Bigger Than the Both of Us

March 19, 2009 10:30 a.m.

There’s no end of puffed up outrage and opportunistic posturing over the on-going revelation of the AIG bonus scandal. But some line has been crossed. And it’s worth thinking really clearly about just what that line is.

What is so damaging about this isn’t the money — which is almost trivially small compared to the many hundreds of billions we’ve already committed. The problem is what appears to be the president’s mortifying impotence in the face of bankers and financiers who created the problem. The president speaks and acts for the federal government, which is to say, the American people, who have mobilized more than a trillion dollars and all powers of the state to repair the damage emerging out of the financial sector. And with all that, he’s jacked up on a employment agreement between a company the government now owns and derivatives traders who sank the world economy and may quite likely be looking at criminal charges for their activities in the not too distant future?

Anyone can look at that and see that the equation of power and accountability is all screwed up.

I think the American people have demonstrated over the last six months that they’re willing to expand vast sums of money and endure great economic hardship without holding the damage against their political leaders. Effectiveness, in the sense of how long it takes to turn the economy around, is something they seem willing to be flexible on. But not on who’s in charge. And that’s what’s at stake here. As a matter of transparency and truth-telling, what Geithner knew about the bonuses may be significant. But it’s really all fine print that is largely beside the point. From Geithner and Summers, and indirectly from Obama, we keeping hearing financial-legal versions of ‘It’s bigger than the both of us’. Like we’re along for the ride, still taking dictates from the people who got us into the mess we’re in.

There are various specific points you can drill down on. Atrios grabs this deliciously obnoxious passage from a piece in the Post today …

“Nobody is going to give it back and then stay,” said one of the firm’s employees. “If they give back the money, then they will walk. And they will walk into the arms of AIG’s counterparties.”

So, give us our money or we’ll go to the counter-parties and help them really suck you dry. Even though this ignores the fact that the counter-parties have no actual right to the money. They placed bets with a company that did not have the money to pay off the bets. There’s a old-fashioned business solution to that kind of problem — due diligence.

We’re paying them off, either in full or in part, out of fear that pulling the plug on these contracts would so destabilize the global economy that paying it is a better solution than not. But we’re doing it for us. Not them. They are, at best, collateral beneficiaries. So all the talk of whatever self-serving or legally dubious contracts they penned for themselves two or three years ago are beside the point.

Or at least that’s the idea. Unless we’re actually just chumps and Obama — via Geithner and Summers — have simply ceded the running of the whole thing to the people who caused all the problems in the first place. And we are just along for the ride even though we’re paying the bill.

In this sense, this isn’t a distraction. Yes, the dollar amounts are small. And pols across the spectrum are demagoguing the thing for all its worth. But the real issue of who’s in control, and whose interests are being served, cuts through every dollar we’ve dedicated to this project. And when you look closely at the much bigger AIG counter-party issue, the same disconnect is there every bit as much as it is with the bonuses.

Whether Geithner and Summers are too close to the people on Wall Street, either through interest or affinity, is an interesting and possibly important question. But fundamentally Obama needs to start showing that he’s in charge, that he’s operating as the American people’s advocate and that he has the power to do it — which these stories of getting jacked up by some Gordon Gecko wannabes in London just terribly undermines. But to do that, to show that, it has to be true. And that might require some real changes in policy and possibly in personnel too.

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