(Friday’s Populist Capitalist Blog Post)
Back in 2007, the Federal Reserve (our government, or us, the taxpayers) engineered a $182 BILLION bailout of insurance giant AIG. AIG had guaranteed humongous amounts of insurance contracts using its then triple-A grade credit rating. When it lost that credit rating its guarantees went into default and everyone demanded payment, which AIG did not have. Instead of using its prestige and power to negotiate discounted settlements, the Fed pretty much paid everyone off at 100 cents on the dollar, using your and my tax dollars, plunging the federal government deep, deep into further debt to do so.
Want an analogy? Think of your 401(k) plan, that once-upon-a-time retirement nest egg for which you may have purchased stock back when the Dow Jones was at 15,000. When the Dow dropped down to 6,800, did the Fed come around and make YOU good for YOUR losses? Heck, no! You’re not too big too fail, you are not a Wall Street insider. We, the taxpayers, are the marks in this shell game where Wall Street’s illusionary financially-engineered “profits” are theirs under some Alice in Wonderland warped version of capitalism. Somehow their losses magically become ours under temporary recessionary-induced socialism.
Mad yet? No?
Try this on for size: Goldman Sachs is getting ready to pay almost $17 BILLION in bonuses. Yep, unemployment is at 10.2%, the Great Recession rolls on, government deficits are projected to run a TRILLION dollars a year for the next decade (and if this is the government’s projection, you can bet reality will be much worse), and somehow Wall Street is printing money, minting profits once again. How do they do it?
Well, coincidently Goldman Sachs was AIG’s largest trading partner and got $12.9 BILLION in a back door bailout when the Fed used your money and mine to make all of AIG’s counter parties 100% whole.
I don’t know about you, but I think Goldman Sachs ought to forego those bonuses and pay the AIG bailout back (and thus the Fed and you and me) the difference between the 100 cents on the dollar they got and the pennies their contracts were really worth.
Don’t hold your breath.
(This blog sparked by special inspector general Neil M. Barofsky’s report on the AIG bailout.)