AIG: Time to Put Away the Pitchfork and Focus on the Real Problems

There is an interesting commentary by Michael Lewis (see the recent Bloomberg article). In the article, Lewis highlights how the hysteria over [AIG] is obscuring the real problems at the core of the current crisis, one of which is homeowners defaulting on homes they could not afford, and the government instead throwing money at opaque institutions, the workings of which no one really understands or can challenge. With one line, Lewis captures the problem and current situation:

The guy who defaulted on mortgages on his six spec houses in the Nevada desert has turned himself into the citizen enraged by the bonuses paid to the AIG employees trying to sort out the mess caused by his defaults.

Here is hoping we can heed Lewis's call for getting to the root of the problem, and quickly. It is not that we should turn a blind eye and forgive the guilty and the negligence on Wall Street, but instead should focus more of our energy on the solutions to our problems, beginning with identifying and admitting its root causes. As uncomfortable as it may be, for many of us the problem and solution begins with us.

Comments

[Fabien Hug:]

I'm afraid it's not only the over leveraged guy in Nevada who is upset.
Think about the ones who saved their whole life and see their yield on risk free assets dropping to 2.2% a year thanks to the loose monetary policy put in force to bail out the AIGs of the world.
It's great to have to turn into a day trader to make a living after a life of work.

Mar 23 10:06 AM

[perremon:]

Yes, lets not "turn a blind eye and forgive the guilty and the negligence on Wall Street." Guilt and negligence are exactly correct. Thank you. We can focus on both the irresponsible behaviors of AIG and other giant financial firm, who are supposed to be more sophistocated and informed than the average citizen that they preyed upon, and focus on correcting this mess at the same time. It is not one or the other. The citizens who are enraged are not the guys who defaulted, but all of us who have lost our pensions, jobs, retirements plans, children's college savings. Shame on you for missing that. You remind me of the churches that protected their priests for so many years and ignored the parishoners who had been molested. Eventually, they paid.

Mar 23 01:00 PM

[closedbooks:]

AIG bonuses may be among the more venial of Wall Street's sins but as an easy focus they might serve as a symbol as important to our future as the British tax on tea was important to the American Revolution.

Mar 23 01:12 PM

[mediapro:]

I guess you probably realized that writing a column under such a headline would provoke response.

On one point I agree.

"It is not that we should turn a blind eye and forgive the guilty and the negligence on Wall Street, but instead should focus more of our energy on the solutions to our problems, beginning with identifying and admitting its root causes."

Yet, it is the "flip" comment you used about the "flipper" in Nevada that skirts the real cause of the problem. Remember when there was no Citigroup (it was Citibank.)? Remember when AIG had no AIGFP (it was illegal for insurance to be in the investment banking and derivatives business)?

The repeal of Glass-Steagall and Phil Gramm's literal eleventh-hour insertion of an amendment to the repeal that eliminated oversite of derivatives markets which was the most significant blow to a rational financial products market.

But I submit that if we are to go at the larger problems, we must admit and change the dangerous path that we have been following for at least the past thorty years, if not since WW II.

The problem with our economic contstruct is that we are not doing enough to right the wrongs of a failed, simplistic, silly policy direction that we have suffered through for at least the past thirty years.

The introduction, ascendency and idolatry of Milton Friedman's brand of shock economics has done more to destroy the world's economy than any economic hypothesis in our lifetime. This is not just Reaganomics /Bushanomics, but the pitting of haves/have nots in a global play orchestrated through Milton's disciples within the IMF, World Bank, and governing neo-conservative world view since at least 1975.

Cutting taxes on the wealthy and re-distributing middle class income up to those captains of industry combined with wholesale deregulation and record deficits under Reagan, Bush I and Bush II, and conveniently leaving the $1 Trillion dollars of Iraq war spending off the books while the national debt ballooned from around $5 Trillion to $10.6 Trillion at last peek is an ingenious spin on what constitutes supply side stimulus, if not outright delusion.

Count the change left in your pockets, unless of course you are one of the few who benefitted from this latest episode of Shock Economics so popular with necons. I'll just ask you the same question Reagan used to ask: "Are you better off now than you were four years ago?"

If you're in the same boat as the rest of us, our "staying the course" has undeniably run the lot of us aground. If you have benefitted, then you're one of the lucky 2% that control 80% of America's wealth, completely comfortable that you'll ride out the storm until the next lunatic can covince most of the people all of the time into something completely counter to their own self interest.

Mar 23 05:00 PM

[Burt:]

Generalizations: What happens when people who don't understand a situation.

Apr 07 08:59 AM