Now that the federal government owns nearly 80% of AIG, we can expect 80% of things that happen in AIG to be counterproductive, inane, or utterly senseless. Chris Dodd wrote legislation to uncap executive pay at AIG.
First of all, the government should not perform hostile takeovers of corporations without the approval of shareholders. Secondly, executive pay at any government corporation / agency should be capped below the President’s salary.
But of course, the government shouldn’t own any corporations. Fannie Mae and Freddie Mac, the two government-sponsored mortgage lenders, got huge federal income tax breaks, and legislators used that leverage to push for lending to nonworthy borrowers.
We like increasing home ownership. But it only works when increases in production in the housing market are accompanied by increases in real wealth. Blowing up a balloon with a fire hydrant will in fact expand the size of the balloon, but then the balloon will burst into 700 billion pieces and scatter across your taxpayer-subsidized front driveway. Oops.
Sure, it’s easy to throw money down the toilet, especially when the money is simply a loan against future production. But that production won’t end up happening. Does anyone see the feds running a surplus any time in the next 30 years, by which time all of these bonds will have come due? I don’t think so; your kids will be buying tens of trillions of dollars worth of walking canes and Scooter Store mobility enhancing vehicles for well into the first half of this century.
Nobody except kooky, confused protesters are surprised that $165 million in contractually obligatory bonuses went to a company that received $170+ billion in subsidies for failure. But Congress passed a bill of attainder (illegal under Article I, Section 9, Paragraph 3 of our U.S. Constitution, by the way) to get back that money backed with nonexistent wealth so that they can throw it down the toilet again.
What did legislators think would happen when they started subsidizing failed investments? This case is a fairly solid example of why the goverment should not try to run businesses. The quickest way to let AIG dump bad assets is to let it “fail” in a relatively minor way – that is, to let the company go into Chapter 11.