We'd all like a little revenge, after learning about the millions owed to the screw-ups who totaled the global economy. But there's more important work to be done.
If financial derivatives, as Warren Buffet so famously declared, are “weapons of mass destruction,” then the insurance company AIG is what ground zero looks like after an ammunition depot full of credit default swaps has detonated.
Much “outrage” — to borrow a term employed recently by both Larry Summers and Ben Bernanke — has been vented at the $450 million in bonuses contractually owed to the AIG employees who sold the CD swaps that blew up the company and threatened to bring down the global economic system. And rightly so — it is infuriating that these jokers are taking home millions while unemployment rates surge across the globe and millions are kicked out of their homes. But even a number as large as $450 million shrivels against the $120 billion of government money that AIG paid out to various counterparties to make good on its various obligations. As has been noted before, AIG made its business insuring against the possibility of a global economic collapse, but did not have the wherewithal to pay up when that collapse actually happened.
But once we get past the rage and the anger, isn’t there a more important thing to be worrying about than revenge? How about the question of how to rejigger the system so that this doesn’t happen again? Locking up all of AIG’s credit swaps salesmen and throwing away the key would provide a great deal of moral satisfaction, but probably accomplish little of systemic worth.
On that note, we can turn to today’s Wall Street Journal article by Damien Palleta, “U.S. to Toughen Finance Rules,” which begins:
The Obama administration, moving with increasing speed, has inked the main contours of its plan to revamp financial-market oversight — changes that will ripple through the economy, affecting everything from the operations of international banks to consumer protection.
I am a little bemused by the “increasing speed” description. I know there are some critics who would like the Obama administration to have already fixed the banking system and restarted economic growth. Myself, I’ve had a bit of a hard time keeping up with the economic stimulus package, housing plan, most-ambitious-budget-in-my-lifetime, and a raft of other initiatives. But whatever: There’s never been a better time than the present to come up with a serious framework for regulating the financial system, and it’s good to learn that the administration is moving forward.
One prong of the plan is some kind of a “consumer financial products” watchdog that would presumably limit the ability of mortgage lenders and credit card companies to lure consumers to their financial room with “innovative” new products. A “central body” to watch over derivatives trading is also supposedly part of Treasury Secretary Geithner’s agenda.
It’s going to be very interesting to see how such strategies are implemented. If there’s one thing that Wall Street is very, very good at, it’s coming up with new ways to game the system after the old ways have either been outlawed or proved ruinously self-destructive. The SEC could not even prevent crime as bold or bald-faced as the fraud committed by Bernie Madoff or Allen Stanford. How will government stay ahead of, or just keep even with, the constant stream of invention that the highly paid bright minds at the AIGs of the future concoct?
Because they’ll be at it again, once the smoke clears from ground zero.
More Related Stories
- Slave descendants seek equal rights from Cherokee Nation
- Peace Corps to allow gay couples to volunteer together
- Is abortion about to doom Republicans again?
- Anti-voter-fraud Tea Party group sues the IRS
- The Bachmann-inspired romance novel
- Nate Silver: Why the scandals aren't hurting Obama
- How to oust Michele Bachmann from Congress
- Rand Paul: Congress should apologize to Apple, not the other way around
- Who is Toronto Mayor Rob Ford?
- Colorado judge rules Abercrombie parent company violates Disabilities Act
- When America became a third-world country
- Inhofe and Coburn: Red state hypocrites
- It's Whitewater all over again
- Teen activist to meet with Abercrombie CEO
- Anyone regret slashing National Weather Service budget now?
- Oklahoma senator: Tornado aid "totally different" from Sandy aid
- Aloof, shifty Obama: Nixon times ten thousand!
- Obama: Moore "needs to get everything it needs right away"
- California Tea Party group files first IRS lawsuit
- Still no polling backlash for Obama
- Oklahoma senator wants to offset tornado aid with other cuts
Featured Slide Shows
The week in 10 picsclose X
- 1 of 11
Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
Credit: AP/LM Otero
Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
Credit: AP/Matt Rourke
A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
Credit: AP/Jenny Aicher
Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
Credit: AP/Molly Riley
Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
Credit: AP/J. Scott Applewhite
Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
Credit: AP/Carolyn Kaster
O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
Credit: AP/Las Vegas Review-Journal/Jeff Scheid
Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
Credit: AP/NASA/Chris Hadfield
When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
Credit: AP/Jacquelyn Martin
A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
Credit: AP/The Duluth News-Tribune/Clint Austin
Recent Slide Shows
- 1 of 11