Given the current surly mood of the public, it is hardly surprising public outrage was sparked when it was divulged AIG had given out millions in bonuses. After all, government intervention is essentially all that has kept AIG from extinction. The public is already seething because taxpayer money has been needed to rescue AIG from itself, and now we learn AIG has used some of that money to dole out millions in bonuses. Such an action is unconscionable, regardless of the contention AIG had to honor contracts(which had guaranteed these bonuses) that preceded the government's rescue. Yet, the bonuses AIG paid out constitute a mere fraction of what it has received from the government. Experiencing blinding rage because AIG remarkably paid out bonuses from government funds is certainly understandable, but the AIG bonuses are really merely a sideshow. The truly galling thing is our federal government has injected billions into irresponsible corporations without much oversight. Is it unreasonable to conclude that generous political contributions made by the financial industry is at least part of the reason why the government has rushed to the aid of troubled financial institutions while refraining from forcing the institutions to accept rather onerous conditions?
The AIG bonuses are galling, yet it is a mere symptom of the real problem here. Our elected officials should be embarrassed by their ineptitude in crafting a truly horrible rescue plan for Wall Street. Since the 1970's, the federal government has bent over backwards to make an uneven playing field even more unfair. Through its slavish devotion to big corporations, we have seen an appalling consolidation of wealth in the past three decades. Much of this was accomplished by stealthily tinkering with the tax code like the decision during the Reagan years to hike the Social Security tax, which is about as regressive a levy as one could construct. As appalling as that might be, that doesn't compare to the current circumstances. Now, the government is overtly funneling money to the same institutions which through reckless risk-taking have brought the economy to the precipice of disaster. It is hard not to conclude this is nothing less than legal grand theft. It is time to recognize that the government plays a redistributive role. Now and for some time, the government seems only open to redistributing wealth to the affluent.
Maybe I'm missing something here, but the TARP program looks like it will fail in its stated mission. TARP was ostensibly supposed to unfreeze the credit markets. Has that happened at all after billions of dollars have already been squandered? There is another puzzling question that few people are asking. Even if the Fed's intentions are benevolent in trying to thaw the credit markets, can the Fed be successful when the American consumer is suddenly not eager to spend because of the very rational fear of being imminently laid off? Even Americans in relatively secure jobs aren't rushing into stores because they've sustained colossal losses in their retirement accounts and have seen the values of their homes plummet. Watching their net worths evaporate with shocking suddenness has propelled Americans to jettison their profligate ways. So even if there were bountiful supplies of credit the banks were willing to lend, how many debt-laden Americans will want to dig themselves deeper into debt?
Let's admit something, even if the politicians won't. The TARP program was poorly designed. Its glaring deficiency is it was crafted by those who believe in the fantasy of trickle-down economics. After Bush implemented a series of tax cuts, job growth was not remarkable despite the rhetoric of Conservatives. Given a fairly rapid explosion in the wealth gap during the first decade of the twenty first century and that most American workers have seen stagnant or falling real wages(after adjusting for inflation), one must conclude that showering the elite with tax breaks and subsidies will not lead to nirvana or anything close to it(except for the already wealthy). In a similar vein, there should be no expectation greedy big banks will act in the interest of the common good, since their past behavior suggest the opposite. That the government hasn't figured this out is a bigger travesty than AIG awarding bonuses with government money.
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