Saturday, March 21, 2009

The Problem With Flogging A.I.G.

Protesters on Thursday outside the American International Group’s headquarters in Manhattan.

This opinion article from the New York Times address a great point I never thought off until now, given the mobs of people that are now against AIG's big bonuses: The Problem With Flogging A.I.G.

To summarize, if we criticize AIG too much (for example, there have been death threats to the executives who got the bonuses), we avoid actually helping the economy in a very suitable way while not looking through where the real problems lie.

For example, there are people actually working at AIG who actually were never part of the problem. How is AIG supposed to act if Congress is criticizing them so much? The House of Representatives has actually passed a resoluton yesterday saying people with annual incomes of $250,000 or more who work at a bank that recieves bailout money will be taxed a "90 percent rate bonus payments" (I actually don't know what the last two words have to do w/ the paragraph, but I can sense it's pretty bad). And we know executives make salaries in the millions, so how can this be an incentive for people at AIG or other bailed-out banks to fix the problem? The article mentions that many people work in "insurance divisions", which I wouldn't necessiarly know directly know what that means.

Congress wants to get this deal passed called: "Term Asset-Backed Securities Loan Facility", or TALF. It basically gives out government-based securities, or loans, that requires Wall Street Bankers to participate. How will they participate if Congress creates this perpetual anger towards these bankers?

Yes, big banks can be bad, but banks are too big right now too fail. I've heard things such as restructuring banks to make them smaller, so that they don't hurt the economy as easily and cause a chain ripple of event. But, as of now, this is only making big banks look worse and they can't really do anything.

Now, honest by heart, I'm not an expert at this stuff. I don't watch TV very often now (or been having time to catch up on current events), so I'm not tracking this stuff down like I should be. But, it made me think: Should government be at the point of scaring big businesses away? The world isn't black and white, and all I want to do now is look for solutions.

Here's a quote I found interesting, as a soluton:

"What the country really needs right now from Congress is facts instead of rhetoric. Instead of these “raise your hand if you took a private jet to get here” exercises of outraged populism, we need hearings that educate and illuminate. Hearings like the old Watergate hearings. Hearings in which knowledge is accumulated over time, and a record is established. Hearings that might actually help us get out of this crisis. It’s happened before. In 1932, Congress established the Pecora committee, named for its chief counsel, Ferdinand Pecora. It was an intense, two-year inquiry, and its findings — executives shorting their own company’s stock, for instance — shocked the country. It also led to the establishment of the Securities and Exchange Commission and other investor protections. One person who has been calling for a new Pecora committee is Senator Richard Shelby of Alabama, a Republican and key member of the Senate Banking Committee."

Supposedly, Bernake and Geithner will be speaking at a Congressional hearing next Tuesday, discussing about what they know about the bonuses.

I'm glad I did not spent my time reading up the anger people face in the media towards AIG, because it would be very repetitive. In fact, I have only read like 2-3 articles on AIG, and saw most of the criticism toward AIG (ironically, on a station I do not watch frequently) on FOX News. I'm glad this is the next article I actually read.

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