The AIG bonus-gate is a sideshow, but it's a politically charged sideshow. Betting markets show a surge in contracts (the odds are now up to 30 percent) that wager Treasury Secretary Timothy Geithner may take the fall.
But the real danger here is that voter rage at the bonuses will put at risk the government's response to the financial crisis. Jaret Seiberg, of the Washington research group at Concept Capital, notes that TALF participants are not covered by the executive compensation restrictions that apply to TARP participants. As he puts it (bold is mine):
The issue becomes whether Congress will change this. That could sink the TALF as the program depends upon hedge funds and others to seek non-recourse loans to buy the AAA-rated ABS. Just the worry about Congress extending its reach to these firms may be enough to scare investors away. ... We have the same worry with the bad bank program, which is now being called the public-private partnership fund. Regardless of how the government gets the toxic assets out of the banks, it will eventually need to sell them to the private sector. The current idea is to help finance these private sector purchases. We doubt investors will participate if Congress limits their compensation. ... Increasingly we hear that private equity firm and hedge funds are looking at chartering new banks to acquire failed bank assets. Fears about greater congressional interference in how much these funds could make on their investments may delay or derail these plans. That could further restrict the supply of credit and cause the FDIC to incur even larger losses on failed banks.
Me: That $165 million is getting pricier all the time.
Errol Smythe @ Mar 23, 2009 04:32:32 AM
JOHNJack of FL @ Mar 21, 2009 15:25:26 PM
johnjack of FL @ Mar 21, 2009 15:20:59 PM