The story in the Times today trying to defend Geitner puts the blame for his bad judgment (really, a complete lack of political common sense) on faceless “government lawyers” who told the Treasury secretary exactly what he wanted to hear:
On Tuesday last week, as he prepared for a meeting in London of the finance ministers of the Group of 20 nations, Mr. Geithner learned that A.I.G. by Sunday would send out the bonuses to employees at its financial products unit, which developed the risky derivatives now blamed for the global credit crisis.
With few senior political appointees on hand, the word came from one of the numerous career civil servants who keep the Treasury functioning through changes of administration, according to an official.
Mr. Geithner consulted lawyers. They told him the government could not override the contracts that the insurance conglomerate had signed in early 2008, when its financial products unit was fast losing money.
The Times piece tries hard to justify Geiter’s naivete, blaming his lapse on his “crushing workload,” and telling us he is “shouldering more crises on his slight frame than most Treasury secretaries ever have.” But that’s no excuse — either for him or for Obama. Geitner, whose instincts as the Times says “are that government should not dictate compensation issues to businesses,” suffers from the same free market fundamentalist dementia as a recent respondent to my earlier post. Let’s look at this pathology more closely in order to better understand it.
“rbs” (not Royal Bank of Scotland) says “The market is a non-human entity, which operates under it’s own universal laws.” Think about that statement. You could say that a market is a building where people bring things to sell. Or you could say that a market is a metaphor (not a real thing) for economic transactions between diverse human actors in different places over a period of time. Both of those definitions would probably sit well with the main stream of economists and sociologists. But rbs takes human action, will, emotion, and motivation out of economic interactions all together. In its place he puts some non-human creature that appears to think and act on its own, independently of the human beings who do its bidding. Though rbs will deny what he really thinks when it becomes apparent that he is suffering from a delusion (a common failing of human beings), he takes it for granted that the market is a thinking agent, more powerful than humans, that controls our lives. More importantly, he thinks it is immoral for us to disobey this monster. If we do try to bend it to our collective (political) will it will retaliate by making us poor, unfulfilled, grey and bleak. If, however, we do it homage and sacrifice our tithes of taxes to it (tithes that we have seen go directly into the pockets of The Market’s high priests), it will reward us with wealth.
The place in rbs’s brain that deals with the unknown formerly used these metaphors to describe his relationship with God, but thanks to some clever folks who call themselves “economists” he has voided any kind of empathetic humanity from his god and replaced it with something that is a cross between YAHWEY of the Hebrew Bible and the Krell monster from Forbidden Planet. Sadly, his faith in the justness of whatever this invisible force does has not only turned rbs’s head, it has turned Geither’s (and Summers, and Jeffry Sachs, and the entire Chicago school’s) head too. They probably thought that their market-god would protect them from the all-too-human rage provoked by the sight of crooks getting paid with the blessing of the government.
The Washington Post is reporting today that the key argument for AIG’s bonuses is undermined by the revelation that most of the “dangerous” contracts that AIG execs alone knew how to defuse were in fact canceled before the bonuses were cleared by management:
By the end of December, the outstanding volume of the riskiest kind of bet, on highly complex derivatives, had been reduced to roughly $13 billion from $78 billion, according to the company’s financial filings. The Federal Reserve has since completed its planned purchases of assets from AIG’s trading partners….
That progress contrasted with the testimony before Congress yesterday of the company’s chief executive, Edward M. Liddy, who said the payment of $165 million in retention bonuses last week was necessary because the departure of key employees could result in catastrophic losses.
It does not take an advanced degree to interpret these actions — that were undertaken by human beings and not some omniscent Market — as a last ditch attempt by people who knew they were going to lose their jobs to bilk the government for as much money as they could get their hands on. (They stole from you rbs, and you let them do it because they are the priests of your Market God.) But what is most distressing is the fact that Geitner, Summers, et al. also believe in the Market God, which is why they cling to the belief “that government should not dictate compensation issues to businesses” even though it is clear that these people are conning the good faith of the folks they are fleecing.
If I were to take a more libertarian stance on this issue, I would say that the government shouldn’t have intervened at all. (Let’s keep in mind that it was the Bush neocons led by Henry Paulson who negotiated this bailout in the first place.) In that case AIG — and Goldman, and Societe General, and Deutche Bank, and Merrill Lynch to name only the most egregious offenders — would have gone belly up, and their executives would have had no bonuses at all this year. That sounds like justice, but it probably also would have brought down banks that didn’t make bad bets, and it would have most certainly precipitated a crisis more dire than the original Great Depression. It would have been cutting off our noses to spite our faces. The reasonable and responsible thing to do would have been (and still is) to have the government take over the management of these banks and their assets, wiping out the people who made bad bets, including the management and shareholders, while protecting the financial infrastructure that allows commerce to happen. And after all the bad (human) actors had been chastened by poverty — the direct result of their bad behavior — they would be allowed again to own these businesses privately. If there were competent managers in government this could be easily done. Then again, if there had been competent people in government for the last thirty years we would not have come to this pass at all.
But we are still in thrall to the Great Market God, and until we remember that markets are made by men and not “a non-human entity, which operates under it’s own universal laws” we will continue to superstitiously pay the self-styled priests of this god a tenth of our incomes in hopes they will call on their god to make us rich.