Obama's Unkeepable AIG Promise

President vows "never" again on bailouts, yet his policy remains too big to fail

When then-President George W. Bush told the nation last September that normally he's "a strong believer in free enterprise," you knew that the mother of all "but"s was coming next, one that would reveal a president's true colors while ushering in a bad new era of government-is-the-solutionism. In Bush's case, the "but" was a panicky, details-don't-matter $700 billion bailout rescue of the half-frozen financial sector, preceded days earlier by an unprecedented $85 billion Federal Reserve takeover of the country's largest insurance company, AIG.

Fast forward half a year (and another $85 billion-plus doled out to AIG) to new President Barack Obama's comments about the wildly controversial and statistically insignificant $165 million bonuses paid out to AIG execs. "We believe in the free market, we believe in capitalism, we believe in people getting rich," the president said, in a brief speech every bit as revealing and ominous as his predecessor's, "but we believe in people getting rich based on performance and what they add in terms of value and the products and services that they create. And it's appropriate for us to have some regulatory mechanisms in place to ensure that we never have a situation where the government has to step in, or you've got taxpayers who are having to foot the bill for other people's mistakes."

If the president truly intends to "never have a situation" where taxpayers are "foot[ing] the bill for other people's mistakes," he'll get nothing but hallelujahs from me (and, I suspect, many other Americans). But like so many of Obama's promises, this is a pledge he will never be able to keep.

Why? It's there in the text. The president hints at a presumably achievable new regulatory mechanism that would "create a system where they can't make all these bad bets, they can't issue these insurance policies one on top of the other without having the assets to back them up"—in other words, increasing the capital requirements of financial institutions so that they can only leverage their bets so far. But all the while he continues to spend the vast majority of his public remarks talking not about the mark-to-market rule, or the opacity of the reinsurance market, or (more relevantly) the grossly distorting and moral hazard-creating influence of having the U.S. government dominate (and therefore back) the market for mortgages, but rather Wall Street's "culture" of "greed."

"People are rightly outraged about these particular bonuses," Obama said yesterday. "But just as outrageous is the culture that these bonuses are a symptom of, that have existed for far too long—a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag. And one of the messages that I want to send is that as we get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in this country and have now resulted in crisis can't be the model for economic growth going forward."

This paragraph raises many questions, most of them troubling. What is "excess greed," who gets to define it, how will that translate into federal policy, and what are the chances that any such policy will be good for the economy, let alone just? Does the government have any business at all declaring that a privately owned company is handing out "excess compensation" to its employees? And concerning the difference between "paper wealth" and "real worth," when did the U.S. president turn French?

Obama will not be able to prevent future bailouts by somehow eliminating excess greed, and not only because there's no way to eliminate greed. At heart, there are only two reasons AIG is now owned by you and me: It was really big, and it failed. As Obama argues, "had AIG been allowed to simply liquidate and go bankrupt, all those banks who were counterparties with AIG would have experienced such big losses that it would have threatened the entire financial system."

There are only three ways, then, to prevent taxpayer bailouts going forward: Eliminate failure, put a cap on bigness, or stop believing that bankruptcy of a single company will trigger economic collapse. None of these options are likely.

So we are left with two converging numbers: The $173 billion that the federal government has already thrown down the AIG sinkhole, and the estimated $1.9 trillion worth of policies the company insures. As long as counterparties are owed money, the U.S. government will keep shelling it out, in amounts that make $165 million look like the rounding error on a ha'penny.

Micro-symbolism can be useful in focusing outrage on a macro-scandal. To the extent that the AIG bonus fiasco throws discredit on the government's new stewardship of the finance industry, I should theoretically be joining the hate chorus (however unhinged) against the "blood-sucking bums" who are pocketing my hard-earned money after screwing their own pooch.

But there's something disproportionate, even unseemly, about screaming over molehills as mountains slip by without comment. President Obama says, "My interest is not protecting banks. My interest is protecting the American people; the people's 401(k)s; ordinary folks who have a credit line with a bank for their small business." He then proceeds to shower banks with hundreds of billions of the American people's money. There is a contradiction there, and it ain't cheap.

Matt Welch is Editor in Chief of Reason magazine.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Warty||

    Stay tuned for Matt's column on why the sun is almost certain to rise in the east tomorrow.

  • TofuSushi||

    That photograph is offensive to anybody with race sensibilities.

  • ||

    Hell, that one didn't even last a day. They just announced another bailout - for auto industry suppliers.

    We're asymptotically approaching the point where Obama makes and breaks a promise in the same speech.

  • BIlly!||

    I though that "footing the bill for other people's mistakes" was kinda, like, what about government was all about.

  • ||

    That photograph is offensive to anybody with race sensibilities.

    Good thing I don't have any race sensibilities, otherwise, I would have felt offended.

  • jester||

    Of greater interest: the effect of Tongan underwater volcanoes on world copra prices.

  • TofuSushi||

    FTG,

    Shouldn't you be at a Klan meeting or something?

  • *||

    STFU SofuTushie

  • TofuSushi||

    Did I miss an Epi post? SugarFree, did you catch what * is talking about?

  • ||

    OMG! They've got a picture of a naked Obama with a bear! Talk about blatant stereotypes! A "bear" was a plantation slave foreman. Everyone knows that, it's common knowledge. It's so obvious. And the unicorn just drives the point home. You can't get much more racist that this!

  • TofuSushi||

    Next thing you know there will be cartoons of him portrayed as the monkey who wrote the bailout bill.

  • Gilbert Martin||

    The cumulative tab that the taxpayers have had to foot for all the mistakes of Congressional and executive branch gasgabs exceeds the cumulative amount of any private sector equivalent to such a degree that the number can only be expressed in scientific notation format.

  • Ward S. Denker||

    "We're asymptotically approaching the point where Obama makes and breaks a promise in the same speech."

    It's why you can't take a derivative of a politician. There is no tangent line to his actions, given his rhetoric. They're slippery little discontinuous functions.

  • jester||

    Obviously painted by Diego Rivera. How could he have known the future?

  • TofuSushi||

  • shut up you knob||

    "Next thing you know there will be cartoons of him portrayed as the monkey who wrote the bailout bill."

    And I'll laugh at you getting offended at that too.

    I don't know, maybe I'm just smarter than you, but I don't see race. If a guy looks like a monkey, be he George W. Bush or Barrack Obama, I tend to find a political cartoon of him looking like a monkey to be comical. I guess I could understand how a bigot such as yourself would be so stuck on his skin color and act offended by it as a defense mechanism.

  • Some Guy||

    But just as outrageous is the culture that these bonuses are a symptom of, that have existed for far too long-a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag.

    No, the problem is that we have taken the risk out of risk-taking.

  • Ward S. Denker||

    "That photograph is offensive to anybody with race sensibilities."

    Any negative depiction of your hero will garner such a response from you. He can not and will not be insulated from criticism simply because he's black. He's the POTUS.

    Here's the symbolism I see, since you seem to have misplaced your metaphor detector:

    * People suffer from so much sycophantism for Obama that they see him as a modern day emperor. The emperor has no clothes, so he's depicted as naked.

    * Wall street is often depicted as a bear or bull, depending on the market. No surprises in the metaphorical depiction here.

    * The unicorn is a metaphor for the rhetoric he rode in on. Sure it's pretty, but none of it is true.

    So, taken together: he rode to town on vacuous rhetoric, incapable of seeing his own flawed logic, and he means to tackle that darned bear market, ill equipped as he is to do so.

  • TofuSushi||

    knob and Denkler,

    Deny all of your racism you like, but projecting it onto me does not fool anybody.

  • ||

    This gets right to the heart of the shitty, faulty economic thinking of Obama and the rest of the fucking retards on the left:

    If bailouts are a good and positive thing during an economic crisis, then they have to be good during times of economic stability.

    I can't believe the fucking cunt-punchers we elect to office. Especially that out-of-touch, out-of-control, self-possessed shitbag Negro currently sticking his fat dick in our asses all the way from the Oval Office.

  • Mandingo||

    "So, taken together: he rode to town on vacuous rhetoric, incapable of seeing his own flawed logic, and he means to tackle that darned bear market, ill equipped as he is to do so."

    All I see is a brown guy trying hose some animals.

  • ||

    When do we get to see Obama mauled by the bear and impaled by the unicorn?
    Is that the next painting in the series?

  • Alan Vanneman||

    It would be poetic justice if Obama is forced to veto the piece of crap tax bill that just passed the House. I rather hope it does pass the Senate so that he will be forced to confront the total hash that he and Geithner have made of this situation. Oy, the poor AIG guys! I hope they still can score some decent weed in the Big Apple to help them forget their troubles.

  • Ward S. Denker||

    TofuSushi,

    Which negative depictions do you approve of?

    Links or they didn't happen.

  • Reinmoose||

    wow, they're really crawling out of the woodwork today, aren't they?

  • ||

    In Bush's case, the "but" was a panicky, details-don't-matter $700 bailout rescue of the half-frozen financial sector,

    Shit. I would have written the check myself if we could have bought it at that price.

  • Matt Welch||

    Fixed, sorry, and thanks.

  • ||

    The painting is, I presume, a gag on the Obama-riding-a-unicorn painting that was made available for sale late last year or early this one.

  • stuartl||

    Next thing you know there will be cartoons of him portrayed as the monkey who wrote the bailout bill.

    Damn, Tofu. You are on a roll today. You owe me a keyboard.

  • Paul||

    Oy, the poor AIG guys! I hope they still can score some decent weed in the Big Apple to help them forget their troubles.

    They don't have troubles. They've got the Obama administration on their side.

    Obama to AIG: I'm so outraged by you guys. I'm wiring you another $15 billion now...

  • ||

    TofuShit,

    Shouldn't you be at a Klan meeting or something?


    Oh, yes - please, tell the guys not to start without me!

  • JB||

    Nearly every word that comes out of his mouth is a lie. That is why he is so comfortable with liars and tax cheats on his cabinet.

    I'm still waiting for the media to call him out on his latest defense in the AIG non-sense: 'I'm ignorant! I didn't read the bill I signed!'

  • GlueGun||

    "'I'm ignorant! I didn't read the bill I signed!'"

    Worst. President. Ever.

  • Right Wing Realist||

    Who the hell is making these paintings

  • ||

    In a way, I feel terrible that Obama is enacting his disastrous agenda because, as important and historical his election was in terms of race relations, civil rights and righting the wrongs of this country's past, people will be very reluctant to ever vote for a stupid nigger again.

  • Lefiti||

    Sort of like if Matt Welch promised to write intellgent commentary. That's never going to happen. He'll just spew out the same old libertarian pap. Donate now, by the way.

  • ||

    Lefiti didn't get it.
    Har har.
    Read again, ya fuckin' commie.

  • BakedPenguin||

    Rich Ard: Lacey is a satiric painter, and he's the same one who did the painting you're talking about. He usually paints people with pancakes as halos.

    Also, for those who don't get it, TofuSushi is working on a meta level.

  • BakedPenguin||

    Come to think of it, Lacey is working on a meta level, too. It's great to see someone taking the piss out of those who pronounced Obamer as the new messiah.

  • ||

    wouldja look at the shitter on that fine fine man. My gawd!

  • ||

    Jamie Kelly, does the name Marion Berry ring a bell?

  • Hector the Erector||

    What's the net worth of Congress and Obama?

    They are the offending/culpable parties here. As an act of good faith, they should cover the AIG bonuses. There's no reason they couldn't pay that money back to taxpayers. They can afford it.

  • Ward S. Denker||

    BakedPenguin,

    I haven't a clue what a "meta level" is. Google yields a ton of junk, but nothing that looks like it might be a definition for anything relevant.

    Are you making up vocabulary? The only thing I am guessing you mean is that he/she would fit into Poe's Law, except he/she is satirizing the typical racially over-sensitive Democrat (as opposed to a creationist) and nobody can tell the difference, as per the rest of Poe's law.

  • Hector the Erector||

    "Poe's Law"

    Parody? The people on this thread don't need a class clown pitching machine.

  • BakedPenguin||

    Sorry, Ward. "Meta commentary" basically means talking about commenting about something while making the comment at the same time. For example, if you saw a movie where the characters actually started discussing how the protagonist shouldn't be doing such and such, because the plot to their movie would be affected, that would be meta drama.

    Tofu is doing a liberal troll meta commentary.

  • BakedPenguin||

    Here's a better explanation.

  • MJ||

    "That photograph is offensive to anybody with race sensibilities."

    That painting is offensive to anyone with taste or intelligence.

    Wait...why doesn't Tofusushi like it?

  • ||

    The only thing that should be emanating from y'alls' typing fingers is "I'm sorry. We didn't realize our zealous push for less government oversight over the economy would cause so much damage."

    The bailouts were done in good faith; at least you can admit that much. Both Bush and Obama embraced them. Hardcore Randians admitted mistakes and realized this was a critical point; do nothing and collapse, do something massive and maybe rescue the economy.

    Or maybe it's a giant socialist plot to enslave you. Who can say?

  • Nick||

    I hope the AIG employees sue the government for violations of their constitutional rights - and win. Essentially this was a bill of attainder, the punitive targeting by the legislature of a specific group of private individuals without a trial. Not to mention the law is ex-post-facto (retrogressive). You can't hastily pass a law and then go backwards and add new preconditions on something that happened after the fact. But then again, when do politicians ever make sense?

  • economist||

    Tony,


    As for your post: Gee, I'm sorry the Federal Reserve kept interest rates artificially low and the government guaranteed mortgages without much apparent thought. I'm also sorry that many home buyers were apparently idiots. That sucks. But I haven't advocated for any of those things, nor do most libertarians that I can think of.

    "Done in good faith." Meaning what, exactly? That the government didn't expect companies to go back to business as usual once the taxpayers bailed them out? Doesn't that just indicate an incredible lack of common sense?

    "Both Bush and Obama embraced them."
    If you're expecting to gain points with either name, try Free Republic or Huffington Post. Neither name means shit here.

    "Hardcore Randians admitted mistakes and realized this was a critical point."
    If you think Alan Greenspan was a hardcore Randian as head of the Federal Reserve, or that his name was anything but mud with libertarians in the last few years, you're suffering from severe ignorance.

    "Or maybe it's a giant socialist plot to enslave you."
    I don't give them credit for that level of intelligence. I am perfectly certain that a conspiracy of such magnitude and complexity is beyond the capacities of our former or current Dear Leader.

    Finally, you remember when you threatened to leave, right?

    Was that a promise?

  • ||

    I love the smell of my own farts.

  • ||

    Good faith?? They're flailing around trying to fix a system of which they have ZERO understanding. I don't care if they thought they were saving teh childrenz, good faith is not an excuse for randomly applying money and enacting/rescinding rules just to see what sticks.

  • The Spoof Troll||

    If we can get rid of one troll through spoofing, we can get rid of another.

    Just say the word. Or don't say it. Any signal will do.

  • economist||

    Silentz,
    You're obviously shilling for Big Recession.

  • Lefty||

    but nick don't you realize that if the bill had not been passed with all possible hastethe financial system would have collapsed and we would all be starving to death in cardboard boxes and its all the fault of the EVUL libertarians that we're in this mess in the first place and they should all apologize and support whatever the president says because he is a genious who noes exactly how to manage the financial system and economy at large to bring us into a new age of responsibility in which the evil corporations and their liberetarian cronies acant' harm us.

  • Lefty||

    You should all listen to Tony. As you should have listened to joe. Joe was the only intellegent poster here until Tony came. Just thank G*d that Tony came around the same time that joe left. You guys suck and you're lucky to have such great minds to try to teach you.

  • ||

    econ,
    Guilty as charged. Nothing gets by you guys.

  • Lefty||

    All you libertardian f*cktards should just shut up because you are all studip. You hear me? Stupid! Maybe if you weren't such free-market fundamentalists, you could be relevant to the political debate, like Tony and joe. Instead you cling to your free markets and free trade against all evidence. The happies tand most prosperous nations have always been the ones with involved governments regualting the affairs fo the people. Leaving it in the hands of corporations and greedy individuals is the path to ruin. Thankfully the American people realized it just in time to save themselves from utter destruction by the pernicious philosophy of individualism.

  • Lefty||

    I owned you guys in this debate! I owned all of you so hard that you'll never recover. Cower before my mad debate skills.

  • Mr. Chartreuse||

    Apparently doing things in good faith lets you pull 2-3 trillion dollars out of thin air and spend it on all sorts of crazy shit with no consequences. As an added bonus, you also get to debase the currency http://www.reuters.com/article/hotStocksNews/idUSTRE52I7CE20090319

    To paraphrase South Park:
    1: Good Faith
    2: ?
    3. Recovery!

  • Lefty||

    Of course it's hard to lose when I'm so obviously right. You libertardians are just afraid of the truth that you suck and you cause all the violence and destruction in the world. Somebody should try to free America from libertarian tyranny. Libertarians have too much economic power and they're using it to control the government. What we need is a leader brave enough to stand up to libertarians and their cronies. I think Barack Obama is that leader. What he's doing is just making your little libertarian heads spin and making sparks shoot out in anger.

  • Lefty||

    Mr. Chartreuse,
    It's people like you who spread cynicism and fear while the rest of us try to deal with real issues that affect the world. So why don't you all just shut up and move to Texas where you can all be ruled by King Chuck Norris and worship Ayn Rand, who everyone knows was a Nazi. You can make the Confederate Swastika your flag.

  • Lefty||

    "Debasing" the "currency" is just a scare term used by the rightwingers to denote economic policies they don't like. Libertarians need to shut up. The people have spoken, so get out of the way!

  • Lefty||

    Just trolling.

  • Mr. Chartreuse||

    So why don't you all just shut up and move to Texas where you can all be ruled by King Chuck Norris and worship Ayn Rand, who everyone knows was a Nazi. You can make the Confederate Swastika your flag.

    Do you think this new country would be able to qualify out of CONCACAF to get the World Cup? That's a major sticking point for me.

  • ||

    Why are conversations about politicians not delivering on their promises worthy of discussion?

  • Kreel Sarloo||

    The only thing that should be emanating from y'alls' typing fingers is "I'm sorry. We didn't realize our zealous push for less government oversight over the economy would cause so much damage."



    Who the motherfucking fuck are the libertarians who should be doing this?

    Or perhaps it should be "libertarians" since you clearly don't know what most of them have been saying about Greenspan's easy money for the last twenty years or so.

    Or or you one of those people who thinks that Bush's policies were libertarian.

  • robc||

    Good God, will the fake liberal trolls just shut the fuck up. My incif file is getting too large.

  • robc||

    Kreel,

    dont respond to the obvious trolls. Especially when they dont believe what they are writing.

  • BakedPenguin||

    Ward - if you're still reading, I was wrong, and you were right. I really shouldn't post after drinking.

  • Kreel Sarloo||

    robc, my impression is that Tony is a true believer liberal Democrat rather than a troll.

    TofuSushi is the troll. His trouble is the put-on becomes a little too obvious at times. But his performance art is amusing occasionally.

  • Scarpe Nike||

    is good

  • changqin||

    good

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