Groundhogs Day on Wall Street

Share this

On the day that Punxsutawney Phil emerged to predict a long hard winter, Americans picked up the newspaper to read that AIG, the bankrupt insurance giant, was going to pay out $100 million in bonuses to its failed financial products division. Kenneth Feinberg, President Obama’s pay czar, announced that these were “grandfathered” retention payments and that the unit had taken a $20 million dollar reduction in bonuses.

Like Bill Murray in the classic film Groundhog Day, we are being forced to live this day over again. Wasn't about this time last year when President Obama said: "This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?" But this year, the President was strangely silent.

Let’s pause and recap. AIG is a zombie firm kept on life support by a “public option” that is not available to bankrupt citizens. The financial products division is the group of rocket scientists whose risky bets on credit default swaps crashed the global economy and led to the largest single bailout in American history: $183 billion dollars.

How much of this money has AIG paid back? Zero. How much were those bonuses again? $100 million. How many criminal indictments have been issued? Zero. And we’re supposed to be happy that the pay czar negotiated a haircut?

Worse, AIG executives have no shame. They have not paid back the bonuses they promised to return last year after a public hue and cry. Moreover, the new CEO Robert Benmoche, has pushed back against New York Attorney General Andrew Cuomo’s efforts to keep bonus payments public. In a communication to AIG staff described by Bloomberg News, Benmosche said of Cuomo: “The worst thing that will ever happen to him is when he and I meet in the room and I close the door.” Cuomo was “unbelievably wrong” for demanding AIG employees return their bonuses and promising to publish the names of staff who didn’t comply. This from the man taxpayers pay $7 million a year (a salary approved by Feinberg). The man currently overseeing the death spiral of his firm's stock.

How do we get out of this endless loop? First, Feinberg should be fired. His role has always been tenuous, and after the latest bonus bonanza, his job description is a farce. Second, Obama has to get serious in his efforts to "repo the dough" from the bankers. He has proposed a time-limited tax of $90 billion over ten years to cover the cost of the TARP bailout, but this recoups only a portion of the bailout funds that the government has has spent, and does not come close to compensating taxpayers for the trillions of dollars in lost savings, jobs, homes and postponed futures.

Senator Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-OR) are getting serious. Harkin has a bill that would apply a tiny tax of .25 percent on every stock and derivative trade. The tax would tamp down on Wall Street high-volume, high-speed financial speculation and at the same time recoup serious money($100 billion a year, $1 trillion over ten years) that can be put to work creating jobs and rebuilding America.

With 27 million Americans unemployed or underemployed, we are in a big hole and it is going to take big ideas and, unfortunately, big money to climb out of it. I would prefer that these funds come out of AIG's pocket, and not mine.