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Lewis weighs in on AIG "hysteria"

Paddy Hirsch Mar 20, 2009

I’ve been waiting all week for this. Bloomberg’s Michael Lewis consolidates the ground already staked out by Andrew Ross Sorkin of the New York Times’ Dealbook, pointing out that not paying the AIG bonuses has a number of pitfalls.

a) the vast majority of the employees at AIG had as little as you or I to do with its quasi- criminal risk taking and catastrophic losses; b) that the most- valuable of those employees can easily find work at AIG’s competitors; and c) that if the government insists on punishing those valuable employees they will understandably leave, and leave behind a company even less viable than it is, and less likely to give the taxpayer back his money.

He goes on to make a point that we debated furiously at the Marketplace morning meeting today.

…if the government can arbitrarily break contracts made by firms in which it has taken a stake no one in his right mind will ever again make a contract with one of those firms. And so all of the banks in which the government has investment will be damaged.

Not that Lewis doesn’t think we should be angry about all this. But, he says, the anger has turned everything on its head.

…now that taxpayer money is on the line the story has changed: innocent taxpayers are now being exploited by horrible Wall Street financiers. The guy who defaulted on mortgages on his six spec houses in the Nevada desert has turned himself into the citizen enraged by the bonuses paid to the AIG employees trying to sort out the mess caused by his defaults.

And here’s the thing that makes my blood run really cold – the implication that the bailout of AIG wasn’t really necessary at all.

Goldman Sachs, which received about 8 percent of the pile, or $13 billion, has claimed publicly that the money was, to them, a matter of indifference, as Goldman had hedged itself against a possible collapse of AIG — by making bets against AIG.

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