The government approach to AIG makes no sense. First, we are told it is "too big to fail". We need to save the jobs of those who work there, and the investments people made in it, as well as keep it going so that no one who has policies through AIG is left without insurance.
However, when AIG takes steps to do that, paying employees, including retention bonuses to keep those whose labor they value, we act as if AIG is a den of thieves who do not deserve their pay and are simply stealing from the taxpayer. The government starts to talk as if AIG is responsible for their own failure and the employees are to blame for all the misfortunes.
So, which is it?
Is AIG a den of thieves with immoral employees ripping off the tax payer? If so, then why are we paying to save their jobs and keep their firm afloat? Would we not be better off spending that money to indemnify investors and subsidize the insured while they find new coverage? If the firm is nothing but villains shouldn't we keep our money, let them fail and move on?
Or are they really simply the victims of bad luck or maybe honest mistakes who need to be bailed out? If so, then why are we trying to prevent the payment of employees who are necessary to save the firm? If we want the firm to succeed shouldn't we allow them to pay as much as they need to get the top notch employees important to any firm, but even more important for a firm in financial trouble?
I think the problem is that Democrats, especially, but most politicians, see them as both. They want to protect "workers" but hate "bosses", and have trouble deciding which white collar workers are. It is easy when they are protecting an assembly line worker, but with investment firms they have trouble figuring out how someone with an office and a six figure paycheck is a "worker", so their natural class envy kicks in and they start denouncing the same people they are praising.
Actually, it is a problem most of our politicians seem to have. While they want "the economy" to be strong, and want to help "business" in the abstract, they don't want to be seen as "pro-business" or taking the side of "the bosses". Politicians of both parties have so bought into class envy that they don't want to let anyone think they are supporting the "fat cats" and siding with "Wall Street greed" against "the little guy". It is easy to side with "Joe the plumber" even if he might be a boss, as he has jeans and works with his hands, but it is hard to say a broker deserves his million dollar bonus, even if the logic is the same.
And that, really is our problem. We have left behind the idea of rights, to contract, to property, all those pesky individual rights, and think it is the role of government to make things "fair", to pick winners and losers, to decide who gets what and to take sides. No one thinks any longer that being impartial is a virtue, as sometimes the "wrong" side might win.
Oh, for the days when Madison or Cleveland could veto a "relief" bill simply because it was beyond the scope of government and not be pilloried for their "heartlessness". Will we ever see the day when we value "impartial" over "fair"?
For those who care, my personal feeling is that AIG did engage in some bad practices, but by and large AIG was simply the early first victim of the deflationary crisis which hit the entir economy in 2008. As with any inflationary period, the "boom" of the Clinton and Bush year, spurred on by massive inflation, which caused the dot-com and housing bubbles, and accelerated in that alte 90's to dig us out of the dot-com bust, and again in 2001 to get us out of the post-9/11 slump, led to improper investments, which, inevitably, caused companies to become unprofitable. As with many companies in an inflationary period, AIG could not properly account for profits and losses, ended up paying out capital thinking it to be profits, and basically "ate its seed corn". While other companies, with more conservative management, weatehred the inflationary storm better, AIG, as most of the financial sector, was in an industry especially sensitive to this specific inflationary period's bad investments. (In Germany in the early 1920's it was the heavy industry sector, in our own ifnlation of the 1990's it was the stock market and tech firms. In this inflation it was real estate and financial firms.) So, yes AIG is partly to blame, but by and large the biggest villain is the government which created the inflationary environment and also encourage even greater expansions of the money supply through the reckless extension of credit to unqualified homebuyers with overvalued properties.
Guess that wasn't as brief or clear as I had hoped. Then again, the collapses following reckless inflation rarely create very clear situations.
Sadly, the mindset I describe is even shared by many conservative pundits. You can see it in the pro forma denunciations of "greed' or "excesses" they append to every commentary on this topic. Or their statement that we "need sensible regulation". Or even in their constant claims that economic actions are often "irrational". In short, thanks to their fear of coming out on the wrong side of the class envy equation,t hey are conceding the points of the left, just arguing for slightly less leftist policy. That is a losing formula, and not conservatism. Whether or not people are angry with stock brokers or AIG, conservatives still believe in individual rights. Rights don't vanish with popularity polls. If an individual has an unlimited, inalienable right to contract, a right to property, a right to work, and a right to the proceeds of his labor, he has them whether he works in a mine or at Solomon Smith Barney. If regulation is wrong it is wrong whether or not it is popular right now.
To make the point in a most graphic way, were lynchings right in 1880? They certainly fit the public mood. If not, then why is regulation right today but was wrong in 1985? Either we are conservative all the time, whether it is popular or not, or we might as well just come out and declare ourselves liberals of the Bill Clinton model, chasing the polls and triangulating our way through the "moderate middle".
I will stick with principles, whether it makes me popular or not. And trust me, as someone who supports ending all medical regulation, legalizing drugs, getting the government out of marriage, allowing unfettered foreign trade, allowing unlimited (almost) immigration once the welfare state is dead, ending all government involvement in business, all regulation of any kind, and restoring the gold standard, I know I have some unpopular views. However if I think they are right, then it doesn't matter. Truth is often unpopular, it makes it no less true.
Originally posted in Random Notes on 2009/03/23.