Was the Bailout Itself a Scam?

Michael Hudson

March 18
) is correct that the orchestrated 
outrage over the $165 million AIG bonuses is a
diversion from the thousand times greater theft from
taxpayers of the approximately $200 billion
of AIG.  Nevertheless, it is a diversion that
serves an important purpose.  It has taught an
inattentive American public that the elites run the
government in their own private interests.

Americans are angry that AIG executives are paying
themselves millions of dollars in bonuses after
having cost the taxpayers an exorbitant sum. 
Senator Charles Grassley put a proper face on the
anger when he

that the AIG executives
"follow the
Japanese example"
and "resign
or go commit suicide."

Yet, Obama`s White House economist, Larry Summers,
on whose watch as Treasury Secretary in the Clinton
administration financial deregulation got out of
control, invoked the
"sanctity of
in defense of the AIG bonuses.

But the Obama administration does not regard other
contracts as sacred.  Specifically: labor
unions had to agree to give-backs in order for the
auto companies to obtain federal help;  CNN

Affairs Secretary Eric Shinseki confirmed Tuesday
[March 10] that the Obama administration is
considering a controversial plan to make veterans
pay for treatment of service-related injuries with
private insurance"
 ;  the Washington Post
reports that the Obama team has set its sights on
downsizing Social Security and Medicare.  

According to the Post
, Obama said that
"it is
impossible to separate the country`s financial ills
from the long-term need to rein in health-care
costs, stabilize Social Security and prevent the
Medicare program from bankrupting the government."

Washington`s trillion dollar bank bailouts and
trillion dollar gratuitous wars for the sake of the
military industry`s profits and Israeli territorial
expansion, there is no money for Social Security and

The US government breaks its contracts with US
citizens on a daily basis, but AIG`s bonus contracts
are sacrosanct.  The Social Security contract
was broken when the government decided to tax 85% of
the benefits.  It was broken again when the
Clinton administration rigged the inflation measure
in order to beat retirees out of their
cost-of-living adjustments.  To have any real
Medicare coverage, a person has to give up part of
his Social Security check to pay Medicare Part B
premium and then take out a private supplemental
policy.  The true cost of Medicare to
beneficiaries is about $6,000 annually in premiums,
plus deductibles and the Medicare tax if the person
is still earning.

Treasury Secretary Geithner, the fox in charge of
the hen house, has resolved the problem for us. 
He is going to withhold $165 million (the amount of
the AIG bonuses) from the next taxpayer payment to
AIG of $30,000 million. If someone handed you
$30,000 dollars, would you mind if they held back

PR flaks have rechristened the bonus payments
necessary if AIG is to retain crucial
employees.  This lie was shot down by New York
Attorney General Andrew Cuomo, who informed the
House Committee on Financial Services that the
payments went to members of AIG`s Financial Products
"the unit of AIG that was principally responsible
for the firm`s meltdown."
  As for
retention, Cuomo

pointed out
individuals who received large `retention` bonuses
are no longer at the firm."

Eliot Spitzer, the former New York Governor who was
set-up in a sex scandal to prevent him investigating
Wall Street`s financial gangsterism, pointed out on
March 17 that the real scandal is the billions of
taxpayer dollars paid to the counter-parties of
AIG`s financial deals.  These payments, Spitzer
are "a way to hide an enormous second round of cash to the same group that
had received TARP money already."

Goldman Sachs, for example, had already received a
taxpayer cash infusion of $25 billion and was
sitting on more than $100 billion in cash when the
Wall Street firm received another $13 billion via
the AIG bailout.

Moreover, in my opinion, most of the billions of
dollars in AIG counter-party payments were
unnecessary.  They represent gravy paid to
firms that had made risk-free bets, the non-payment
of which constituted no threat to financial

Spitzer identifies a conflict of interest that could
possibly be criminal self-dealing.  According
to reports, the AIG bailout decision involved Bush
Treasury Secretary Henry Paulson, formerly of
Goldman Sachs, Goldman Sachs CEO Lloyd Blankfein,
Fed Chairman Ben Bernanke, and Timothy Geithner,
former New York Federal Reserve president and
currently Secretary of the Treasury.  No doubt
the incestuous relationships are the reason the
original bailout deal had no oversight or

The Bush/Obama bailouts

require serious investigation
.  Were these
bailouts necessary, or were they a scam, like
"weapons of mass destruction," used to advance a private agenda
behind a wall of fear?  Recently I heard
Harvard Law professor Elizabeth Warren, a member of
a congressional bailout oversight panel, say on NPR
that the US has far too many banks.  Out of the
financial crisis, she said, should come
consolidation with the financial sector consisting
of a few mega-banks.  Was the whole point of
the bailout to supply taxpayer money for a program
of financial concentration?

Paul Craig Roberts [email
] was Assistant
Secretary of the Treasury during President Reagan`s
first term.  He was Associate Editor of the
Street Journal.  He has held numerous academic
appointments, including the William E. Simon Chair,
Center for Strategic and International Studies,
Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded
the Legion of Honor by French President Francois
Mitterrand. He is the author of

Supply-Side Revolution : An Insider`s Account of
Policymaking in Washington
and the Soviet Economy

Meltdown: Inside the Soviet Economy
and is the co-author
with Lawrence M. Stratton of

The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice
. Click

for Peter
Forbes Magazine interview with Roberts
about the recent epidemic of prosecutorial misconduct.