Saboteurs

Yesterday, I wrote that the AIG financial gurus who ruined the global economy think they have the government by the balls, and are daring the Treasury to come take their bonuses back. today, Andrew Ross-Sorkin strengthens my suspicions:

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company.

And, it seems like they're about to get their way. Oh sure, Obama's mad, and Pelosi's mad, and they're all promising to do something, but the Wall Street Journal seems to think they're all either full of it, or unknowingly ratcheting up expectations.

Treasury has determined there is no way the government can actually extract the money from the individuals who already received the bonus payments. The government would face lawsuits with the potential of significant damage payouts and lawyer fees that could easily exceed the cost of the bonuses.

Instead, the administration said it will use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear on AIG. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG's contract to ensure no government money goes toward paying financial-products division bonuses. The cost of bonuses already paid would be recouped for the taxpayer.

And, of course, it's hard to see how this solves the political problem, which goes much deeper than (justified) populist anger. For instance, it will now be much, much more difficult (if not impossible) for the administration to get any more bailout money out of Congress, which is also still, on the whole, suspicious of nationalization (even if the idea's gaining traction in some unpredictable quarters).

When this story broke, part of me wants to believe this was all theater. That the government as 80 percent owner knew this was coming and that the administration was gaming the situation for political gain. Sadly, the leather binding around that story is too tough for Occam's razor. If they knew, they blew it, and if they didn't know, they blew it.