Werewolves and zombies

The AIG fiasco leads to a few unavoidable conclusions:

1) Tim Geithner and Larry Summers need to join the growing ranks of the unemployed, who already number 10.8% of the workforce here in Oregon. Joblessness would only be temporary for them, no doubt. They're old-school crony capitalists who fundamentally don't get it because they're too embedded in the culture of Wall Street. They should be replaced by advisors who aren't totally clueless — people like Robert Reich and Paul Krugman, for example.

2) The behavior of the werewolves who occupy the AIG corporate leadership may be politically tone-deaf, but it was absolutely predictable. The rage is more suitably directed at politicians: the very people who either saw this coming and accepted it, or should've seen it coming and acted to prevent it. The feigned naïveté of politicians who are "shocked" by the AIG bonuses is a nauseating sight to behold.

3) If U.S. taxpayers own AIG (nearly 80%) and the zombie banks, they should exercise a proportionate amount of control over their management.

4) Legal platitudes about the sanctity of contracts were notably absent when the Big Three abrogated agreements with the United Auto Workers and other unions. Worst case: unilaterally rescind the contracts and let the executives make their arguments to a jury.

5) Scary as it sounds, bankruptcy is a better alternative for AIG and the zombie banks than endless bailouts with no transparency. For one thing, Chapter 11 filings would allow these corporations to avoid pre-existing contractual obligations to provide bonuses and golden parachutes. It would also allow them to dump their most toxic assets.

6) Barack Obama's adaptive skills are impressive enough that he can quickly clean house, learn the necessary lessons and move on to a more populist model for economic recovery (with a little help from Reich and Krugman, among many others).

And not least:

7) The whole cultural obsession with short-term gain needs to be examined at the deepest levels, from politics (with its focus on "short-term outcomes dictated by the electoral cycle") to the economy. Short-term gain often produces long-term pain, as the AIG fiasco again demonstrates. [To start, here's a minor suggestion: amend the Constitution to allow for 4-year terms in the House of Representatives to promote long-term thinking and reduce nonstop campaigning and fundraising.]

GRAPHIC: The werewolves at AIG (Wikimedia).

[Note: versions of this entry were cross-posted at Obsidian Wings and Lawyers, Guns and Money.]

Into the tank = $2.5 billion bonus at Lehman

This is a stunning development, as reported by David Prosser of the London Independent:

Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.

The revelation sparked fury among the workers' former colleagues, Lehman's 5,000 staff based in London, who currently have no idea how long they will go on receiving even their basic salaries, let alone any bonus payments. It also prompted a renewed backlash over the compensation culture in global finance, with critics claiming that many bankers receive pay and rewards that bore no relation to the job they had done.

A spokesman for Barclays said the $2.5bn bonus pool in New York had been set aside before Lehman Brothers filed for chapter 11 bankruptcy in the United States a week ago. Barclays has agreed that the fund should continue to be ring-fenced now it has taken control of Lehman's US business, a deal agreed by American bankruptcy courts over the weekend.

Barclays is paying $1.75bn for the US operation of Lehman and is keen to retain its best staff. It said it had made no promises to individual staff members about how much they will receive but that the bonus fund would be paid out. In addition to the $2.5bn cash pool, Barclays is also in negotiations with about 30 executives it considers to be Lehman's best assets and plans to offer them contracts worth tens of millions of dollars. British employees of Lehman described the bonus payments as a "scandal" as they waited anxiously yesterday to see whether a deal could be struck with buyers circling the bank's European operations.

Many of Lehman's UK staff are particularly angry about the US payouts because it has emerged that in the days running up to the bankruptcy, some $8bn in cash was transferred out of the account of the bank's European business into accounts at the New York head office.

[With a H/T to Digby at Hullabaloo.]