MIT Professor Simon Johnson (of the Baseline Scenario) and James Kwak wrote a NY Times Op-Ed Off With the Bankers. "A.I.G. can hardly claim that its generous bonuses attract the best and the brightest. So instead, it defends the payments by arguing they’re needed to retain employees who are crucial for winding down transactions that are “difficult to understand and manage.” In other words, only the people who stuck the knife into the American International Group can neatly extract it for a decent burial. There is no reason to believe this."
They follow that up with a post on the Baseline Scenario, Why Bail Out AIG’s Creditors?. "I think that the government could let AIG fail, if - and this is a big if - it can first identify which creditors and counterparties would be hurt, determine which of those cannot be allowed to fail (which should not be all of them), design a program to provide them enough capital directly, and announce everything on the same day. The net cost to the taxpayer cannot be higher than under the Too Big To Fail strategy, which implies a 100% guarantee for all counterparties and creditors (not to mention employees - bankruptcy would settle this whole question of whether the bonus contracts are legally binding once and for all)."
and Paul Krugman is back from vacation and is now writing on AIG, "At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached. This was bad analysis, bad policy, and terrible politics."
4 comments:
At least Simon Johnson, a professor at the M.I.T. Sloan School of Management and a former chief economist at the International Monetary Fund, agrees with some of my points.
Of course from a completely intellectual viewpoint.
TT
You make it sound like an intellectual viewpoint is a bad thing.
I respond much better to calm and specific arguments rather than "moral" rants or conspiracy theories against entire organizations or industries. I look to economics for solutions to economic problems and the law and politics for legal and political ones.
I can be morally outraged at Madoff or Cassano or others. I can't be against everyone who works on wall street. I do rant. I even label them as such, but they're a small portion of my posts, not all of them.
I admire good intellectual arguments. Like yours.
To be clear, I don't blame everyone who works on Wall Street, or in the financial industry at large, for the global financial meltdown. Just a few hundred (thousand?) very bad actors. Many of my friends work on the street, including at AIG. None were getting million dollar bonus packages (unless they are living way way way below their means).
Unfortunately, the admins and techies and junior staff grinding away in their cubicles are usually among those hurt worst by corporate scandal, whether on Wall Street or elsewhere. They have my sympathies and support.
I really tried hard not to rant in this reply.
TT
I appreciate the effort very much. :)
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