Sunday, March 15, 2009

Scarecrow Geithner

The tin man lacked a heart, the lion lacked courage, is new Obama Treasury Secretary the brain-dead scarecrow? It appears so.

Since assuming office in the aftermath of his embarrassing revelation that he was unable to keep track of what taxes he owed and, subsequently, was in arrears on his taxes--a mistake that he pledged to correct only after receiving word of his pending nomination for Treasury--Timothy Geithner has swung and missed often.

The problems for Geithner the Treasury Secretary began the moment he stepped into his new role as he frequently came across as either underwhelming or outright obtuse on matters about which someone who had served as Chair of the New York Federal Reserve Bank rightly ought to be expected to be conversant. Instead, Geithner appears intent on reincarnating the lost years of the Paulson Administration. How unfortunate for the American public, and much of the rest of the World.

Geithner signaled his mental challenges this past week by coming to the verbal rescue of AIG--the company that helped bring the United States one its worst financial disasters ever. Having already received $180 billion in federal assistance to help bail it out of a mess of its own devise, AIG was reportedly preparing to pay out $170 million in bonuses to executives operating in the derivatives branch of the company.

Ostensibly, bonuses serve as rewards for work well done. Apparently not on Wall Street, and particularly not at AIG. According to AIG, the bonuses that it is paying out this year are a combination of merit and contractual bonuses, the latter, according to AIG, legally bound upon the company. As a consequence, despite the acknowledged criticism of the public at large, AIG intends to dish out the hefty loans, in spite of it recent request for additional government funds.

There are many thoughts that ought immediately to rush through the head of a rational observer regarding AIG's revelation. The most salient would be why AIG will be paying non-contractually mandated bonuses following a year in which the company lost $62 billion, a record for a U.S.-based company, and probably a record anywhere.

The second thought that ought to occur to the rational observer is that there cannot be, of course, any such thing as a contractually obligated bonus at AIG. At least not this year. No matter the terms of the company's contracts, practice alone would allow breach of the relevant contracts if only to remove any bonus stipulations. No judge in the land would uphold a challenge to such an abrogation given the assistance that the U.S. government and taxpayers have given AIG merely to keep it from filing for bankruptcy.

Yet AIG maintains that it is obligated to pay certain bonuses--as it also maintains its arrogant position that it cannot disclose which bonuses are required and which are discretionary.

AIG has acted boorishly. That's no surprise given how amateurishly its membership ran one of the world's largest firms.

What is surprising, though less so as the days pass, is the response from Treasury Secretary Geithner regarding AIG's bonuses. Geithner echoed AIG's claims that certain AIG bonuses were contractually mandated and chose not to distinguish between those that were "mandated" and those that were not. In an attempt to justify this obfuscation, Geithner stated that it is important that AIG not have to constantly look over its shoulder wondering what the government planned to do next. "They need to be able to attract the best," Geithner concluded. "Bonuses are part of that."

As the rational world shook its collective head wondering what options are out there for the best and brightest who are put off by the lack of an AIG guarantee of a seven-figure bonus, Geithner raised his eyebrows and said "trust me."

As I said, this sounds an awful lot like the Hank Paulson story.

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