The AIG Mess – Made to Order for the GOP by Steven Jonas, MD, MPH

by Steven Jonas, MD, MPH
Featured Writer
Dandelion Salad
crossposted on
April 2, 2009

When I was a boy, back in the 40s and 50s, when the Ringling Brothers, Barnum and Bailey Circus came to my hometown, New York City, every April, it was a big deal. The circus trains would pull into the Sunnyside Yards in Queens and unload their cargo. Then a huge parade was organized, going from the Yards, through the Queens-Midtown tunnel, across 35th Street to 8th Avenue, then north on 8th to the old Madison Square Garden, which occupied the full block between 8th and 9th Avenues, 49th and 50th Streets. (That Garden was the third building in New York City to have the same name. The first two had actually been located on Madison Square at 26th Street. The present Garden, the fourth, is at 32nd St. and 7th Ave.)

The parade, of course, was lead by the elephants. Every year, of course, there was a huge job afoot (literally) in the cleanup after them by “New York’s Strongest,” the workers of the Sanitation Department.

The cleanup being undertaken by the Obama Administration following the GOP elephantine parade (actually rampage) through the financial and credit markets of the U.S. and many other nations, in search of maximum corporate profits, more than outweighs even that done by the NYC Dept. of Sanitation following one of those historic Circus parades through mid-town Manhattan. As James Carville said recently in a fund-raising letter for the Democratic Senatorial Campaign Committee: “I’ve always said politics is like the circus: the worst job is cleaning up after the elephants. We’re just beginning to find out how true that is.”

The real damage is the multi-trillion dollar losses for many ordinary folk, the multi-millions of job losses, and the multi-thousands of losses of homes, in our nation and around the world. They were all caused by Republican, neocon, Friedmanite classic “laissez faire” economics that perpetuates two myths.

The first is that there is one “Market” that regulates economies, when in fact there are many of them, some hardly interconnected. They range from stock and commodities markets (many of them around the world), to local markets for goods and services, to international markets for everything from armaments (legal and illegal) to oil (think OPEC) to the markets for financial instruments, some having real value and some imaginary, that led to the current crisis of capitalism. The second myth is that “the market,” allowed to function “freely,” is the best way to allocate the distribution of goods and services for the benefit of all folk. Of course, neither “The Market” nor “the markets” can possibly achieve the latter.

There are also two principal reasons for this fact. The first is that the prime and primary function of “The Market” is to make money for those factors that participate in it. For under capitalism, “The Market” serves the interests of the capitalists. That is what capitalism is designed to do: the goal of capitalism is to provide profits for the capitalists. Neither moral nor utilitarian judgment is being passed here; just the central element of what capitalism is all about. It is something that its defenders from Milton Friedman to Larry Kudlow always want to hide and that many of its “liberal” critics either are totally unaware of or just don’t want to mention for fear of being called a nasty name, such as “socialist” or worse “communist” (that is if anyone can recall when communists roamed the globe). Any “social goods” other than private profit-making that are accomplished by the functioning of “The Market” come along bye-the-bye, not by any intention of the system.

The second reason why “The Market” cannot function to “benefit all the folk” is that the folk have many needs that capitalism cannot serve. This is because profits cannot be made from doing so or, once profit is introduced into a particular sub-system, doing so totally distorts its purpose. And so, “The Market” cannot effectively provide infrastructure for the benefit of all, nor an education system that works for the benefit of all, nor a health care delivery system that works for the benefit of all (the insurance/ pharmaceutical for-profit dominated U.S. health care system is the prime example of that).

Even given all of this, “The Market” goes wild under GOP/neocon “laissez-faire,” developing financial instruments that eventually have no value except in the eye of the next beholder. Then the housing bubble bursts and “poof,” it’s all gone. Unfortunately for all of the rest of us, it’s not just the speculators who get burned. In one way or another, it’s everyone. Leaving the Obama Administration and the American people as a whole to clean up the elephantine mess. And we don’t even get a wonderful circus at the end of the parade.

Now, the Obama Administration is chary about going hammer and tong after the Georgites, for a variety of political and policy reasons, some of which I would likely to be able to argue fairly well. As many other commentators have said, this catastrophe really is the result of GOP policy, not just under the Georgites, but going all the way back to Goldwater and Buckley, the founding of the American Conservative (sic) Union in 1964, Prop. 13 in California, and Ronald Reagan. But since not too many elected political figures are talking about that, the discussion is muted, although perhaps starting to get onto the national agenda for discussion.

And then comes the AIG bonus mess. In percentage terms, it is miniscule in comparison with what GOP policy has cost us and much of the rest of the world overall. And even it was not the result of Obama/Geithner policy. The whole thing began back in September 2008, when AIG, already in trouble for its role in insuring the totally faulty derivative instruments in which many of the world’s leading banks had invested, announced that it had instituted a program to award top executives with “retention” bonuses, some of them fairly hefty (Newsday, March 20, 2009, p. A2).

The contracts were signed last year, well before Obama took office, with the full knowledge of Paulson’s Treasury Dept. But then the numbers come out and it also comes out that in passing, with tons of other much more important matters on its plate, Geithner’s Treasury Dept. told Sen. Dodd that a provision in the stimulus package ordering the non-payment of such bonuses had to be taken out if the Federal government did not want to face lawsuits over contract violations. And then we all know what happened.

The elephants turned on New York’s Strongest and bellowed “whether it’s our s__t or not, it’s all your fault.” And aided by their bellowers’ chorus (otherwise known variously as the Privatized Ministry of Propaganda and the Republican Scream Machine), then picked up by the cable news networks (and not just the Fox “News” Channel), it became THE issue. All over an amount of money so small compared with what the elephants really dropped on the street, that in the end it might have amounted to one shovel full of the stuff or even less.

As I said. The AIG Mess. Made to order for the GOP, the party that has made its political living on distractions, from McCarthy’s war on a fictional Communist Menace to the Georgite “War on Terror,” dangerous but nothing more in its nature than a military flanking maneuver. One of the Obama Administration’s major challenges over the next three years will be to learn how to deal effectively with Republican distractionism. For if it is to lead our nation, and indeed the world, out of this quagmire that GOP policy has created, that is one major political task that it is going to have to accomplish.

Steven Jonas, MD, MPH is a Professor of Preventive Medicine at Stony Brook University (NY) and author/co-author/editor of 30 books. He has also published numerous articles and reviews in both the academic and the lay literature on health policy, health and wellness, and athletics. On politics Dr. Jonas is a Contributing Author; a regular Columnist for the webmagazine Buzz Flash; a Special Contributing Editor for Cyrano’s Journal Online; a Contributing Columnist for the Project for the Old American Century, POAC; a regular contributor to Thomas Paine’s Corner; and a Featured Writer for Dandelion Salad.


Kucinich: Merrill Lynch Bonuses 22X Bigger Than AIG

Eliot Spitzer: The real scandal at AIG is the not the bonuses. It’s the payments to counterparties. + The feds must investigate

The Real AIG Conspiracy by Prof. Michael Hudson

Thinking Positively About Monetary Policy by Dr. Ellen Hodgson Brown

The Economy Sucks and or Collapse 2