23 March 2009

The financial meltdown and keeping perspective

I’ve seen a few people start saying that we shouldn’t be worrying about the misdeeds of AIG and other bailout recipients, because the problem we face makes their sleaze look trivial.

Sure, AIG paid its employees massive bonuses after receiving bailout funds. Yes, the bonuses were even bigger than they admitted, an average of about a million dollars per person, going to the very people who destroyed the company, the folks in Joseph Cassano’s financial products division. But hey, it’s only $400 million, and we’re talking about a trillion dollar problem here, right?

Sure, AIG is also suing the government to try and get back tax it tried to avoid by using illegal offshore accounts with names like Lumagrove, Laperouse and Foppingadreef. Sure, they’re paying for the lawsuit using taxpayer dollars, and the cost of the defense will be born by the taxpayer as well—but hey, it’s only another $306 million plus both sets of lawyer fees, and we’re talking about a trillion dollar problem here, right?

OK, it may be true that half the banks we’ve bailed out didn’t bother to pay their taxes last year. And yes, their CEOs lied about it. But hey, it’s only another $220 million, and we’re talking about a trillion dollar problem here, right?

Yes, JPMorgan Chase is taking bailout money and buying two new luxury corporate jets and building “the premiere corporate aircraft hangar on the eastern seaboard”. But hey, it’s only another $138 million, and we’re talking about a trillion dollar problem here, right?

Granted, MorganStanley has 158 subsidiaries in the Cayman Islands in order to dodge taxes, yet turns around and asks for tax dollars. Yes, they’re paying themselves $10.7 billion in bonuses, almost exactly the amount they’re getting in bailout cash. Yes, the offshort accounts of MorganStanley and other banks are estimated to be costing the taxpayer a few billion dollars a year. However, we’re talking about a trillion dollar problem here, right?

Well, to update a phrase widely but falsely attributed to Senator Everett Dirksen: a few hundred million here, a few billion there, and pretty soon you’re talking real money.

Consider it this way: Suppose you’re unemployed, and having difficulty making your mortgage payments. While you’re sitting at the table trying to balance your finances, someone breaks in through your front door, walks up, grabs your wallet, and starts walking away with it.

Apparently the right thing to do is say “Oh, hey, that’s pretty blatant–but he’s only stealing $100 in my wallet, and I’m facing a $300,000 headache, so I’ll just ignore it. I have more important things to worry about.”

Then when the next guy wanders in and tries to steal your TV, you’re supposed to ignore that too, because your problem is so much bigger and more important than such a petty triviality.

Well, I guess I’m crazy, because I think a financial crisis is exactly the time to put the smackdown on anyone who tries to rip you off.

I didn’t want to see a bailout in the first place. We should have done what every other country in the same situation has done to get out of it—nationalize the banks, fire the people who caused the mess, and then privatize the banks again once things settle down. (Listen to recent This American Life episodes and NPR podcasts for the background.)

If we must have a bailout, then the very least we should do is make sure that we don’t get ripped off. If we let Wall Street get away with it this time, imagine how much worse they’ll be afterwards, and how much worse the next resulting crisis will be. I seriously think that AIG should be liquidated. It’s time for President Obama and other lawmakers to play hardball. They need to send a message to the CEOs of the banks, showing that not only are they not getting their bonuses, but they may be losing their jobs unless they start a program of radical austerity and honesty.

© mathew 2017