Fear and loathing at AIG

Why bailouts are no answer to the crisis

By Joyce Wilcox

The executives at the Washington office of American International Group are reportedly afraid to go to work for fear of their lives. In New York City, they are told not to wear their ID badges outside the building.

Recently, the Service Employees union organized demonstrations against AIG in 32 cities.

No wonder. AIG was the insurer for the greedy bankers who swindled the workers with deceptive subprime mortgages, and then sold them to other capitalists, gaining fees and high profits along the way.

It was like insuring a gambler at the crap table against loss. AIG did not have the collateral to back up its insurance. So when the bottom dropped out of the housing market, this megacompany, with offices on every continent, was on the brink of collapse.

The Bush administration bailed out this insurance giant three times with taxpayers’ money, for a total of $170 billion—even after AIG reported the greatest quarterly losses of any company ever.

Execs get juicy bonuses

People are furious that this bank has now used some of the bailout funds to give $165 million in retention bonuses to the bankers at its Financial Products unit who almost brought the whole company down.

Adding fuel to the fire, the response of the Treasury Department and of President Barack Obama’s chief economic advisor, Lawrence Summers, was that nothing could be done about the bonuses, that AIG’s hands were tied by contracts it had signed with these executives.

Contracts? What about the auto workers? Bone-crushing pressure has been exerted on them to reopen their contracts. There has been no outcry from the government for the many violations of workers’ contracts with the bosses.

Fearing mass anger, Democratic and Republican members of Congress are outdoing each other in opposing the AIG bonuses. One even urged the executives receiving bonuses to kill themselves. And on March 19 both parties in the House passed a bill that would tax the bonuses at a rate of 90 percent.

This is pure demagogy, an attempt by Congress to cover itself. Business as usual for Congress depends heavily on lobbying gifts and campaign contributions from banks and corporations.

Christopher Dodd, a Democratic senator from Connecticut, is in the hot seat now. It seems he took out of the new round of bailout legislation language that would forbid banks which receive the money from using it as bonuses for their executives. As it turns out, Dodd received the largest contribution from AIG to his electoral campaign—$100,000.

So that’s whose interest he represents. These elected officials, even those who come across as liberals, really represent corporate interests, not the interests of the people, unless mass anger or a people’s movement twists their arms.

What AIG did is business as usual for the banks. As infuriating and impolitic as its bonuses are, it is not unusual for CEOs to get huge bonuses, even when their companies do badly.

Bonuses and high salaries

A Wall Street Journal article on March 18, “Poor Year Doesn’t Stop CEO Bonuses,” cites five CEOs who recently got bonuses ranging from $1.1 million to $4 million, even though the stock prices of their companies slid as much as 69 percent and the companies lost as much as $2.9 billion.

While President Obama has a high profile in the efforts to manage the capitalist crisis, that’s not who is running the show. Remember in September, when Secretary of the Treasury Henry Paulson and Vice President Dick Cheney marched George W. Bush out before the press corps to make a perfunctory statement on the Wall Street collapse? Bush spoke a few minutes and then Paulson took over.

It’s the Federal Reserve System and the Treasury—whose high positions are filled by bank executives—who are running the show, whether their offices are in Washington or on Wall Street.

This is why just more government oversight and regulation will not work. In effect, the banks are regulating themselves. The fox is guarding the chicken coop.

Scott Polakoff, acting director of the Office of Thrift Supervision, admitted as much when he told the Senate Banking Committee that AIG and even AIG Financial Products did not slip through the regulatory cracks. “Various arms of government approved, enabled and encouraged AIG’s disastrous bet on the U.S. housing market,” he testified. (Wall Street Journal, March 17)

Wall Street to Washington, Washington to Wall Street—it’s a revolving door. They were all in on the feeding frenzy of profit to be made from bad housing loans. They are all bankers and seek to restore the system so that the bankers can continue to profit as before.

The U.S. government used AIG as a conduit for money to prop up financial firms like Citigroup and Morgan Stanley. The purpose was to keep them afloat so they could continue to pursue the capital they had lost through a frenzy of speculative buying.

For five months, both AIG and Washington resisted telling who the bailout money was going to because “it might make investors uneasy about these institutions.”

The lion’s share of it went to domestic and foreign banks that were the trading partners of AIG Financial Products, the subsidiary whose exotic derivatives brought AIG to the edge.

The banks’ insurance claims were paid off in full, even though widespread defaults on the underlying debt did not occur.

The Wall Street Journal doesn’t want the government regulating the banks. In typical fashion, it has focused its criticism on money going to bail out foreign banks. But the money of U.S. imperialists is spread out in banks all over the world. Ever hear of putting money in a Swiss bank? We can assume there was significant U.S. capital in all the bailed-out banks.

For example, UBS, the big Swiss bank, has been hiding money. It is being sued for not reporting big deposits made by U.S. individuals and firms for purposes of tax evasion.

Adam Glass, a partner in the firm Linklaters in New York, said that AIG money to European banks like UBS reflects how interrelated the global financial markets have become. “It is an interconnected world. If UBS or these French banks collapsed, it is not just their problem.” (New York Times, March 17) And nobody knows how much these foreign banks may owe to U.S. investors.

The U.S. investment bank Goldman Sachs is getting favored treatment

because it is heavily represented inside the government, but it must have weaknesses, too.

Now banks want more

The government and the bankers behind it say they will be able to bring the economy back by throwing huge amounts of taxpayers’ money at the banks and by printing money to save the banking system. It is all speculation.

The head of AIG, Edward M. Liddy, says the insurance giant must pay out another $1.6 trillion, essentially because the banks’ speculative madness and orgy of profits gutted their own institutions and reduced the banking system to a house of cards waiting for the first wind to blow.

The Federal Reserve has announced it will inject another trillion of tax money into the financial system by buying Treasury bonds and mortgage securities. This will not make the bad loans and poor investments go away. And by printing more money to cover the bailout, the Federal Reserve raises the specter of hyperinflation, which will only increase the burden on the working class.

Our perspective

The capitalist government is seeking to bolster the very profit system that brought us to this disaster.

It is said in the media and by the financial pundits that sure, the bankers are arrogant and despicable, but they hold us hostage. If we don’t help them be profitable we won’t have any jobs.

That’s their perspective. We don’t share it.

We say no! We are not sympathetic to billionaires who don’t want to become mere millionaires. We are not responsible for solving their problems. On the contrary, all the wealth they have they took from our labor.

They don’t share the wealth. They have made huge profits in the last two decades. At the same time, income disparities increased and real wages sunk to the lowest point in 40 years. Close to 50 million people in the U.S. are without health care.

Every day they fire workers, break unions and then rehire some at lower pay with fewer benefits. They demand wage cuts and workdays without pay. Hundreds of thousands are being laid off each month, with no prospects for work.

And the cuts continue. Just here in New York, the public hospital system announced yesterday that it was cutting 400 jobs, closing children’s mental health programs, pharmacies and community clinics that serve more than 11,000 people. More cuts are expected in a few months.

We have a different solution. They’ve done enough damage. To hell with their profits.

We demand jobs. We demand that the trillions of our dollars in the Treasury be used to put us to work at decent wages rebuilding the civilian infrastructure, staffing the hospitals and community clinics, reducing class size in the schools and so on.

The mass anger at AIG over the bonuses shows that our class is waking up after a long sleep. We want to help the workers feel their own strength. The workers don’t need the bankers and the bosses. We’re better off without them.

Together, united, we have the power to fight for and win what we need.

This article is abridged from a speech by Chediac given March 20 at a meeting of the New York branch of Workers World Party.

---