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AIG Fever--the Broader Stakes for Obama

The growing frenzy over AIG's insistence on providing $165 million in employee bonuses, mainly to securities traders in the company's catastrophically disastrous financial products group, reflects an entirely legitimate belief that this scandal will serve as a popular tipping point between widespread unhappiness and marching-in-the-streets popular outrage over government bailouts of the financial sector. The President and Treasury Secretary spent much of the day trying to get in front of this fast-moving train, not only expressing their own outrage but discussing the possibility of ways to block the bonuses without creating a whole new financial crisis.

It's an example of the visibility of this issue that it completely overshadowed Obama's rollout of initiatives to help small business secure access to credit, itself an important symbol of the administration's efforts to help worthy victims of the financial meltdown rather than its perpetrators.

It's obvious that many people from opposite ends of the ideological spectrum are perpetually angry about corporate bailouts. And as for the general public, similar sentiment is definitely growing, as Mark Blumenthal reports today at Pollster.com:

In the survey released just today by the Pew Research Center, nearly half of Americans say they are "angry" about the government "bailing out banks and financial institutions that made poor financial decisions" (39% say they are bothered but not angry, only 12% are not bothered). Not surprisingly, this anger translates into considerable skepticism about bailouts of banks and financial institutions:

62% say the federal government has spent too much on "large banks and other financial institutions in danger of failing," 8% say it is spending too little and 21% say the amount is about right (Newsweek [pdf]).

59% oppose "giving aid to U.S. banks and financial companies in danger of failing," while 39% favor it (USA Today/Gallup).

50% disapprove of "the federal government providing money to banks and other financial institutions to try to help fix the country's economic problems," 39% approve (CBS/New York Times [pdf]).

Note that the expression of disapproval is slightly lower on the last question, which justifies assistance as way "to help fix" the economy. Nonetheless, the opposition as measured over the last month is still considerable, even before the latest AIG bonus story.

As this last poll finding cited by Blumenthal illustrates, it's critically important that the Obama administration be viewed as only being willing to help "banks and other financial institutions" when it's absolutely necessary to "fix the economy," while fighting like hell against any further abuses or misuses of taxpayer dollars. And that's why the administration's response to the AIG bonus issue, even as it prepares to make another $30 billion infusion of cash into the company, is so dicey but so important.

One theory among progressives, well articulated today by TNR's Noam Scheiber, is that the administration needs to shift to a more radical strategy of temporary takeovers of troubled banks and financial firms, whether or not it's billed as "nationalization."

This approach, of course, will immediately be labeled as "socialism" by conservatives, and that may be why the administration has avoided it. But as the AIG furor has documented, there's some serious risk now that the President will be viewed as both enabling and deploring financial sector abuses, drawing attention to the waste of taxpayer funds even as he's promoting more bailout money in the very near future. Even as gifted and popular a communicator as Barack Obama will struggle to maintain that balancing act, given the crossfire he will get with each new revelation of the causes and consequences of Wall Street misconduct.

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Most Americans understood President Obama's campaign for "change" at much more than a superficial level, in my opinion. They sought deep changes in direction -- and changes in the architecture of an econmy heading toward ruin from the seeds sown by Reagan, Greenspan, and their heirs. And then he selected the old architects. And here we are. After listening to Larry Summers and Secretary Geitner this past weekend, it seems clear that the President made at least two terrible choices. Geitner, in particular, is continuing so many of Paulsen's policies that it defies belief -- and trust. Knowing that the AIG "bonuses" or "retention fees" were out there, and not directly intervening before payment, and keeping it all secret until it blew: Basic Bush Behavior. Bad.

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