Chicago Columnist Illinois Review · Political Strategist Analyst · Expert Advisor Institute for Truth in Accounting

SEIFFE:  Outrage About AIG 

Tuesday, March 17, 2009

By Ralf Seiffe

What sort of executives could be so tone-deaf as to seek huge bonuses when they are hundreds of billions in debt? What sort of joint would protect its employees’ over-market compensation packages that, when exposed, outrage the taxpayers that are now funding them? What scams will these demonstrated failures and thimble-riggers come up with next? If you want to know, tune in to the governor’s budget address to

The AIG company is in the news because it so expanded its insurance business with policies that were  ill-advised. A small downturn in real estate values created claims that it could not pay. Customers with an interest in seeing AIG propped up--ranging from Goldman Sachs to the U.S. Congress--have poured more than $100 billion into this zombie business. Americans are rightly annoyed to find out that AIG will pay some $165 million in bonuses to the very executives that gutted the company.

Here in our state, All Illinois Government has very similar problems. Illinois’ financial condition is as bad as it can be and for similar reasons. Just like the financial incompetents that offered to insure credit default swaps but could not perform, Illinois’ political class has so expanded its promises that it can no longer meet them, either.

The "solution" for the big insurance company’s problems is for the feds to inject billions of liquid dollars to shore up the market’s confidence in the enterprise.  But experience with previous efforts to nationalize financial companies the world over shows these cash injections won’t rescue the company. There is simply not enough public money available. Just ask the Chinese how they have done with their zombie banks and state-owned enterprises; once the books are opened, there seems to be no end to the problems.

Similarly, a real accounting of Illinois’ financial condition would show a combination of over-generous pensions, over-priced crony contracts and under-funded social benefits that add up to a public obligation of more than $100 Billion. Just like the insurance company, there’s just not enough money to bail this turkey out.

In the short term, the All Illinois Government’s equivalent of an AIG bailout is to coerce a tax hike. The governor will propose an "income tax reform" plan tomorrow to plug the fiscal hole that he says exists. The depth of our state’s hole keeps bouncing around, ranging from $5 billion and $11 billion. This degree of variation, and therefore the indicated solution, is confusing, perhaps intentionally so. It’s a similar problem that we have with the insurance company’s bailout--no one really knows the full extent of All Illinois Government’s problem or what will be required to fix it. But don’t believe this signals incompetence on the part of the governing class--it’s a strategy to get their way in Springfield. After all, our politicians appear to have learned something from Goldy Paulson and Tiny Tim Geithner that the bigger the problem, the more likely it is that they will get their own big bonus.

Taxpayers are fulminating because they connect the failure of AIG insurance--and the bill that they will pay-- with incompetent management. We correctly think that the price of failure should be unemployment and shame, not bail-outs and corner offices. Right or wrong, the public has come to regard the bonuses as the symbol of breath-taking arrogance and near-criminal self-interest by a band of privileged bankers. Worse, they believe "the fix is in" for these elite bankers so that they escape the consequences that would await the rest of us who play by the rules.

Again, how is All Illinois Government any different? The state has failed, financially, and the causes are pretty much the same. Arrogant, incompetent and self-interested mismanagement by a pack of privileged politicians have bankrupted Illinois as certainly as the AIG’s managers destroyed their company. If news reports are correct, these pols want to reward themselves with a 50% raise, a move that is just as offensive as the AIG bonuses. One wonders how that percentage compares with the cash the insurance executives paid themselves.

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois, and is a political analyst and columnist for the Illinois Review. Mr. Seiffe is also an Expert Advisor with The Institute for Truth in Accounting.

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