The AIG bonus issue has gone over the head. It’s crazy talk. Here’s the layman version of the story as I understand it.
2003-2006
– Housing markets soar. Low interest rates drive people to buy homes, in some cases homes they can’t really afford. Houses are sold at crazy amounts of money. People are taking out home equity loans on their homes to buy cars, vacations, swimming pools etc.
– Bankers make all sorts bets on derivatives or complex financial products that would benefit if mortgages default. We’re hearing the they created bonds and securities that were backed by mortgages.( I’m not an economist but this is what I understand what happened
– so please don’t source me on ANYTHING!!!!!!) — Housing bubble bursts 2006-2008
– People start defaulting on mortgages left, right , center.
– Mortgage backed securities loose value — Bankers have taken more risk than they could handle so the banks loose value
– Bear Sterns collapses
– Lehman Brothers collapses
– AIG is in trouble because it has insured some of these complex financial products
– Government rushes in to help AIG because it has insured a lot of other banks and their products
– Fear is if AIG goes bust, the entire banking system will have no insurance and all the banks will collapse
– Government owns 80 % of AIG 2009
– More money is given to AIG something like 180 billion so far.
– It is found that several AIG executives who worked for the AIG’s financial product unit
– the one who made investments in risky loans are going to get 165 million dollars in bonus.
– Public outrage: People are screaming for the blood of AIG execs. ( I think unfairly)
– Apparently, the treasury dept, Fed chief knew about the bonuses all this time but did nothing to mitigate it.
– Apparently, congress had in the bailout bill a proposal that would limit bonuses to all companies who got govt money but some politician ( Chris Dodd) removed that provision at the insistence of a “treasury dept official”
So really, why the heck are we laying the blame in the ENTIRE recession on those 100 odd executives who got big bonuses.
People ( in my opinion) who should be blamed for the debacle
Alan Greenspan – For being so lax and not anticipating what would happen when the housing bubble burst
Congress- For not moving too fast and not anticipating the crisis and being bogged down by lobbyist.. Putting their interest before public.
Rating agencies who rated these derivatives ( and I found out the agencies are paid for by investment banks) Conflict of interest??
Wall Street executives– not just AIG but in just about every bank who jumped on the bandwagon of risky mortgage backed securities.
Ben Bernanke– Not predicting housing debacle and not figuring out how to get out of it.
Lending brokers who lent money to those who shouldn’t have gotten money to begin with
People who shouldn’t have bought homes in the first place
People who took out second mortgages for entertainment stuff, like vacation, another home etc.
So instead now, there’s a witch hunt for the only thing that you CAN get angry on.. THE AIG EXECUTIVES. Let me just say about those execs. Yes, they were wrong to take the risk of investing in something that was bound to loose money when the bubble burst. But if they didn’t , when everyone else in the world was investing and reaping profits, they would have been ostracized. They took a risk and risk is why U.S is successful. If people were complacent and invested very conservatively, I think U.S wouldn’t have been such a prosperous country. So, they took risks ( which I still think they should when the economy improves) and they failed. Clearly they don’t deserve bonuses but you know what, bonuses were in their contracts and no one changed it. Some one surely should’ve looked into it. Wait! Someone did back when they passed the second stimulus. But Chris Dodd took it out of the bill because someone at the Treasury wanted that provision out! So why blame the employees who did what they were asked to do and PROMISED by the company that they would be appropriately compensated if you did a good job. What was their job? It was to unwind the business that was bringing AIG down. They did a good job of unwinding the division and they deserve what was promised to them. If the taxpayers and that includes me didn’t want them to have this money… we as people of a democratic society should have done something about it.
It’s about fairness nothing else. They were promised something and it was in the rule book, the law, a contract. Then it should be honored OR the law should have changed. You can’t have it both ways and then blame the handful of those people who got bonuses. We’re always looking for someone to blame and once we find someone who may be even remotely associated with the problem.. we get our pitchforks out!
