Populist Outrage Over AIG Bonuses Scaring Private Investors Away From Buying Toxic Assets

from the backlash... dept

Before anyone gets that upset, I'll say that I'm pretty much in exact agreement with Adam Davidson from NPR's Planet Money when it comes to how to feel about the AIG bonuses that were big in the news last week. It's definitely disgusting and troubling to see the money handed out that way, but it's really a tiny sum in the big scheme of things, and there are a lot bigger and more important things that the government should be focused on. Besides, the populist anger is really misplaced -- often directed at the current management or the recipients of those bonuses, rather than those who put in place the contracts that made those bonuses required. But, the very fact that Congress spent so much time on it highlights something we warned about earlier this year: as soon as the government steps in to help a business, it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued. That will certainly limit what many companies are willing to do.

And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess.

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  1. identicon
    John Dole, 23 Mar 2009 @ 9:29am

    no way to modify past agreements

    AIG execs and management should in no way have to renegotiate their bonuses just because the company they worked for is bankrupt and needs to be bailed out to help save the economy. Why doing so would be Marxists socialism!!!

    That is the way it should be, unless we are talking about renegotiating contracts of those dastardly unions in the automotive industry. Well those guys are just regular workers so there shouldn't be a second thought to changing their contracts.

    To all who can't see the obvious, there is a stark double standard when it comes to regular workers and so-called elites.

    btw, AIG isn't in bad shape because of invisible market forces, it and a large number of banking institutions are in trouble because they were allowed to be incredibly stupid with their money and business practices. This was because of a lack of regulation. Regulation that hindsightedly Alan Greenspan now sees as necessary.

    So we allow that stupidity to enter us into a new great depression (thank you Hoover) or 'we' (the government) do something about it.

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