Yesterday I was watching Bill Maher on YouTube with Cory Booker (the Rhodes Scholar Mayor of Newark) and Erin Burnett (of CNBC fame) talking about the economic crisis. The general tone of the conversation was unmistakable, even though Erin Burnett tried to inject some moderation. Wall Street, the banks and bankers, AIG……… they are the villains; they are to blame for the pickle we’re in, for your son-in-law’s layoff, your neighbor’s foreclosure, the auto slump, you name it.
The audience applauded any and all insults and derogatory comments about banks, corporations, rich people, bonuses, and George Bush. Also, last week I watched Jon Stewart skewer Jim Cramer, and then endured our holier-than-thou congressmen hurl insults at the CEO of AIG. It’s become obligatory for any and all politicians to decry the AIG bonuses as virtually criminal. The House went so far as to pass a clearly unconstitutional law to tax the bonuses at 90%.
Now they are saying that the AIG bailout was a gravy train for the rest of Wall Street because it enabled that company to meet its contractual obligations with Goldman Sachs and other firms. Why, of course, you dumb politicians! Didn’t you know that was the purpose of the bailout? What did you think AIG was going to do with the money? Make campaign contributions?
Look, readers, I voted for Obama, and have high hopes for his success. Frankly, I am not an admirer of Jim Cramer, and he deserved a skewering. And I believe that the banks and bankers were incredibly greedy and stupid to lever up their balance sheets to buy assets they didn’t fully understand. And I think AIG’s management was completely asleep at the switch. The bonuses were simply a dumb move. They should have foreseen the reactions.
None of this changes the sad fact that the bailout of AIG was crucial in preventing an absolutely terrible systemic failure of the financial system. Yes, Goldman Sachs, other Wall Street firms, and heaven help us, even foreign banks, were counter parties on the AIG derivatives portfolio and , therefore, recipients of funds from the bailout. I shudder to think what the world would have looked like had they not been. Oh sure, if we had the luxury of time to think more about it perhaps we could have negotiated some “haircuts” for the counter parties, but that’s now twenty-twenty hindsight.
Poor Edward Liddy, the CEO of AIG, who was recruited from retirement to salvage what he could for AIG and taxpayers, and who is taking only a dollar a year in pay to do it was pilloried by congressmen. He didn’t deserve it. But the fact that he got it anyway, was proof of what I’m thinking and what must be obvious to all of you readers. That there is an immense wave of populist rage sweeping America, aimed at the rich, corporate executives and directors, banks and bankers and all kinds of financial service providers, and especially at Wall Street. (see Frank Rich’s NYT column of 3/22 at http://www.nytimes.com/2009/03/22/opinion/22rich.html?ref=opinion )
Now we need private investors to participate in the plan to purchase toxic assets from the banks. They shouldn’t be blamed for worrying about what might happen to them if they profit handsomely from the use of government-provided leverage. The potential of populist rage is going to make them think twice about joining this effort.
People have a right to be angry. Wall Street and the financial service industry really did mess up. But regulations or legislation made in anger are seldom sound. So far, our new President seems to be resisting this populist storm. Good for him. But he needs to exert more influence on Nancy Pelosi, Harry Reid, and their colleagues.
Sorry for sounding off. But it makes me feel better.
Posted by Paul F. Miller, Jr. 
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