Obama=Ozymandias

Call me cynical and predisposed to conspiracy, but I find the current outrage expressed by Obama and his administration over AIG a bit…Machiavellean.  First, on Sunday, his technocrat underlings express frustration on the talk show circuit.  We have Larry Summers saying that the AIG bonuses have to go through, lest we disrupt the rule of law. Then, from stage left, the New York Times runs a story about how angry the administration is with the scheduled payments, and further, how they fear a “populist” backlash. Finally, for today’s third act, the ultimate deus ex machina saves the day–forget the contracts! Obama has ordered his boy wonder, Geithner to block the bonuses.

The Pirate Pose

David Leonhardt today: 

What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it “management fees” or “performance bonuses.” Once the investments were exposed as hopeless, the lenders — ordinary savers, foreign countries, other banks, you name it — were repaid with government bailouts.

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it.

I understand this chain of events sounds a bit like a conspiracy. And in some cases, it surely was. Some A.I.G. employees, to take one example, had to have understood what their credit derivative division in London was doing. But more innocent optimism probably played a role, too. The human mind has a tremendous ability to rationalize, and the possibility of making millions of dollars invites some hard-core rationalization.

Either way, the bottom line is the same: given an incentive to loot, Wall Street did so. “If you think of the financial system as a whole,” Mr. Romer said, “it actually has an incentive to trigger the rare occasions in which tens or hundreds of billions of dollars come flowing out of the Treasury.”

I can’t understand the compunction to call the set of rules, institutions, laws, and regulations in the market of the last 40 years capitalism.  Under no understanding of capitalism do the rewards of risk-taking go to the pirate, but the losses to the public.