Tuesday, March 31, 2009
The AIG Bonus Brouhaha
I didn't catch this when it ran, but it is now in my archives at Townhall and there are a dozen comments, so it must have... Anyway here is my take on the AIG bonus stuff. An excerpt:
The public was right to be outraged. But the real problem was the bailout in the first place. No matter what AIG does, it will now be with taxpayer money. Obviously, even a company that the government seizes is still going to pay its employees, pay its heating and electric bills, and buy raw materials. If citizens don’t object when their government starts nationalizing companies like they do in South America, then the citizens shouldn’t be shocked when their tax dollars get spent by the government’s handpicked CEO.
Comments:
How would you respond to Wendy (2nd comment at Townhall). She basically says all of AIG's problems were caused by the mark-to-market accounting rule:
"If the mark-to-market rules are completely abolished, AIG will be okay. It should be allowed to continue to exist after that, and their honor should be restored. It is unjust to attack AIG when they were the victim in all this."
"If the mark-to-market rules are completely abolished, AIG will be okay. It should be allowed to continue to exist after that, and their honor should be restored. It is unjust to attack AIG when they were the victim in all this."
I get what she is saying, but we're mostly quibbling I think. The reason for the markdowns was the unexpectedly high rate of defaults. It's true that AIG hasn't paid out a lot (any?) on its CDS issues; but I said as much in my article.
I don't think this is all the fault of "mark to market." I agree the rule is probably dumb and has exacerbated things, but I don't see it being the cause of the crisis. In particular, if the problem is that investors can't trust the books of institutions, then how in the world would getting rid of mark to market improve the credit markets?
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I don't think this is all the fault of "mark to market." I agree the rule is probably dumb and has exacerbated things, but I don't see it being the cause of the crisis. In particular, if the problem is that investors can't trust the books of institutions, then how in the world would getting rid of mark to market improve the credit markets?
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