Monday, March 16, 2009
President Barack Obama recently said paying bonuses to Wall Street was “shameful” while companies survive on Federal life support. But the president has discovered changing the culture of Wall Street is much more difficult than anticipated.
Case in point, the insurance giant AIG.
AIG received a staggering $170 billion dollars in taxpayer money because according to current Federal Reserve Chairman Ben Bernanke and former U.S. Treasury Secretary Henry Paulson, “AIG is too big to fail,” so AIG must be saved from bankruptcy.
But now comes news that AIG will payout $165 million in salary bonuses to the very executives in the business division responsible for wrecking the company’s finances.
Capitol Hill politicians reacted to the news with fury. In response, members of the Obama administration appeared on the Sunday morning blab circuit to insist the contracts were written during boom times — code for during the time Bush was president, so their hands tied.
Larry Summers, President Obama’s chief economic adviser, said:
“The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous.”
But Summers added:
“We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken.”
The Federal government has pumped hundreds of billions of dollars into a financial system unwilling to regulate itself and behave in a responsible way. It is now a significant shareholder in dozens of banks and is struggling to contain public fury that companies are paying bonuses with the money.
The new Treasury Secretary, Tim Geithner, says the government would not be able to act to repair the financial system if taxpayers believe their money is being wasted. Geithner is correct. The financial system is broken but so is the American people’s trust in President Obama’s pledge to stand up the corrupt forces on Wall Street.