Why All The Anger Over Misuse of Bailout Money?

It's been a strange and wild ride since we first learned of the acronym, TARP. Then Treasury Secretary Henry Paulson and his successor Timothy Geithner have thrust economic and industry terminology such as TARP, bailout, AIG, Citigroup, GM and stimulus into dinner table conversation. And the once least observant of political events are now "expert" in the subject. And the old "experts" and the new "experts" are all angry right now. It seems as though republicans and democrats, conservatives and liberals, libertarians and greens, and socialists and capitalists are all in agreement on one thing. They are all angry. How can companies like AIG who have received incomprehensible billions of taxpayer dollars be justified in using those dollars to pay offshore counterparties and executive bonuses? I ask a different question. Why all the anger?

When a teenager returns home after curfew seven nights in a row, and after each indescretion, the parents decide to make the curfew later for each subsequent night, what do you think the teenager will do on the next night? When a child throws his cereal off his high chair each morning, and the parents cheer and praise the child and give him more cereal, what do you think the child will do the next time he gets cereal? When a dog bites the postal carrier every morning, and the dog owners reward the dog with a meaty bone after each bite, what do you think the dog will do when the postal carrier comes the next day? When so-called domestic automotive companies decide to build worse cars than their so-called foreign competitors, charge more for them, pay more for their labor, PAY many of their employees to STAY HOME, negotiate assembly line stoppages for all union members even if their line was not impacted, and the government gives each of those companies $25,000,000,000, what do you think those companies will do with the money? When AIG makes terrible investments, abysmal decisions time and time again, essentially gambles away money with reckless abandon with the equivalence of "putting it all on black" on the roulette wheel and laughing when it comes up red, and the government gives them $180,000,000,000, why are people angry when they give some of that money away in bonuses? Why are people angry when they use more than half the money to pay counterparties, many of whom are foreign banks?

The bottom line is simple. When you reward idiocy, stupidity, insubordination and recklessness with billions of taxpayer dollars, one conclusion should be made. You will get more idiocy, stupidity, insubordination and recklessness. What would make you think otherwise? It has been widely said and widely agreed, "if you want less of something, tax it. If you want more of something subsidize it". The lesson here is clear. Our government has assessed the performance and behaviors of General Motors, Chrysler, AIG, Citigroup, etc. and has concluded, "hmmm...I like that. I want more of that". They have chosen to take MY money and YOUR money and invest in companies that have a proven track record of failure. If you want more of something, subsidize it. So again, why are they now angry that they got more of the same?

We got into this mess because we as a nation (individuals, companies and our government) borrowed money we could not afford to pay back. Our government's conclusion? Borrow more money. Brilliant. I repeat the point from above, if you want more of something, subsidize it. If you like being in debt, as an individual, company or government, borrow more money. Again, brilliant.

Let's get back to AIG. Think of what could have happened had we let bankruptcy run its course. The very contracts Mr. Liddy says could not be broken (i.e. paying back all the counterparties) would have been broken through bankruptcy. Lessons would have been learned, through the restructuring of AIG and the bankruptcy debt negotiations with these counterparties. Risk-friendly financial institutions who got burned and felt the pain would reduce their risk. I repeat, lessons would have been learned. And behaviors would have changed. Instead, we get more of the same.

Curious. In 2008, did you invest in AIG? Did you invest in Citigroup? How about GM? I didn't either. Even though we as individual investors wanted nothing to do with putting our money in these companies hands, our elected officials decided that we don't know best. They decided to take our money anyhow, against our better judgement, and reward idiocy and recklessness. Worse, they borrowed money from China and told them "don't worry, future Americans will pay you back". And what did we get for our investment? Idiocy and recklessness. And an angry government wondering how could this have happened.

In subsequent Novembers, I hope you as a voter teach our government what is supposed to happen to idiocy and recklessness.