Last week Congress was consumed in expressing its justified outrage over the bonuses for AIG executives. The House passed a bill that would tax those bonuses at 90% to get the money back. The Senate may consider something similar this week, and I think it's the Senate's job to proceed carefully as we do so. Though I think all of us would support taking back the bonus payments, we need to give due consideration to the means by which we do this. The Constitutionality of the House's version of the bill is questionable and the precedent it sets is potentially very dangerous. I don't think anyone is well served by Congress passing something of dubious Constitutional merit. We shouldn't seek to hastily pass something that will sound good at home, but will inevitably be tied up on protracted legal battles--just for the sake of saying we did something. What good is done if we basically legislate a guaranteed legal dispute?
The reason many are seeking expedited consideration of an AIG bonus bill is clear enough-to cover up the past mistakes of the majority party and the Treasury Secretary. We should recall the process that created the stimulus bill: no time to review the final bill before passage, a photo op masquerading as a conference committee, hasty consideration, no bipartisan input, and huge decisions about billions of dollars made behind closed doors by the leadership majority party. And it was this process that allowed the provision to give out the AIG bonuses to find its way into law. There was a provision buried deep in the Democrats' stimulus bill that allowed these bonuses to be paid, and it was inserted at the behest of the Treasury secretary, Tim Geithner.
And this gets us to the root of the problem: the bailout approach that Secretary Geithner epitomizes. The American people object to the midnight rescue packages, ad hoc approach, the "say one thing, do another" programs. There is a complete lack of any policy framework, explanation of principles, or coherent approach in dealing with our financial situation. I believe there is a lack of any transparency whatsoever and a seeming indifference to the taxpayers' interests.
The $700 billion bailout bill last October was Congressional ratification of Tim Geithner's approach to big banks: bail them out. This all started with Bear Stearns a year ago. The initiator of the Bear Stearns deal was not Secretary Paulson or Chairman Bernanke, though of course they signed off on it. It was Timothy Geithner. After the deal was announced, Robert Novak reported in his column that an unnamed Fed official confided in him at the time that "we may have crossed a line" in bailing out Bear Stearns. Mr. Novak wrote that that was an understatement and that we wouldn't know the ramifications of this decision for some time.
Well, we are now trillions of dollars past that line and we're beginning to comprehend the course on which that decision has set us. And I personally believe that trillions of dollars past that line, we're no better off. I say enough. Tim Geithner's bailout approach has taken us too far. Instead of Congress using the AIG bonus issue to cover up Tim Geithner's mistakes on allowing those bonuses, we should take it as an opportunity to fundamentally reevaluate Geithner's bailouts thus far and put an end to any more bailouts. With the revelations of how AIG is being used to funnel money to foreign banks to make them whole on bad investments at the expense of the US taxpayer, we need to put an end to the Geithner approach on bailouts. The taxpayer deserves no less.
The debate over the AIG bonuses, though extremely important, only scratches the surface of some much deeper issues. First, the furor over AIG bonuses obscured some other, perhaps more important, news about the AIG bailout regarding counterparties to some of AIG's more exotic transactions. And second, the AIG bonus issue reveals the significant problems with Treasury Secretary Tim Geithner's bailout approach to failing financial institutions.
Under Tim Geithner, the $180 billion in taxpayer money AIG has received is being used to funnel money to AIG's counterparties, mostly big investment banks and foreign banks. Taxpayers are right to be angry about the AIG bonuses, but they should be even angrier about how their taxpayer dollars used to bailout AIG are being distributed. Under contracts that AIG entered into with other big banks and foreign banks, AIG needs to come up with billions and billions of dollars when their investments are downgraded. That's where all the AIG bailout money is going. AIG is basically being used as a front to funnel taxpayer money to large foreign banks who are taking no loss-no loss-on their investments in AIG. It is the taxpayer who is bearing the loss these banks should have. Treasury Secretary Geithner needs to explain to the American people why foreign banks are getting 100% on their AIG investments while the American people are taking the loss. Why can't any of these banks take a haircut on their AIG investments?
I think the American people are getting completely fleeced on their $180 billion AIG investment. Secretary Geithner needs to explain to us why relatively healthy firms like Goldman Sachs aren't taking any loss on a clearly bad investment in AIG. And why are all these foreign banks getting 100% on their investment at the expense of the US taxpayer?
Here is a sampling of the banks that are getting made whole by the US taxpayer: Bank of Montreal, Canada, $1.1 billion; Societe Generale, France, $11.9 billion; BNP Paribas, France, $4.9 billion, Deutsche Bank, Germany, $11.8 billion; ING, Netherlands, $1.5 billion; Barclays, UK, $8.5 billion. This is just a sampling of the over $50 billion that foreign banks have gotten from AIG. Taxpayers are picking up the tab. Meanwhile, some US banks are getting the same treatment. Goldman Sachs has received $12.9 billion; Merrill Lynch $6.8 billion; Bank of America $5.2 billion; Citigroup $2.3 billion. All told, US banks have gotten about $45 billion through AIG from the US taxpayer. Not one of the banks I have just mentioned has taken a dime of loss on their AIG investments. Not one. AIG's counterparties have been made whole across the board by the US taxpayer. Why is that? Why can't any of these banks take any of the loss on their AIG investment? Why is the taxpayer being asked to bear the full cost of all of these bad investments? The American taxpayer has a right to know. Secretary Geithner needs to explain this.
The American people are getting completely fleeced on their $180 billion AIG investment, $700 billion bailout of Wall Street, and billions in ad hoc bailouts of which we have still not seen the end. Only this week, Secretary Geithner has announced that the government will work with private investors to purchase between $500 billion and $1 trillion of toxic assets. Remember the $700 billion Wall Street bailout. The President's budget includes a placeholder for billions in additional banking bailouts. The American people have said enough long ago. We have to put an end to the Geithner approach on bailouts.
Looking back since last fall, more and more I feel I may have been overly critical of Secretary Paulson, at least when compared to Secretary Geithner. Geithner's handling of the $700 billion Wall Street bailout has been worse than Paulson's. Whether it's Paulson or Geithner, handing $700 billion to an unelected bureaucrat to do with what he pleases was a bad idea when three-fourths of the US Senate voted to do it last October, and it's an even worse idea with Tim Geithner at the helm. What has happened with the taxpayers' investment in AIG is clear evidence of that. No matter how you look at it, it's been a bad deal for the US taxpayer.
Now, in light of all of this, I will be introducing legislation to do more than deal with the bonuses. I plan to introduce legislation that gets to the root of the problem, the $180 billion we've already given to AIG. It's my understanding that the last $30 billion for AIG from TARP has been agreed to by Treasury, but has not been drawn down yet. My legislation would prevent that from going forward. The taxpayer has given AIG about $150 billion so far. I think it's completely reasonable to say that once a single company gets $150 billion from the taxpayer, it should be cut off from getting more.