I believe there have been three or four bailout payments to AIG and all but the first were from the TARP money. Of course new contracts will be negotiated when the current ones run out, and if AIG refuses to pay the going rate for financial executives, no doubt they will have to find new ones. I'm sure there are some middle management people who wouldn't mind jumping up to top executive positions even with contracts that were far below industry standards. Who knows? Maybe they will do better than anyone has thought they would.
I doubt there are any legal ways to take the bonus money away.
Much of the money AIG received - $173 billion, I believe - went to pay off contractual obligations, mostly credit default swaps, that we can now all agree should never have been made. Who in the future would want to do business with a company that can be forced by the government to back out of contractual obligations because of negative public opinion? Would you buy an insurance policy from a company like that?
Continually attacking the competence and integrity of large financial institutions will do more harm to our economy in the long run that all the bonuses that have been paid or will be paid. Most economists think Geithner's public-private partnership plan to revive secondary credit markets is nonsense and most agree that it will take $1 trillion to $2 trillion in new government money to deal with the bad assets that are clogging the credit system, but because cowardly and cynical politicians keep stoking public anger at the financial firms there is almost no possibility Congress will come up with that money. Bernanke claims that the recession will not end until we clear up this problem, so are these cheap shots at the financial firms helping or hurting the economy and the American people? When Obama and Frank and others rage at the financial firms, are they helping or hurting the American people?
I don't know the answer to that question. When Japan had all their problems wasn't a lot of it to do with pretending all the banks were solvent when they weren't?
If by pretending you mean not talking about the banks' problems, no, there was plenty of talk about what was wrong with the banks, but if by pretending you mean lacking the will to do much about it, then, yes, in Japan then and in the US now, lacking the will to spend what is necessary to fix the banks was and is the main obstacle to recovery.
Japan spent $6.5 trillion on stimulus projects over a decade, running their national debt up to 180% of GDP, without producing any revival of the private sector, but shortly after clearing the books of the banks that were salvageable of bad assets and recapitalizing them and letting others fail, private investment began to increase and the private sector economy began to recover. Geithner was a financial attaché in Japan during the early stages of the lost decade, and the lesson he says he took away from it was that Japan didn't spend enough on stimulus projects or spend it soon enough or fast enough. Interestingly, the public-private partnership plan Geithner is now pushing was tried by Japan and failed before the government finally found the courage to spend the money needed to fix its banks.
Even if Obama-Geithner continue to balk at asking Congress for the money necessary to fix the banks, the recession in the private sector could end in the sense that it will stop contracting, but the rate of recovery will depend to a large extent on the amount of money available to finance that recovery. So it is possible that we will see the recession end in a year or so but still see 8% to 10% unemployment continue for years to come.
By churning out cheap shots at the competence and integrity of financial firms, politicians like Frank have run public opinion about more bailout money to fix the banks so low that it is virtually impossible for anyone in Congress who hopes to be reelected to vote for more bailout money, and that may make it impossible for any recovery to occur any time soon.
