The bottom line is, we need a sound judicial system to see that all bak notes, transactions and land puchases, deals and agreements, etc are made in a legal and proper manner. It takes money to do that. If people have just one tax to pay but so many things with which to pay, there is going to be a breakdown somewhere...
Posted by tj217-2009 at 1:54 PM : Mar 25, 2009

Wow your really smart!!!!! Do you always automatically apply your reasoning to everything that anyone may post. The person you are responding to said nothing about purchasing anything illegal. Did you really have to write "Now, I know this is a little above your head, so pay close attention?" AHHH!!! I see you need to grace us with your unparalleled knowledge, well that tells me that your not smart, your just think you are. There is a difference between smart (there are different levels of smart ie he is a really smart person and his IQ is only 80..catch my drift) and intelligent and you are not intelligent. See I love talking to people like you face to face, why? because I am the type of person that would shove your insulting remark back down your throat. Have a good day!

[wyzguy11]

We need to have another "Depression"......We have become to spoiled!! If you can't pay your mortgage........move back in with the "in-laws" like in the old days!! No federal govt. buying "toxic assets"........Let the Chinese buy the McMansions!!

We got into this mess ourselves..........We have to get out of it ourselves!!

[philabias]

This crisis is only a crisis because the Obama Administration made entirly of counsel for foriegn relations members fleecing the US of its wealth and giveing it to there masters the BANKE$RS ..... STOP THE GIVEAWAY.

[Politicians-of-the-Lie]

It's about time CBS started practicing true journalism. Please get with the program and do some investigative reporting. You are doing a great disservice to the public by turning a blind eye to government.

[sjc_1]

"...partial list of AIG's counterparties - including Goldman Sachs..."

Paulson was a former CEO of Goldman and held about $400 million in stock and options in that firm. Can anyone say "conflict of interest"? Between Paulson and Cheney, they make Tammany Hall look like an amateur act.

[sjc_1]

As long as tax policy has come up, I am for Functional Progressive Income Taxation. NO deductions and no flat tax. Below a certain amount no tax. Above a certain amount, a flatter tax rate. In between a curve where you plug in the amount of income on one axis and the other axis indicates the amount you pay in income taxes. The more you make, the higher percentage you pay, as the price of doing business in American. There are no brackets, because it is a functional curve.

[stevador39]

Geithner PIMPS for Wall Street.

[hungry1968-15]

Hhmmmm. Let me see if I can downsize this so you can get it!

When you buy a car with a car loan from the bank, who owns the car? You or the person or company that put up the money? Who has the title (ownership) of the car?

Well, of course, the bank does! You dont own it, even though you drive it and make decisions on repairs, paint jobs, new radio, etc on it. You dont own it until you pay off the loan.

I cant understand why I have to explain these simple concepts!
Posted by mortar29 at 11:44 AM : Mar 25, 2009





When I buy a car, do I drive it everyday, or do I leave it parked in the bank's parking lot until I make the final payment, since they "hold the loan"?

Your analogy is stupid, and proves that you don't think BEFORE you start typing.