Mar 25, 2009

Bailouts as foreign aid

Foreign aid is given by the US government to poor countries' government to help them cope with hard economic conditions. Bailouts are given by the US government to "too big to fail" companies' managment to help them cope with hard economic conditions. Foreign aid ends up in the pockets of elite corrupt politicians. Bailouts end up as bonuses for corrupt top managment buddies. Foreign aid creates moral hazard and keeps poor countries poor. Bailouts create moral hazard and will ruin the economy.

Top management are funny people. They really feel they are entitled to their bonuses. This letter by one vice president at AIG says "As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house." But do plumbers receive bonuses from the insurance money to rebuild the house?

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