It would be a real shame if, after spending eight years ending our long national nightmare of peace and prosperity, Republicans were allowed to seize the initiative in the financial crisis. But Richard Shelby seems to have grasped something Tim Geithner cannot yet bring himself to admit:
“Close them down, get them out of business,” Mr. Shelby, the senior Republican on the Banking Committee, told ABC’s “This Week With George Stephanopoulos.” “If they’re dead, they ought to be buried.”
Shelby gave Citigroup as an example, and certainly that would be a prime candidate for liquidation. But why not start with a group that is actually dead already, but whose rotting corpse is still stinking up the place?
In order to rip up those contracts, the taxpayers had to make A.I.G.’s counterparties whole by buying the debt that A.I.G. had insured and paying out – in cash – the remaining amount owed to the counterparties.
No, that’s not correct. The taxpayer did not have to buy the debt at par. The taxpayer – or, rather, the taxpayer’s agent, the government, who seems to play an extreme version of the agent-principal dilemma – chose to buy the debt at par, knowing that it was worth only a small fraction of this amount in an AIG bankruptcy. It is this choice, made by our government and not AIG, that should be the scandal.
