Newt Gingrich: Bankruptcy, Not Bailout

"Outrage" is the word on everyone's lips to describe the fat bonuses being paid with taxpayer funds to the failed executives at AIG - and it is an outrage.

It's an outrage that the American people are being asked to pay for the bad behavior of people who should have known better, be they reckless traders on Wall Street or reckless borrowers on Main Street.

But the cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives. The $165 million in planned bonuses - as manifestly undeserved as it is - is chicken feed compared to the $170 billion in taxpayer funds AIG has received so far.

Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one: AIG should choose between receivership or bankruptcy. It should not be allowed to choose more bailouts from the taxpayer.

Restore the Rule of Law: Allow Failing Corporations to go Bankrupt

Under U.S. law, Chapter 11 bankruptcy allows a company to reorganize. Chapter 7 allows a company to dissolve itself.

The choices for AIG, as both an insurance and non-insurance company, are more complicated, but ultimately boil down to the same options. And for other companies either receiving or looking to receive a bailout from the taxpayers, the option should instead be bankruptcy.

Bankruptcy would send a needed message to U.S. investors: Don't assume the government will bail you out when you do something stupid.

And most importantly, bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law.

Geithner Didn't Inherit the Policy of Throwing Billions at Failing Companies - He Helped Create It

Because when it comes to Washington's handling of the financial crisis, so far we've had the rule of politicians, not the rule of law. Most prominent among the politicians in question is Treasury Secretary Timothy Geithner.

As Americans' level of outraged has risen, so has the level of finger pointing by Geithner and others for the mess we're in.But Treasury Secretary Geithner is disingenuous at best and untruthful at worst when he says that he "inherited the worst fiscal situation in American history."

The truth is that Secretary Geithner didn't inherit the policy of throwing billions of taxpayer dollars at failing companies - he helped create it.

Even before he was Treasury Secretary - when he was still head of the New York Federal Reserve - Geithner was so deeply involved in the government's bail out of Bear Stearns, its take over of Fannie Mae and Freddie Mac, and its bailout of AIG that this was the Washington Post's headline from September 19, 2008:"In the Crucible of Crisis, Paulson, Bernanke and Geithner Forge a Committee of Three".

The first meeting of the first bailout - of Bear Stearns - was held in Geithner's office. And the first meeting of what has become a $170 billion bailout of AIG was held - where else? In Geithner's New York Fed office.

Why Not Bankruptcy for AIG? Because Wall Street Wouldn't Have Done As Well

From the outset, Geithner was central to the developing policy of having the taxpayers bail out ailing financial institutions like AIG rather then allow them to go bankrupt. And for months now, we've been told that these bailouts were necessary to avoid a wider, cataclysmic, financial meltdown.

But now it's clear that other, less noble, considerations were at play.

As the Wall Street Journal editorialized yesterday, the real outrage over the AIG bailout isn't executive bonuses, it's that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs.

And as former AIG CEO Hank Greenburg testified last October, these financial institutions wouldn't have faired as well if AIG had filed for bankruptcy protection rather than do what it did, which was to negotiate a bailout with Timothy Geithner's New York Federal Reserve. Here's how Greenburg put it:"Although AIG stockholders could have fared better if the company had filed for bankruptcy protection, other stakeholders - like AIG's Wall Street counterparties in swaps and other transactions - would have fared worse."

For the Cost of Bailing Out AIG, Every American Household Could Have Free Electricity For a Year

So now everyone is outraged, and rightly so. But the lavish executive bonuses being paid with taxpayer funds are just the beginning of the story.

So far, the American taxpayers are on the hook for $170 billion to AIG - that's an astounding $1,224 per taxpayer.

What else could we have done with all this money?

$170 billion would pay for more than doubling the Navy's fleet of aircraft carriers.
$170 billion would pay for a four-year education at a public university for more then two million Americans.
$170 billion would cover the electricity bill of every household in America for an entire year.

When You Reward Failure, All You Get is More Failure

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along: When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company. The executives that led that company are failed executives. But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street "counterparties" are being rewarded for their recklessness - with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.Congress should rethink this entire process. The dangers of a domino-like financial meltdown are real. But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings - or the righteous indignation - coming from Washington.

(Reprinted with permission)

Pension Problems

Across the country businesses are failing. In some cases the straw that broke, or is breaking, the proverbial camel's financial back is their defined benefit pension plan. Do a Google search and see how many references pop up regarding pension plans and company failures.

I've written about Fayette County's vote to enact a defined benefit plan for their 600 plus employees before and most are aware of the problems the county is dropping into our laps. At a time when everyone else in the country is scrambling to try and fix their nightmare plans, at a time when tax revenues are down and everyone is trying to figure out how to afford to buy groceries, our "leaders" are giving away our future.

Sure, it'll start out fine, but the guys who are mortgaging the future of our county will have moved on by the time the fiasco hits our pocketbooks. The employees who sat on the committee that studied the feasibility of implementing a defined benefit plan will be retired and living off our tax dollars.

Every time I mention a DB plan to a financial planner and even to those who sell the product, they are horrified that our county will soon have that type plan. When I show them the comments made by Interim (still?) County Manager Jack Krakeel and Commissioner Jack Smith, they laugh. Everyone says exactly the same things they've said and everyone of the plans ultimately causes a huge financial burden on those paying for the plan.

The County has a wonderful plan in place that takes good care of the employees, especially those who are wise with their planning.

Why am I ranting about this one again? Well, the County is getting ready to finalize which plan they'll put into place AND I just received the following communication:

Isakson, Chambliss Urge Delta Air Lines, Pilots’ Union to Reconsider Termination of Retired Pilots’ Pensions

U.S. Senators Johnny Isakson, R-Ga., and Saxby Chambliss, R-Ga., today sent
a letter to Delta Air Lines CEO Richard Anderson and Captain Lee Moak, Chairman
of the Delta Air Lines Master Executive Council, urging them to reconsider a
proposal to make a voluntary contribution to the Pension Benefit Guaranty
Corporation for the benefit of retired Delta pilots and to work toward finding a
solution that protects the earned benefits of employees and retirees alike.

The text of the letter is below:

Dear Mr.
Anderson and Captain Moak:

As you know, we worked tirelessly on behalf of the Delta employees, retirees, and their families to pass into law provisions allowing airlines to spread their pension plan funding over a more manageable schedule. We did this to protect the 91,000 Delta Air Lines pensioners and family members in Georgia from losing their pensions and to help protect American taxpayers from having to pay for those airline pensions.

We understand that over 5,500 retired Delta pilots have had their retirement plan terminated and turned over to the Pension Benefit Guaranty Corporation (PBGC). Our understanding is that a majority of retired Delta pilots receive only a small percentage of the monthly retirement benefit they earned while employees of Delta. We are also told that a number of retired pilots receive zero benefit from the PBGC, and many more get a monthly PBGC payment that equals half or less than half of their Social Security benefit check. Finally, we are told that Delta will be assuming the pension liabilities for over 30,000 Northwest employees and retirees.

A group representing thousands of retired pilots recently sent a proposal to you, Mr. Anderson, asking Delta to make a voluntary contribution to the PBGC that would partially correct this issue. They also raised the issue at the September 25, 2008 shareholders meeting. As proponents of legislation designed to save these pensions, we were disappointed to hear that the response from Delta at that meeting was that this was considered a closed issue.

We urge you both to reconsider your positions, and to work towards finding a solution that protects the earned benefits of all employees and retirees. We appreciate your attention to this matter, stand ready to assist you in any way possible, and look forward to your response.

Sincerely,
Johnny Isakson

United States Senator
Saxby Chambliss
United States Senator