If I owe you $10K, I'm in trouble; if AIG owes you $400 billion, taxpayers are screwed

Everyone’s quoting John Maynard Keynes on the need for fiscal stimulus to escape the global de-leveraging economic depression. But here’s a Keynes quotation relevant to the bank bailout:

“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

In 21st Century Americanese, that’s: “If I owe you $10,000, I’m in trouble; but if AIG owes you $400 billion, you’re screwed.”

Sadly, AIG’s creditors and the Obama Administration reject this truism. They think that if AIG owes counterparties (like Goldman Sachs) $400 billion, then taxpayers are screwed. The bank lobbyists running the government bailout — basically a bunch of guys from Goldman Sachs — are making sure AIG’s creditors get paid every penny they’re “owed” for the massive bets they placed with a firm that could not remotely pay off its gambling losses without hundreds of billions from taxpayers.

Maureen Dowd notes that Goldman is receiving tens of billions from taxpayers (not to mention even larger gifts from the Fed) without surrendering one iota of control to taxpayers:

A.I.G…. funneled $93 billion — more than half its federal money to date — to its high-flying insurees, including Goldman Sachs, Merrill Lynch and a group of European banks.

Goldman Sachs separately got $10 billion in bailout money last year, but recently asserted snootily that it’s doing well enough and doesn’t want our money because of the restrictions attached. Yet as Goldman sneers at the federal money at the front door, it’s taking delivery of billions in no-strings federal money through the back door. Can we taxpayers deduct the difference?

Our gift to Goldman demonstrates why the government’s headless and heedless bailout of A.I.G. is so wrong.

And why are we bailing out foreign banks, including a couple of French ones and UBS, a Swiss bank currently tussling with the I.R.S. because it refuses to hand over the names of thousands of U.S. tax-dodgers?

Posted by James on Sunday, March 22, 2009