AIG

LibertyWeek 38: Pirate Warriors on Deck

by Richard Morrison on April 13, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Cord Blomquist are joined by special guest co-host Jeremy Lott for a very swashbuckling Episode 38 of LibertyWeek. We start with the rescue of Capt. Richard Phillips from Somali pirates by the U.S. Navy and Special Forces, look into the murky finances of AIG CEO Edward Liddy in Scandal Watch, and figure out what ISPs are up to in Technology News. We also get an update on how West Virginia is about to become even more Wild and Wonderful, and finally we answer the call for wealthy, multilingual volunteers in Olympic News.

AIG CEO Liddy owns millions in stock in bailout beneficiary Goldman — Tim Carney blockbuster in DC Examiner

by John Berlau on April 10, 2009

in Bailout Watch, Features, Odds & Ends, Politics as Usual

Everyone should read the blockbuster exclusive in today’s Washington Examiner in which Timothy P. Carney confirms that American International Group CEO Edward Liddy — appointed to his position at the behest of Hank Paulson and Tim Geithner after the government takeover of AIG in September — still owns more than $3 million in stock in Goldman Sachs, one of the biggest beneficiaries of the AIG bailout.

I am privileged to be quoted in this article that both breaks news and puts it into an informative policy context. The dogged investigative reporting conducted for this piece by Carney, a former Warren T. Brookes Journalism Fellow at CEI, should be enough to garner him several awards, and in my opinion this piece and likely follow-ups may be Pulitzer Prize-worthy material.

A couple weeks ago, after the brouhaha about the “retention” bonuses paid to the AIG Financial Products employees, Liddy’s calm demeanor before Congress and the media helped diffuse the situation. He emphasized that he was making a nominal $1-a-year salary and argued he was doing the CEO stint merely as a public service. Liddy wrote in a recent Washington Post op-ed that “my annual salary is $1. My only stake is my reputation.”

But Carney found that Liddy was not telling the whole story about his real stake in the AIG bailout. Namely that Liddy, as Carney notes, has “an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.” And under Liddy’s direction, AIG disbursed nearly $13 billion from the taxpayer bailout money to Goldman, in a move many say is more disturbing than the employee bonuses that were the source of the recent controversey.

Everyone from former AIG CEO Maurice “Hank” Greenberg to liberal Rep. Brad Sherman, D-Calif., have expressed outrage that Goldman and other banks were compensated at full value for their derivative contracts. Goldman had bought billions in credit deafalt swaps from AIG. Had AIG gone into bankruptcy, Goldman and other counterparties would have almost certainly had to take a “haircut” on the contracts due to declining market conditions.

In the article, Carney generously writes that “there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman.” Yet Liddy had to be aware that many were saying Goldman may not have survived the hit if AIG substantially reduced payment. He resigned his position from Goldman’s board of directors when he became CEO of AIG, ostensibly to avoid conflict of interest, but has not seen fit yet to sell his more than 27,000 shares in Goldman stock, which he is listed as holding in the firm’s 2008 proxy statement. Carney reports that “an AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares.”

Carney points out the paradox of “strange public-private chimeras like AIG spawned in this age of bailouts.” When it bailed out the firm, the government took an 79.9 percent stake in AIG, making AIG in one sense a government entity. Yet, as Carney points out, this “situation represents a potential conflict of interest that would never be allowed in a government agency.”

It also likely wouldn’t fly in a purely private company, where directors and shareholders are on guard against executives’ “related party transactions” that aren’t in the company’s best interest. Yet, because he is running a public-private hybrid, Liddy lacks accountability to both to private shareholders and government ethics rules

Former Treasury Secretary Paulson, himself a former Goldman Sachs CEO, has a lot to answer for in forcing out AIG CEO Robert Willumstad and bringing on Liddy to replace him. So does Geithner, who was heavily involved in the AIG bailout as president of the Federal Reserve Bank of New York. Why did they not insist that Liddy divest his holdings or find someone who didn’t have this conflict?

Above all, this shatters the illusion that the government can magaically take over a company, fire the CEO, and run it more efficiently for the taxpayers. I have written before on Open Market that Obama’s firing of Rick Wagoner was not the first time the government forced out a CEO. Even before Paulson ousted Willumstad after the bailout, then- New York Attorney General Eliot Spitzer effectively forced out longtime AIG CEO Greenberg on baseless charges that have almost all been dropped. Greenberg built up AIG successful 35-year tenure, and has testified that the issuance housing-related credit defaut swaps at the center of the firm’s problem exploded in the months after he left.

As I tell Carney in concluding paragraph of the story, “The whole AIG experience demonstrates the fallacy that the government can efficiently sack CEOs and replace them.”

AIG Chief Loves Vicious Left-Wing Terrorist?

by Hans Bader on March 31, 2009 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Stimulus to Nowhere

AIG Financial Products CEO Gerry Pasciucco wears a T-shirt emblazoned with the face of Che Guevara — the Cuban “revolutionary” and henchman of Fidel Castro who tortured children and called himself “Stalin II” (after Joseph Stalin, the Soviet dictator who tortured, murdered and starved to death more than 20 million people). Maybe it reflects his ideological leanings. Pasciucco has given a lot of money to liberal politicians — $2300 to Obama, $2000 to Chris Dodd, Connecticut’s ethically-challenged senior senator, $1000 to the Democratic Senatorial Campaign Committee, and $1000 to liberal Ned Lamont, who unsuccessfully tried to bump off Joe Lieberman (D-CT) from the left.

I guess I should expect leftists to end up running what is essentially a nationalized company (taxpayers have spent $170 billion to bail out AIG). But it’s not a good sign. Freddie Mac was badly managed, but when the Feds took over, and started emphasizing liberal political goals over profitability, they really ran it into the ground, and Obama made it run up $30 billion in additional losses just for bailing out irresponsible mortgage borrowers.

Obama famously told Joe the Plumber he would “share the wealth around.” And he has done so on an unprecedented scale. Goldman Sachs, the wealthy Wall Street firm that is one of the biggest liberal donors, received billions from the taxpayers that it didn’t even need, through the AIG bailout, which was used to pay off AIG’s customers at absurdly generous rates (undercutting claims that AIG managers like Pasciucco have done such a good job that they deserve a fat bonus).

And the Administration has redistributed trillions more in wealth through a proposed budget that is expected to increase future budget deficits by $4.8 trillion, a pork-filled, economy-shrinking $800 billion stimulus package, and a trillion dollar toxic-asset buy-up program that will plunder taxpayers to enrich politically-connected banks (all of which contradict Obama’s campaign promise of a “net spending cut“).

After blocking limits on pay that would have covered just AIG, Congressional liberals are now moving to impose pay caps on all publicly-traded companies, not just those that receive federal funds. Companies will now have an incentive to curry favor with their Congressional masters by making lots of additional campaign contributions — just the way AIG did, giving most of its money to liberal lawmakers since 2003).

Meanwhile, the EEOC, charged with enforcing workers’ rights, is systematically violating federal labor and employment laws.

With or Without You

by John Berlau on March 30, 2009 · 1 comment

in Bailout Watch, Culture, Deregulate to Stimulate, Features, Mobility, Nanny State, Odds & Ends, Politics as Usual, Zeitgeist

The ouster of General Motors CEO Rick Wagnoner by the Obama administration isn’t the first time in the recent history of bailouts that the government has forced out a CEO. That first happened in September when Bush admnistration Treasury Secretary Henry Paulson forced out American International Group CEO Robert Willumstad in favor of Paulson’s friend Edward Liddy.

The lesson from AIG is that replacing a CEO is no panacea. There is no love lost for the poor managment of Rick Wagoner. He is the one who went to the government hat in hand, and when the government is paying the piper, it can call the tune. But replacing him won’t solve GM’s long-term problems of too many brands of autos and too large of a workforce. And it is increasingly clear that the bailout itself is an impediment to effective restructuring.

The prospect of an ever-increasing supply of tax dollars is leading parties with auto industry contracts — unions, bondholders, dealers and others — to play a game of chicken. No one wants to renegotiate a contract when they think the government will come in with more money to cover the losses. And the Obama administration, as with AIG, does not have the power of a bankruptcy court to discharge debt.

Allowing the companies to go into bankruptcy is what should have been done from the start. As with multiple businesses such as airlines that have succesfully emerged from Chapter 11 bankruptcy, debts could be discharged and the companies could be restructured in bankruptcy court.

To say that consumers would be discouraged at buying a car in bankruptcy misses the point. Consumers might be more likely to buy a car from a company restructured by a bankruptcy court, as they buy tickets from once-bankrupt airlines, than to buy a vehicle from zombie companies dependent on the next government bailout. This delay likely hurts “satellite” companies like auto parts makers more than a bankruptcy would.

In the meantime, the government should lift antitrust barriers and leave all options on the table for mergers. The merger with Chrysler and Fiat that the government is encouraging may not be the most effective. GM and Chrysler had long considered merging, but may have been blocked because the combined company would be deemed by antitrust regulators to have too large a share of the “light truck” market, never mind that this market itself is shrinking. Given the precarious state of the companies, they should be given a blanket antitrust waiver to make the combinations they deem best for their viability.

The government should also delay the imposition of the recently announced increase in Corporate Average Fuel Economy standards. This flawed mandate that adds costs and reduces choices even in a good economy, could be a lethal blow in times such as these.

Let’s drop both the auto bailouts and the mandates. The American auto industy, which has produced such wonderful innovations for so many decades, is too important to be “saved” by Washington’s central planners.”

Losing talent in these perilous times

by Fran Smith on March 26, 2009

in Bailout Watch, Economy, International, Nanny State

We’re beginning to see the talent exodus from TARP-funded financial institutions.  Yesterday in an op-ed Jake DeSantis of AIG-Financial Products wrote his “resignation letter” saying why he was leaving AIG.  One major reason was the raging mob calling for the heads of those who received retention payments, now called bonuses, and the tepid defense that AIG’s $1-per-year chairman gave before Rep. Barney Frank’s rabid committee.

Today we learned from the Wall Street Journal that several top managers at Banque AIG in France are leaving, which experts say could cause defaults in $234 billion of derivative transactions.  That’s because Banque AIG has to get French banking regulators to approve their replacements.  If the regulators instead put in their own manager that could lead to defaults, since under the derivative contracts, such an appointment would mean a change in control and could null the contracts.

On top of that, two top Merrill Lynch strategists are leaving Banc of America Securities-Merrill Lynch research unit.

Retention payments to try to keep good managers in these trying times — to help resusitate ailing and failing financial firms — seem like a good idea, but not in the face of mob frenzy whipped up by policymakers and so-called community groups like ACORN, which has been leading protests and bus tours to point out “bonus” recipients’ homes.

An earlier post had speculated that London’s financial center could grow in power with U.S. financial talent being driven out.  But that was before vandals attacked the Edinburgh home of the former head of the Royal Bank of Scotland, where they broke windows in his house and his car.  Is London still safe from the anti-capitalist mobs that have threatened chaos at the G-20 meetings next week?  Don’t bet on it.  They too have been stoked up by policymakers’ — and world leaders’ — anti-capitalist rhetoric.

LibertyWeek 35: Dodd Man Out?

by Richard Morrison on March 24, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Cord Blomquist welcome back special guest co-host Michelle Minton for Episode 35 of the LibertyWeek podcast. We begin with a celebration of human achievement and a peek into the realm of secret government documents. We then investigate how the White House is going to waste another $1 trillion of your money and how the British beer tax has managed to kill off 20,000 jobs. Finally we focus on the history of the scandal-addled Sen. Dodd of Connecticut and the future of U.S. Olympic glory.

BONUS BOOK FEATURE: We congratulate our good friend Steve Milloy on the publication of his new book, Green Hell: How Environmentalists Plan to Ruin Your Life and What You Can Do to Stop Them. The book is a one-of-a-kind, comprehensive takedown of the entire environmental movement that will open your eyes to a looming threat to our economy, our civil liberties, and the entire American way of life.

Toxic Asset Rip-Off

by Hans Bader on March 23, 2009 · 3 comments

in Bailout Watch, Deregulate to Stimulate, Economy, Features, Politics as Usual, Regulation, Stimulus to Nowhere, Zeitgeist

That’s how analysts describe the trillion-dollar toxic-asset buy-up program proposed this weekend by the Obama Administration: “the president is putting forth his idea to have the Treasury become the new AIG. In order to get hedge funds to buy up toxic debt, Obama is proposing that the Treasury provide loans up front and insurance against potential losses on the back end. It’s what Paul Krugman called ‘heads I win, tails the taxpayers lose.’ By the way, it may cost another $1 trillion.”

The Treasury Secretary claims taxpayers won’t lose a full trillion, because the assets aren’t as worthless as their current market prices suggest. But if that’s true, why does he continue to insist on federal accounting rules that force banks to value their assets at the current depressed market prices? Either the accounting rules are right — in which case taxpayers will end up losing a trillion dollars — or they are wrong, amplifying financial panics — in which case the rules should be repealed, so that banks, not taxpayers, will be able to take the risk of holding the assets. (If these accounting rules, known as “mark-to-market” accounting, had been in place in the late 1980s, “every major commercial bank would have collapsed,” wiping out the economy).

It’s not even clear that all these bailouts are needed. As William Seidman, the banking official who helped clean up the S&L Crisis as head of the RTC, notes, the government’s $170 billion AIG bailout was absurdly expensive and wasteful. “We paid off huge debts that AIG had in the swaps market, which we probably did not have to do. We bought a number of assets from AIG at high prices, which we probably did not have to do.”

That includes a huge unneeded windfall for the investment bank formerly headed by Treasury Secretary Paulson, Goldman Sachs, which received billions of dollars from taxpayers that it did not even need, through the AIG bailout. As James Piereson notes,

“Goldman wound up receiving $12.9 billion in December from AIG in an initial payout from the TARP money. Thus, taxpayer funds were used not so much to bail out AIG, but rather its “counterparties,” including Goldman and a dozen or so other major banks. Now, in an interview with the press on Friday, Goldman’s chief financial officer has declared that the company was never in jeopardy from a collapse of AIG — that it held some $7.5 billion in collateral against its AIG account and that it had hedged the remaining $2.5 billion in its net exposure using credit-default swaps with other parties. . .David Viniar, Goldman’s chief financial officer, insisted that the company would not have been damaged if AIG had been allowed to collapse. Even so, the company profited handsomely from the payout from AIG, courtesy of the American taxpayer. Goldman could not turn down the payout without damaging its shareholders, Mr. Viniar said. In other words, if the U.S. government — via AIG — was going to offer a gift, Goldman was not in a position to turn it down. Which raises the question: What then was the point of the AIG rescue? The claim by Paulson et al that a collapse of AIG would bring down the international financial system was entirely unsubstantiated. Congress passed the bailout bill under pressure from the financial authorities that they had to act to ‘save the system.’ It turns out that this was far from being true. The lesson from this is that everyone — most especially members of Congress — should look skeptically upon claims that this or that institution is ‘too big to fail’ or that a catastrophe awaits of a major financial institution is not bailed out.”

Politicians frequently claim the sky will fall if their proposals are not implemented, even when they know that is not true. Obama claimed the $800 billion stimulus package was needed to avert “disaster” and “irreversible decline.” But the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package will shrink the economy over the long run, in reports released both before and after the bill’s passage.

While pushing through $8 trillion in bailouts, and trillions more in debt from massive budget increases, the Obama administration has ignored inexpensive possible remedies for the financial crisis like reform of “mark-to-market” accounting rules. Many commentators are now calling for relaxation of those rules in order to stem the financial crisis, including former FDIC Chairman William Isaac, Congressmen Ed Perlmutter (D-CO) and Paul Kanjorski (D-PA), the Wall Street Journal, John Berlau, Jeff Miller, Holman Jenkins, Newt Gingrich, and the Republican Study Committee

“Heads I win, Tails the Taxpayers Lose”: Toxic Asset Rip-Off

by Hans Bader on March 23, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Politics as Usual, Regulation, Stimulus to Nowhere

That’s how analysts describe the trillion-dollar toxic-asset buy-up program proposed this weekend by the Obama Administration: “the president is putting forth his idea to have the Treasury become the new AIG. In order to get hedge funds to buy up toxic debt, Obama is proposing that the Treasury provide loans up front and insurance against potential losses on the back end. It’s what Paul Krugman called ‘heads I win, tails the taxpayers lose.’ By the way, it may cost another $1 trillion.”

The Treasury Secretary claims taxpayers won’t lose a full trillion, because the assets aren’t as worthless as their current market prices suggest. But if that’s true, why does he continue to insist on federal accounting rules that force banks to value their assets at the current depressed market prices? Either the accounting rules are right — in which case taxpayers will end up losing a trillion dollars — or they are wrong, amplifying financial panics — in which case the rules should be repealed, so that banks, not taxpayers, will be able to take the risk of holding the assets. (If these accounting rules, known as “mark-to-market” accounting, had been in place in the late 1980s, “every major commercial bank would have collapsed,” wiping out the economy).

It’s not even clear that all these bailouts are needed. As William Seidman, the banking official who helped clean up the S&L Crisis as head of the RTC, notes, the government’s $170 billion AIG bailout was absurdly expensive and wasteful. “We paid off huge debts that AIG had in the swaps market, which we probably did not have to do. We bought a number of assets from AIG at high prices, which we probably did not have to do.”

That includes a huge unneeded windfall for the investment bank formerly headed by Treasury Secretary Paulson, Goldman Sachs, which received billions of dollars from taxpayers that it did not even need, through the AIG bailout. As James Piereson notes,

“Goldman wound up receiving $12.9 billion in December from AIG in an initial payout from the TARP money. Thus, taxpayer funds were used not so much to bail out AIG, but rather its “counterparties,” including Goldman and a dozen or so other major banks. Now, in an interview with the press on Friday, Goldman’s chief financial officer has declared that the company was never in jeopardy from a collapse of AIG — that it held some $7.5 billion in collateral against its AIG account and that it had hedged the remaining $2.5 billion in its net exposure using credit-default swaps with other parties. . .David Viniar, Goldman’s chief financial officer, insisted that the company would not have been damaged if AIG had been allowed to collapse. Even so, the company profited handsomely from the payout from AIG, courtesy of the American taxpayer. Goldman could not turn down the payout without damaging its shareholders, Mr. Viniar said. In other words, if the U.S. government — via AIG — was going to offer a gift, Goldman was not in a position to turn it down. Which raises the question: What then was the point of the AIG rescue? The claim by Paulson et al that a collapse of AIG would bring down the international financial system was entirely unsubstantiated. Congress passed the bailout bill under pressure from the financial authorities that they had to act to ‘save the system.’ It turns out that this was far from being true. The lesson from this is that everyone — most especially members of Congress — should look skeptically upon claims that this or that institution is ‘too big to fail’ or that a catastrophe awaits of a major financial institution is not bailed out.”

Politicians frequently claim the sky will fall if their proposals are not implemented, even when they know that is not true. Obama claimed the $800 billion stimulus package was needed to avert “disaster” and “irreversible decline.” But the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package will shrink the economy over the long run, in reports released both before and after the bill’s passage.

While pushing through $8 trillion in bailouts, and trillions more in debt from massive budget increases, the Obama administration has ignored inexpensive possible remedies for the financial crisis like reform of “mark-to-market” accounting rules. Many commentators are now calling for relaxation of those rules in order to stem the financial crisis, including former FDIC Chairman William Isaac, Congressmen Ed Perlmutter (D-CO) and Paul Kanjorski (D-PA), the Wall Street Journal, John Berlau, Jeff Miller, Holman Jenkins, Newt Gingrich, and the Republican Study Committee

Blind to Obama’s Broken Promises

by Hans Bader on March 23, 2009 · 13 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

In 2008, Obama promised a “net spending cut” (although he never did come up with cuts to offset his proposed spending increases). Obama broke this campaign promise in a big way with his proposed budget, which could bankrupt the United States, according to senior Senators.

Obama’s budget would increase spending levels so much that budget deficits would rise by $4.8 trillion to $9.3 trillion while taxes would increase by $1.9 trillion, according to the Congressional Budget Office.

Yet Obama’s campaign workers have apparently learned nothing from this. Across the country, they are now volunteering their time to lobby fellow citizens to support his budget. “It’s the change we all voted on,” said Althea Thomas of Evanston, Illinois. Well, it’s not the “change” that was sold to me by my Uncle Ernie, a California campaign worker for Obama. He didn’t say anything about trillions more in debt, and tried to get me to vote for Obama based on George Bush’s costly war in Iraq.

Obama has broken at least ten campaign promises, including seven promises in signing the economy-shrinking $800 billion stimulus package, and one promise in signing the Lilly Ledbetter law and the SCHIP tax increase.

After it covertly inserted language into the stimulus package to protect millions of dollars in bonuses at AIG, a major liberal donor, the Administration later switched course and sought to curry favor with an outraged public by praising the House for passing a 90 percent bonus tax, a tax broadened to cover not just AIG but also employees at other, healthy TARP banks. On March 22, the New York Times reported that the Administration wants to impose vague compensation limits on all banks and financial institutions, whether or not they receive any taxpayer money at all, and perhaps all public companies as well. To avoid stringent application of those limits, companies’ executives would have an incentive to curry favor with their federal masters, by making campaign contributions to Obama and his liberal Congressional allies (the way AIG did). Meanwhile, the Administration is now backtracking on its earlier praise for the legislation that would tax the AIG bonuses.

Obama claimed the $800 billion stimulus package was needed to avert “disaster” and “irreversible decline.” But the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package will shrink the economy over the long run, in reports and studies released before and after the bill’s passage.

In other news, Obama nominated a former fundraiser for the left-wing group ACORN to serve as a judge on the Chicago-based Seventh Circuit Court of Appeals. ACORN, a beneficiary of the stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Herbert W. Obama

by Hans Bader on March 20, 2009 · 5 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

In the Great Depression, President Herbert Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. He also signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Obama is on the same path. His deficit-exploding $800 billion stimulus package blocked 97 Mexican truckers from U.S. roads. That NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade.” The CBO admits that the stimulus package will actually shrink the economy in the long run.

Yesterday, Obama praised the House’s passage of a bill to impose a 90% tax on bonuses at banks that received federal funds. He did so even though some of those banks are healthy and accepted federal TARP money under federal pressure so that unhealthy banks that also took TARP money would not be stigmatized. The bill passed in the furor over bonuses that AIG, being bailed out by taxpayers, paid to its employees. (Republicans only wanted to block the bonuses at AIG, which is a major donor to liberal politicians like Obama and the corrupt Sen. Chris Dodd (D-CT); Democrats successfully extended the tax to major companies receiving TARP money).

The AIG bonuses were publicly disclosed in November, as Michael Kinsley and others note in the Washington Post today. The Administration became aware of them and signed off on them long before a public furor arose over the bonuses, at which point Obama switched positions and began cynically condemning the bonuses to curry favor with the public. (Treasury Secretary Geithner has steadily backtracked about what he knew and when, first falsely claiming that he didn’t know of the bonuses until less than a week before they were paid; then falsely claiming he knew of the bonuses but didn’t know quite how big they would be — even though AIG’s public SEC filing last November predicted the full amount of bonuses ultimately paid; and even though the Administration was reminded yet again by a Congressman in a committee hearing on March 3 about $163 million in bonuses to be paid “in the coming weeks“)).

The Administration now admits that it itself suggested to Senate banking committee chairman Chris Dodd (D-CT) the very language Dodd added to the stimulus package that shielded AIG’s bonuses. “After explicitly denying responsibility, Senate Banking Committee Chairman Christopher Dodd eventually admitted to including the exception under pressure from the administration,” notes a columnist in the Washington Post.

Meanwhile, AIG’s current employees, who don’t deserve big bonuses, but are needed in their current positions to clean up the complicated mess left behind by AIG’s managers (and unload the arcane financial instruments in its portfolio), are receiving death threats aimed at them and their families as a result of all the demagoguery by disingenuous politicians claiming to be shocked by the bonuses. The politicians are feigning surprise even though many of them (like Elijah Cummings (D-Baltimore)) have known of the bonuses since as far back as November 27. AIG employees’ homes are being staked out by left-wing demonstrators.

If the Administration didn’t want AIG employees to receive their (mostly undeserved) bonuses, it should have quietly blocked them by putting limits in prior legislation it helped pass — not publicly demonized them, which will drive them away, leaving AIG (which is now 80-percent government-owned) losing even more money at taxpayer expense. Bonuses cost the taxpayers money; but so do death threats, which discourage talented employees from working at banks and companies taken over by the government.

Obama’s more than $8 trillion in new spending commitments will require far larger increases in marginal tax rates than he proposed in his 2008 campaign.

Some of the employees subject to the 90 percent federal income tax on bonuses passed by the House will actually end up with negative pay, not only receiving nothing after taxes, but having to pay countless thousands of dollars they don’t even have. This is because they will have to pay other income-based charges on top of the 90 percent rate, including but not limited to Medicare tax (1.45%), state income taxes (up to 10.3%), and other legal obligations, such as family-court orders based on pre-tax income (in Massachusetts, divorced fathers pay 25% of pre-tax income, for just one child, in child support! Child-support payments are not tax-deductible. Some courts have formulas for alimony that are based on pre-tax income, ranging up to 30% of gross income.).

The combination of death threats and negative pay will discourage talented employees from working at AIG and other companies being propped up by the government, resulting in even greater taxpayer losses.

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