AIG, Break It Don't Buy It

The feeding frenzy over the AIG "retention payments" is making the Obama administration look like chum in the water. The real danger for Obama and his financial team is that they are going to be saddled with ownership of the whole ugly event if they don't change the discourse.

No amount of outrage peddling will be able to reverse the explosiveness the AIG mess is having on Obama's long-term outlook. A point will shortly be reached in which the major components of the agenda will be at risk. Obama's detractors in the GOP have no choice but to harness the populist backlash and attempt to pull the president's agenda down in the process, as Bloomberg News posits :

The public furor over the $165 million in bonuses AIG handed out to employees gives administration critics a new weapon to thwart Obama’s agenda, from his budget to plans for financial-market regulation.

Robert Reich admits the viability of Obama's agenda is tied to outcome of the intervention in the financial markets:

The President cannot afford to lose the public’s confidence that his administration is a careful steward of the public’s money. The public was willing to go along with a large stimulus package. But it won’t go along with a second stimulus, and certainly not another TARP. And until the public feels confident that its money isn’t being thrown down a rat hole, it may balk at other ambitious undertakings such as health care or education or the environment.

There's basically no time to continue engaging in the populist Olympics currently being held in Congress and in the press. The administration and Geithner in particular need to decouple from the past AIG strategy. The president has to be more forceful in reminding us how we got to to where we are, namely the decision by he former administration to bailout Wall Street. And if that is not enough it wouldn't hurt to start talking in public about revamping the regulatory regime very soon. The real enemy here isn't bonus payments its the decades long free market rampage that has left the country in a bind.

One more option needs to be thrown out there. The fact that AIG is still in one piece is puzzling to me. We already own most of the company. Why not start looking into surpassing the 80% threshold and just nationalize AIG for real? Does any sane person (free market fanatics excluded) care what happen to AIG at this point?

Pushing for the real nationalization of AIG would force the break up option, one that should have been exercised months ago. Robert Reich thinks that a break up would have saved us a lot of trouble :

Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid (they would have had a lower priority under bankruptcy law that AIG's debts to other creditors); indeed, AIG's executives would have long ago been on the street.

Of course Reich uses the non-bailout version of a breakup but the result would still be the same.

The clock is running. Start breaking it up or spend the next few years in political purgatory. I don't want this chapter of history to become known as the AIG presidency.