Blawgletter shares the Public Anger over the use of the Public Fisc to enable American International Group to pay questionable debts to (1) buyers of credit default swaps and (2) the AIG people who sold them.
Category (2) — involving several hundred millions — summons especial perplexity. The bonuses, we suspect, conjure images of fat cat brokers laughing at hapless taxpayers as they (the fat cats) convert their six- and seven-figure checks into celebratory champagne and caviar, Bentleys, and chortling disparagement of the hoi polloi. Everybody gets the wrongness of paying bonuses for failure.
Oddly, the far bigger category (1) – several tens of billions — draws less attention. That happens, we suppose, because almost nobody understands how a credit default swap works. Indeed, the words "financial derivative" probably put most people in mind of the moment, in fifth or sixth grade, when they realized that they definitely wouldn't make high-level mathematics their life's work.
Congress and the administration, on the other hand, presumably do grasp the finer points of credit default swaps, interest rate swaps, and all manner of other derivatives. And we imagine they comprehended the likelihood that a Great Deal of bail-out money would inevitably flow through ailing financial institutions into the pockets of your Goldman Sachses, your Morgan Stanleys, your Bank of Americas, and even — horrors! — hedge funds and suchlike.
Why do they permit it? We can surmise only that policymakers believe the current crisis requires dipping Big Finance — including speculators who brought us to this pass – in a great steaming bath of liquid money. For in that way the malefactors will rehydrate and regain enough stiffness to stand on their own. Whether they deserve it or not. Which they don't.
But woebetide the institutions that swim in the bail-out bathtub. They will no longer enjoy the freedom to gamble with government funds. The feds will put them on a Short Leash.
At least until we forget what just happened — probably in about 15 years.