article

03.22.09

AIG Is Not Our BIG Problem

The Obama administration shouldn’t waste its time on bonus scandals from 2008. It should focus on fixing the banks in 2009—and beyond.

Spring break starts on Saturday and I'm heading to the beach with my family. I have rarely been so eager to get out of town and stick my head in the sand.

Washington's turned schizophrenic and it is exhausting. We are lurching from outrage, to anger, to outrage at the anger, and back again in microseconds. I'm tempted to throw my TV out the window because the mood of cable shows has become more toxic than those subprime assets we really should be focusing our brain power on.

Every minute Tim Geithner spends on bonus-gate is a minute not spent on fixing the financial system.

First, we get it. AIG taking taxpayer money and spending part of it on large bonuses is obscene, should have been spotted, prevented and, now it's done, reversed.

But the nature of this economic crisis does not allow us the luxury of spending this amount of time on this one issue. In the scheme of the trillions of dollars it will cost to fix the American economy, we need to get $165 million in proportion and move on, fast.

The president, and what there is of his economic team, certainly shouldn't be tied up with this for a moment longer. Every minute Tim Geithner spends wading through contract law (and given the paucity of top people in Treasury these days, it's almost possible he's actually doing this himself) is a minute not spent designing a global stimulus package, working on next month's G-20 meeting, fixing the credit markets, figuring out the price of toxic assets, and improving financial regulation.

Economists are a contrary bunch. Put ten in a room and they will agree on very little. But I've spoken to many over the last few months and on one thing they do all concur: The single most-important thing to do right now is fix America's financial system. If we don't do that, we have no hope of recovery. That will cost money—taxpayer money. At some point soon the administration will have to go to Capitol Hill, cap in hand, and ask for more money to recapitalize banks that made foolish mistakes and dodgy loans. The AIG bonus scandal has just made that already-difficult political sales job near or impossible. There is no appetite in Congress to help banks, but appetite or not, it has to be done.

As part of its financial-rescue package the administration also plans to approach private-equity funds, which still have cash and are looking for ways to use it, and ask them to co-finance the banking bailout. But private money will, understandably, only take a risk on buying toxic assets, whose value is still unclear, if there is at least the prospect of a healthy return. The sour political mood in Congress makes that harder too.

As lawmakers huff and puff about AIG, in the hope their indignation gets replayed on their local television stations for the edification of their electorate, the number they should be concentrating on is not 165 million but one.

One percent—that's the amount by which the International Monetary Fund now predicts the entire world's economic output will decline in 2009. It might not sound like very much, but global output hasn't fallen once in 60 years. That 1 percent will mean millions of lost jobs, around the world and here in America. It is time for government to move on from AIG bonuses and get back to the job of making that 1 percent shrink.

I'll enjoy my week away from Washington. There'll be no TV and the only anger will come from my four squabbling children. Positively restful by comparison with the fury in D.C. these days.

Katty Kay covers US politics for the British Broadcasting Corporation. She is Washington correspondent for BBC World News America and has lived in D.C. for the past 12 years. She is the author, with Claire Shipman, of the upcoming book Womenomics: Write Your Own Rules for Success.