So far it seems those banks and financial institutions fortunate enough to receive billions of dollars from the government are showing their gratitude by
So far it seems those banks and financial institutions fortunate enough to receive billions of dollars from the government are showing their gratitude by hoarding the money for their own purposes, spending it on parties and, now, using it to cover up for major accounting “irregularities,” as they say.
Makes you proud to be a capitalist, doesn’t it?
The New York Times reports today that insurance company AIG has already burned through $123 billion it got from the Federal Reserve. The company told the government it was solvent in September. The only explanation for running through that kind of money one month later would be hidden accounting problems, analysts say. The company could be taking the $85 billion line of credit from the Fed plus $38 billion in additional government help and using it to cover previously undisclosed losses. From the Times:
These accounting questions are of interest not only because taxpayers are footing the bill at A.I.G. but also because the post-mortems may point to a fundamental flaw in the Fed bailout: the money is buoying an insurer — and its trading partners — whose cash needs could easily exceed the existing government backstop if the housing sector continues to deteriorate.
Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.
Here’s what I’d tell Liddy, and any other banks with their hands still out, if I were in charge of this mess: Tough luck.
If AIG wasn’t honest with its books, why should it get even more money from the government? AIG wasn’t worried about those accounting losses when it spent $443,000 at a resort and spa, just after getting its loan. The securities industry isn’t the slightest bit apprehensive about doling out $20 billion in bonuses this year — which no doubt ranks as its worst year since the Great Depression. Imagine the performance reviews for top investment bank executives. Sure, our company failed or was nationalized by the government. Here’s your bonus.
The only government official taking some action on this appears to be New York Atty. Gen. Andrew Cuomo, who sent a letter to the nine banks partially nationalized by the government demanding detailed information on bonuses for top executives this year.
Good for him. As Sen. Bob Dole used to say, “Where’s the outrage? The financial industry seems to be making a joke of the dramatic and unprecedented aid it received from the government. In the meantime, homeowners with their loans underwater are on their own, with the government only now mulling a plan to help them that appears to comprise little more than offering lenders another carrot to participate in loan modifications. And the White House already is saying it’s made no decision on supporting it.
The moral hazard argument, it seems, applies only to people in foreclosure. On Wall Street it no longer exists.
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