AIG--My Very Own Rick Santelli Moment

Posted on Credit Slips by Adam Levitin:

The AIG bonus episode pisses me off. But not for the reason it ticks off most other people. Yes, it's outrageous that the shmoes who drove AIG off a cliff are getting a bundle of cash. But what really bothers me is that this silly episode is what gets Congress (and other people) all worked up. For goodness sakes--it's just $165 million. That's chump change for the federal government and especially in the scope of the bailout. Put another way, it's about 55 cents per citizen, whereas TARP is about $2,333.33 per citizen.

I understand the Congress is responding in part to a perceived public anger. But there's an utter lack of perspective in the reaction to AIG. Simply put, AIG doesn't matter. It really doesn't. The bonuses are disgusting, but irrelevant. Get over it. Lynching a bunch of Wall Street shmucks might feel good, but it doesn't help anyone. It doesn't help people keep their homes and it doesn't restore the value of our 401(k)s and 403(b)s.

The real question is why aren't we this outraged over things that really do matter? Why is Congress about to leap into action (well, we'll see about that) over this piddly $165 million that has no effect on the world, when it hasn't done much of anything to help struggling homeowners? Where is a sense of priorities? Why wasn't Congress so energized to take serious action to help homeowners a year and half ago? Why is legislation permitting homeowners to restructure their mortgage in bankruptcy still trying to get the Constitutionally mandated 60 votes to pass through the Senate?

Bailouts are about economics, not moral justice. We should be focused on what will help fix the economy. The place to express our anger at Wall Street's excesses is not in clawing back some bonuses, but in creating a regulatory system that will prevent against future excesses. AIG is just beside the point, and if we continue to have national attention focused on things like the AIG bonus story, it only distracts from what matters.

It also irks me that members of Congress claim to be shocked, shocked, that AIG would pay out bonuses. Congress passed the $700 Billion bailout with only the thinnest patina of restrictions and oversight. I fear that many members of Congress couldn't be bothered to read the bill--the largest single expenditure in US history, I believe. The executive compensation restrictions are a joke and the oversight limited. The Congressional Oversight Panel has done yeoman's work trying to bring some transparency and accountability to the system and to get Treasury to at least explain what it is trying to do, but if Congress wanted substantive limitations to attach to firms that took federal funds, it should have said so. I get that Congress isn't used to being in the lending business, but this is distressed lending 101--get some covenants to protect yourself. Good grief!