Capitalism Delayed Is Capitalism Denied

AIG is at it again: they need more bail out money so that they can afford huge retention bonuses for the people who ran the company into the ground: outrage, outrage, anger, anger, blah, blah . . . but how did we get here and what’s the right course of action in the future.

Fannie Mae and Freddie Mac: From Outrage To Template

One of the few actions by both John McCain and George Bush that I have applauded was their prescient, if futile, quest to increase regulation for Fannie Mae and Freddie Mac before the melt down. They correctly saw that these companies had privatized profits and socialized risks (through an implicit government guarantee) and that, if the companies could not be eliminated and replaced by the market, they needed to be heavily regulated.
 

This makes it all the more infuriating that, when the melt down started, the solution Bush, McCain and their RINO buddies chose was to turn AIG, and other financial companies, into Freddie Mac and Fannie Mae: companies that had privatized profits and socialized risks and were implicitly guaranteed by the government without any of the additional regulation, or outright nationalization, this requires.

Four Steps To Bipartisan Disaster

Jon Henke over at NextRight had a great post on the bipartisan thinking that leads to disaster:
 

1. Socialize Risk: Government intervenes in an industry to “solve” some apparent and visible problem. This is done “for the people.”

2. Unintended Consequences: This intervention merely shifts the costs to new areas and sweeps problems under the carpet, where they accumulate.

3. Blame The Market: Government intervention is not blamed, because the people who support it assume their good intentions could not be responsible for bad things.

4. Socialize Profit: The Left demands Something Be Done by people with Good Intentions. Politicians comply. This is done “for the people.”

• Democratic politicians, organizations and activists are happy to go along with Steps 1-4, because, hey, #4 was their goal in the first place.
• Republican politicians and organizations go along with Steps 1-3, only objecting at Step #4. By which time it is too late.
• Business goes along with Step #1, and attempts to use Step #2 to get more of Step #1.

[end of Jon's stuff]

At step 3 you have an entity that should be an abomination to both left and right:

• The left, especially the mean green left, is furious that taxpayer money is being used to prop up a private company without adequate oversight
• The right, especially the Libertarian right, is furious about the government intervention in the market

But Wait, There’s More: We’ve Also Eliminated Accountability

Republicans and Conservatives talk a good game about accountability, but let’s ask a simple question: who is AIG accountable to right now?
 

Are they accountable to the market? Nope, they’re too big too fail so it doesn’t matter what they do.

Are they accountable to the government? Nope, as Robert Reich correctly points out: “When our very own Secretary of the Treasury cannot make stick his decision that AIG’s bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one.”

The Path Forward

This is, interestingly enough, a situation where the centrist Bush-RINO-Obama-Pelosi crew has cooperated to push a bipartisan disaster while the ideological fringes (both the mean green left and the libertarian right) have pushed viable solutions.
 

For the RINOs, and even the Obama team (since the AIG strategy has truly been the Bush-Obama strategy), preserving the appearance of capitalism has turned into blinders that keep them from seeing that, once you’ve gone through steps 1-3, the correct thing to do is either to unwind the whole thing (go back to capitalism) or plow straight on to step 4 and just nationalize the damn thing.

The Libertarians want the former, the mean green left wants the latter and both solutions are workable. In fact, they can even work in combination.

We keep being told that AIG had one unit engaged in risky credit default swaps and the rest is an on-going insurance company. OK. Take the Credit Default Swap unit that is supposedly so critical to the financial system and just nationalize it and wind it down. Split off the insurance company and let it stand or fall on its own (and pay all bonuses it wants to).

Update: Michelle Malkin has a good summary of the politics around AIG right now including a great point from Ed Morrisey (if AIG had gone bankrupt we wouldn’t have these bonuses) and the usual “sanctity of contracts” idea which brings up an interesting point: if GM or Chrysler had unilaterally cut pay for the UAW on the grounds that it they were being overpaid while taking bail out money, how do you think that would have gone over?

The best blog post title award goes to “AIG: Where Taxpayer Dollars Go To Die“

Sister Toldjah also scores a few points off this, but there’s an excellent comment from “omapian” to her post: “AIG execs ACTUALLY EARNED their bonuses! AIG did not go bankrupt – the execs got them the bailout money with no strings attached.” When you look at this way, the AIG execs were geniuses and they may have actually saved some stockholder value in a company that should have been bankrupt months ago: if that doesn’t deserve a bonus, what does?

Update 2: Hot Air makes the same “currently we have the worst of both worlds, either socialize them or cut them loose” argument noting that Republicans are, at last, starting to push the latter while Barney Frank in particular is pushing for the former (exactly as predicted in Jon’s 4 step process).

Update by Nettie, March 18

QandO is on the case, noting the moral outrage NOT against the $400,000 (yes, that is apiece) retention bonuses that Fannie Mae execs are supposed to get. That is despite this: “Fannie Mae, which suffered $59 billion in losses last year, has requested $15 billion in taxpayer assistance, and has said it expects to need plenty more.” Tell me again why we need to pay retention bonuses to keep execs who have performed this poorly?

Sister Toldjah is on this as well. Did you know that Chris Dodd (who, BTW, along with the Big O, got huge campaign contributions from AIG and I heard it on the radio, so can’t give you a source) wrote it into the AIG bailout that those bonuses were not to be touched? Isn’t hypocrisy the biggest of all liberal sins?

The Confederate Yankee points out a similar situation. Chuck Grassley suggested the AIG execs commit hara kiri, pointing out that, “And in the case of the Japanese, they usually commit suicide before they make any apology,” which seems to be physically impossible to me, but maybe there’s a seance involved. Anyhow, the Yankee noted that Grassley also got a nice $26,000) campaign contribution from AIG.