From Duh, Hedge Funds Bought AIG Credit Default Swaps Too:
But this truly intelligence-insulting bit from the Treasury secretary is this:
“We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of retention rewards just paid,” Geithner wrote. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.”The money at this point is all coming from the government. That is what is so patently foolish. AIG is being treated as if it is a normal company with all the attendant rights thereto, when it from an economic standpoint is nationalized (Uncle Sam has paid multiples of its market cap even in better days); the fictive minority ownership is to avoid consolidating the debt onto the Federal books. But now we are letting accounting contrivances drive substance.
So the US government is haircutting a teeny weenie bit the loans extended to AIG. We said the bonuses were rounding error, and the loan reduction reflects that.
But the American public does not want a penalty imposed on AIG (even if this were a penalty, which it isn’t). It wants one imposed ON THE EXECUTIVES. What about “no” does Tim Geithner not understand?
And what does a $165 million reduction mean, anyhow? If AIG says it needs more money, the government spigot will be opened again, and AIG never asks for less than 11 figure cash injections.
How’s that for an accounting sleight of hand?