AIG Bonuses and Bailouts

There's been a lot of discussion about AIG paying top executives millions of dollars in bailouts, while receiving Federal bailout money. My attitude is "That again! Is it really worth writing an article about that!" It's been discussed so much that I feel obligated, even though I'm not making any new points.

A pro-State troll says:

These bonuses are part of their contract. AIG has an obligation to pay.

If AIG declared bankruptcy, then the bankruptcy judge has discretion to forbid the payment. The executives would become creditors in bankruptcy court just like everyone else.

AIG should be treated as a corporation in bankruptcy reorganization, even though it was bailed out. Contracts signed before the bankruptcy aren't necessarily enforceable.

These executives are brilliant leaders. We must pay them fair market value. Otherwise, they would switch jobs.

These executives are responbible for billions of dollars in losses.

In case you haven't noticed, the financial industry is a mess right now. Who's going to hire away these "brilliant" executives? What are these executives going to do? Get a job where they actually have to produce something useful?

Anybody who's eager to hire away those parasites deserves what they get.

We must bail out AIG, lest the financial system unravel!

If necessary, the government could provide bankruptcy financing. Instead of a bailout, the government could provide debtor-in-possesion financing to ensure an orderly bankruptcy.

In bankruptcy, it would be 100% public who was exactly receiving bailout money.

The "advantage" of a bailout is that there's no public disclosure. Suppose Goldman Sachs purchased $50B of credit default swap insurance from AIG. AIG receives $50B in bailout money, and then immediately uses that money to pay off Goldman Sachs. Goldman Sachs is the actual recipient of the bailout. When Goldman Sachs bought credit default swap insurance from AIG, they were also taking the risk that AIG itself would become insolvent.

In a true free market, when purchasing insurance, the buyer should ask "Is the insurer going to be bankrupted?" By bailout out AIG, the Federal Government says "When you buy insurance, you don't have any obligation to make sure that the insurer is solvent!" The bailout means that it doesn't pay to operate a business that isn't "too big to fail".

We must bail out the financial industry, lest there be hyperdeflation!

This is the Compound Interest Paradox. With debt-based fiat money, new money is created only when someone borrows. Only the principal is created and not the interest. If banks stop issuing new loans, then the house of cards starts crashing. Old loans are repaid, but no new loans are issued. There is a crisis, because the total amount of debt is far greater than the total money supply.

The solution is "Bail out the insiders!" rather than "Reform a fundamentally corrupt monetary system!"

Politicians are not saying "**** you! No more bailouts! We're letting you go broke!" This is evidence of their corruption. Instead, they are "negotiating" the terms of the next installment of the bailout. Politicians are confused about how gifts work. If A gives money to B, then A gets to make up the rules for how the money is spent, and not B. Also, it's the productive workers' money and not the politician's money. People pay the cost of the bailout via inflation which erodes their salary and savings.

The entire purpose of government is to loot and pillage. During an inflationary boom, insiders benefit because they get to print and spend new money. During a deflationary bust, insiders benefit because they qualify for a bailout. The bailout can be indirect, in the form of a Fed Funds Rate cut. In this case, the bust is severe enough to justify a direct bailout.

Government creates no new wealth when it prints and spends new money. By printing new money, the parasite class steals from the productive class.