♠ Posted by Emmanuel in Credit Crisis
at 3/15/2009 12:31:00 PM
I very much recommend the PBS documentary The Commanding Heights for a primer on the postwar history of IPE, especially the rise and demise of communism. (There is also a book of the same name by Daniel Yergin and Joseph Stanislaw on which the series is based.) For the longest time, I have had the PBS website among our IPE resources. You might think that this series is getting long in tooth as it came out in 2002, but I demur. Especially now when the states-markets pendulum in shifting back in the former direction, it pays to know important recent economic history. The PBS website features extensive interviews with movers and shakers in the postwar era. One of them, of course, was Mr. Perestroika himself, Mikhail Gorbachev. Commenting on the Soviet Union as it approached its demise, he had this to say:It was a shame, and I continue to say that it was a shame, that during the final years under Brezhnev, we were planning to create a commission headed by the secretary of the Central Committee, [Ivan V.] Kapitonov to solve the problem of women's pantyhose. Imagine a country that flies into space, launches Sputniks, creates such a defense system, and it can't resolve the problem of women's pantyhose. There's no toothpaste, no soap powder, not the basic necessities of life. It was incredible and humiliating to work in such a government. And so our people were already worked up, and that is why the dissident movement occurred.Fast-forward to 2009 and you have another government struggling with the infelicities of government planning and centralization as well as widespread discontent: the US of A. The various strains now being placed on the government in handling a financial system teetering on the edge--disavowal of trading financial WMD; improving transparency; and most importantly for this post, reducing executive pay--has led it to undertake tasks it is not ideally suited for. As with the Soviet example, bringing more and more economic functions under state directive has its price. Bureaucrats are often forced to micromanage things, diverting attention from more pressing issues like removing junk assets clogging up the banking system. From Bloomberg:
American International Group Inc., the insurer saved from collapse by taxpayer bailouts, was ordered by the U.S. Treasury to scale back bonuses and reimburse the government for some 2008 payments, according to a person briefed on the matter.Granted, $300M or so is no small beer. Then again, neither was supplying women's undergarments near the time of the USSR's collapse. However, Geithner's plate is already very full dealing with far larger sums. After all, this is the guy who needs to issue something on the order of $2 trillion in IOUs this year on top of figuring how to salvage a hugely undercapitalized banking system. Given the re-emergence of central planning where top officials need to shake down quasi-nationalized entities, The Commanding Heights is certainly required viewing.
Treasury Secretary Timothy Geithner telephoned Chief Executive Officer Edward Liddy on March 11 to demand changes to New York-based AIG’s bonus payments, an administration official said separately. The people declined to be identified because discussions weren’t public. Liddy told Geithner in a letter that retention payments for 2009 -- designed to keep employees from leaving AIG -- will be cut at least 30 percent, and that some payments can’t be stopped because they’re binding contracts.
“I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them,” Liddy wrote to Geithner in the March 14 letter, which said that the agreements predated his appointment by the U.S. “With the benefit of hindsight, I would have designed these differently and at significantly lower levels.” Liddy wasn’t among those entitled to a bonus.
AIG had expected its retention payments would cost about $1 billion, according to a March 2 regulatory filing. The payments, reported earlier by Bloomberg, drew criticism from U.S. lawmakers who objected to giving individual employees as much as $4 million at a company whose wrong-way bets on credit-default swaps helped deepen the global credit crisis. AIG had said the payments were needed to keep talented people.
The insurer’s plan to repay the U.S. for its bailout package included selling subsidiaries. The retention payments would benefit taxpayers by making the units attractive to buyers, Liddy had said earlier. AIG scaled back plans for those sales when few bidders emerged.
Provided the ongoing extirpation of the private sector, government will be all that's left if things keep going this way. If and when it gets to the point when the US treasury secretary--not the Soviet secretary of the central committee--needs to make decisions about women's pantyhose, I further suggest they hire three experts on the matter: Billy Gibbons, Dusty Hill, and Frank Beard. So much for that "retreat of the state" jazz, comrades.
