Tuesday, March 24, 2009

Obama Prime-Time Primer

Obama's doing a prime time address, so it's time for live-blogging! And tea. But before the festivities start, I suppose it's only fair to put out what I think about the economy and the banks.

The AIG Bonuses
Mostly neutral, I guess. Almost everybody is mad about them. But almost everybody that I know doesn't actually know what they are. These are not "bonuses" as most people understand the word: they are not hey-you've-done-a-great-job-here's-a-million-bucks. These were agreed on in 2007, when most AIG analysts saw the writing on the wall and thought "I don't need this, I'm outa here!". AIG probably couldn't have functioned if all of its employess exodused en masse, and so AIG made a deal with them: stick around for another year and we'll pay you some extra cash at the end of the year. Some accepted, some didn't. And those that accepted are now seeing the shit hit the fan. Yes, the fact that some execs are getting million dollar bonuses is outrageous. The fact that some mid-level analysts are getting a few extra thousand is perfectly fine.

Geithner's new plan is to offer (forcibly if necessary) the banks a way to get rid of their toxic assets by putting those assets up for auction, where private investors will bid on them with leveraged government money. Most of the criticisms of the plan are from the left: that the investors will get most of the profit while the government will accept the risk which will lead to inflated prices; and an argument that basically boils down to 'enough already and nationalize!'. I don't agree, for a couple reasons. First, if the assets really are so bad, the government is going to lose a lot anyway. And if the assets are good, then the government would have unnecessarily absorbed the banks. Which brings me to my second point, which is that nationalization really should be a last resort.

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