[R-G] [BillTottenWeblog] The Real AIG Conspiracy

[Bill Totten]

by Professor Michael Hudson

Global Research (March 18 2009)


It may seem odd, but the public outrage against $135 million in AIG
bonuses is a godsend to Wall Street, AID scoundrels included. How can
the media be so preoccupied with the discovery that there is
self-serving greed to be found in the financial sector? Every TV channel
and every newspaper in the country, from right to left, have made these
bonuses the lead story over the past two days.

What is wrong with this picture? Is there not something over-inflated
about the outrage led most vociferously by Senator Charles Schumer and
Representative Barney Frank, the two leading shills for the bank
giveaways over the past year? And does President Obama perhaps find it
convenient that finally, at long last, he has been able to criticize
something that he believes Wall Street has done wrong? Even the Wall
Street Journal has gotten into the act. The government's takeover of
AIG, it pointed out, "uses the firm as a conduit to bail out other
institutions". So much more greed is involved than just that of AIG
employees. The firm owed much more to other players - abroad as well as
on Wall Street - than the assets it had. That is what drove it to
insolvency. And popular opposition has been rising to how Mr Obama and
Mr McCain could have banded together to support the bailout that, in
retrospect, amounts to trillions and trillions of dollars thrown "down
the drain". Not really down the drain at all, of course - but given to
financial speculators on the winning "smart" side of AIG's bad financial
gambles.

"The Washington crowd wants to focus on bonuses because it aims public
anger on private actors", it accused in a March 17 editorial. But
instead of explaining that the shift is away from Wall Street grabbers
of a thousand times the amount of bonuses being contested, it blames its
usual all-purpose bete noire: Congress. Where the right and left differ
is just whom the public should be directing its anger at!

Here's the problem with all the hoopla over the $135 million in AIG
bonuses: This sum is only less than 0.1% - one thousandth - of the $183
BILLION that the US Treasury gave to AIG as a "pass-through" to its
counterparties. This sum, over a thousand times the magnitude of the
bonuses on which public attention is conveniently being focused by Wall
Street promoters, did not stay with AIG. For over six months, the public
media and Congressmen have been trying to find out just where this money
DID go. Bloomberg brought a lawsuit to find out. Only to be met with a
wall of silence.

Until finally, on Sunday night, March 15, the government finally
released the details. They were indeed highly embarrassing. The largest
recipient turned out to be just what earlier financial reporters had
said was rumored: Mr Paulson's own firm, Goldman Sachs, headed the list.
It was owed $13 billion in counterparty claims. So here's the picture
that's emerging. Last September, Treasury Secretary Paulson, from
Goldman Sachs, drew up a terse three-page memo outlining his bailout
proposal. The plan specified that whatever he and other Treasury
officials did (thus including his subordinates, also from Goldman
Sachs), could not be challenged legally or undone, much less prosecuted.
This condition enraged Congress, which rejected the bailout in its first
incarnation.

It now looks as if Mr Paulson had good reason to put in a fatal legal
clause blocking any clawback of funds given by the Treasury to AIG's
counterparties. This is where public outrage should be focused.

Instead, the leading Congressional shepherds of the bailout legislation
- along with Mr Obama, who came out in his final, Friday night
presidential debate with Senator McCain strongly in favor of the bailout
in Mr Paulson's awful "short" version - have been posing as
conspicuously as possible for the media to cover a deflected target -
the AIG executives receiving bonuses, not the company's counterparties.

There are two questions that one always must ask when a political
operation is being launched. First, cui bono? Who benefits? And second,
why now? In my experience, timing almost always is the key to figuring
out the dynamics at work.

Regarding cui bono, what does Senator Schumer, Representative Frank,
President Obama and other Wall Street sponsors gain from this public
outcry? For starters, it depicts them as hard taskmasters of the banking
and financial sector, not its lobbyists carrying water for one giveaway
after another. So the AIG kafuffle has muddied the water about where
their political loyalties really lie. It enables them to strike a
misleading pose - and hence to pose as "honest brokers" next time they
dishonestly give away the next few trillion dollars to their major
sponsors and campaign contributors.

Regarding the timing, I think I have answered that above. Talking about
AIG bonuses has effectively distracted attention from the AIG
counterparties who received the $183 billion in Treasury giveaways. The
"final" sum to be given to its counterparties has been rumored to be
$250 billion, do Senator Schumer, Representative Frank and President
Obama still have a lot more work to do for Wall Street in the coming
year or so.

To succeed in this work - while mitigating the public outrage already
rising against the bad bailouts - they need to strike precisely the pose
that they're striking now. It is an exercise in deception.

The moral should be: The wetter the crocodile tears shed over giving
bonuses to AIG individuals (who seem to be largely on the healthy, bona
fide insurance side of AIG's business, not its hedge-fund Ponzi-scheme
racket), the more they will distract public attention from the $180
billion giveaway, and the better they can position themselves to give
away yet more government money (Treasury bonds and Federal Reserve
deposits) to their favorite financial charities.

_____

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(c) Copyright Michael Hudson, Global Research, 2009

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