AIG Sturm und Drang

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There’s something about this scandal that feels spun. I don’t know if it’s being driven by the cable nets or political paranoia about how this could affect public opinion – and therefore the Democratic mandate — down the road, but public outrage is strangely… lacking. During past Washington tempests, such as TARP1 or the stimulus or even the Dubai ports scandal and Terry Schiavo, I’d often hear from friends across the country. This time it has been dead silence. Maybe there’s just been so much outrage – junkets, bonuses, jets, etc – that they’d become imbued to the antics of greed? Curious, I checked with the Congressional switchboard. The Senate Sergeant–at-Arms, which runs the switchboard, reports that they have seen just the slightest uptick in the normal call volume. “It’s not like TARP1,” concedes Rep. Elijah Cummings, a senior member of the House Oversight Committee who has been looking into AIG for months. “It may be a bit personal. There’s a frustration – when you see a company doing exactly what you hoped they wouldn’t, even thought you’d legislated to prevent them from doing.”

Perhaps it’s this sense of personal outrage, of being openly defied when they’ve worked so hard to limit executive compensation, that has members so up in arms and playing an ignoble blame game. Who took out the provision that could’ve limited these bonuses behind closed doors in the stimulus conference? The authors of the amendment, Oregon’s Ron Wyden and Maine’s Olympia Snowe say they have no idea. Republicans initially pointed to the author of the executive compensation language that was ultimately used, Senate Banking Committee Chairman Chris Dodd, a politically convenient target because of his vulnerability at home. Dodd’s office yesterday denied he had anything to do with it but today Dodd admitted to being responsible while blaming the Administration on Hardball for strong arming him into doing it. An administration official shot back in an e-mail: “When Treasury was shown the Dodd amendment language, Treasury raised legal concerns regarding the effect of the legislation on pre-existing contracts. They merely pointed out that there could be litigation resulting from this, as Summers and others have pointed out repeatedly,” the official said. “Treasury did not ‘insist’ on any such exemption—they had no leverage in this situation. Everyone knew the President would sign the stimulus bill and it was up to Congress to decide what to include.”

And there was no small amount of finger pointing going on in the House today as well. “We do not intend to harass you here in this committee nor should we,” said Rep. Paul Kanjorski, a Pennsylvania Democrat, in welcoming AIG CEO Edward Liddy to testify before the House Finance Services Subcommittee on Capital Markets. “On the other hand I do think it’s fair to set the record straight.” More than five hours later they were still grilling Liddy.

“We are in the tank,” Rep. David Scott, a Georgia Democrat, told Liddy. “We had a new administration coming and hopes were soaring and Mr. Chairman, AIG is like a stone in the shoe of the American people.”

“First we were told that AIG was too big to fail. Then we were told they were too interconnected to fail,” said Rep. Brad Sherman, a California Democrat. “I would argue that AIG is too well connected to fail. I would argue that it’s time that they are put into receivership.”

So today Washington played the blame game and no one won, especially not the taxpayers. But why all the furious spinning? Because, I’m told, very soon the Administration is going to have to come back to Congress hat in hand and ask for upwards of another $750 billion in bank bailout money. And, while I disagree with commentator sqr1 – this isn’t as bad as “Hellava job, Brownie” — politicians know a potential moment that can crystallize in the public’s mind when they see it and they’re rushing to turn the page. “It certainly leads to anger, justifiably, about the whole process and to the extent that the government doesn’t have credibility dealing with problems, yes it does make taking further steps more difficult but some will have to be taken and the most obvious example is a further TARP and that’s almost a non-starter because of this,” Senator Evan Bayh told me yesterday.

Added Senator Ben Nelson, a Nebraska Democrat: “If there’s going to be any more legislation, I can guarantee it will be wrapped so tightly that this sort of thing can’t happen again.” But until Nelsen knows this, “there’s no way I’ll support anything. It’s questionable I’ll support anything, even if it’s wrapped tightly.” Bayh and Nelson are two leaders of the Gang of 15 moderates in the Senate, whose votes Obama will need to pass another round of TARP funding. Senators may not be getting calls today, but what they’re most afraid of is folks remembering this on Election Day and voting their anger at the polls. And where’s the GOP? They’re more than happy to fairly or unfairly place the blame squarely on the shoulders of Dems and Obama and loudly remind everyone from now till next November that the Democrats’ lavish bailouts wasted hard earned tax payer money while calling on Geithner or Summers or whomever the person-of-the-month it is to blame is to resign. All of this came just as Obama last week had been encouraging folks to invest in the stock market again, trying to re-launch confidence in the recovery. But it’s hard to sell greed as good when in the next breath your forced to curse the same greed that continues to break the system.