TodayBusiness as usual on taxpayer’s dime
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Editorial
Article RatingAfter two weeks of wrangling, our federal lawmakers came together on a financial package to bail Wall Street out of trouble caused by a combination of falling home prices, bad mortgages and bad investments related to those mortgages.
The debate was protracted, as many politicians, not to mention voters, questioned in vociferous tones whether investment bankers were getting away with the profits while the taxpayers were being stuck with the losses. A provision to prevent top officials of companies receiving financial aid from paying themselves excessive bonuses was made part of the “economic rescue” package.
Even then, many Americans were skeptical that any such provision would be observed. And the evidence wasn’t long in coming.
Seems American International Group Inc. (AIG), the investment and insurance company that won its own separate $85 billion loan just before the larger bailout package was approved, didn’t waste any time once its future was secured. Within days, the firm sent a bunch of its executives on a retreat to the tony St. Regis resort near Los Angeles at a cost of $440,000, including $23,380 worth of spa treatments.
It’s not that we haven’t heard about such profligacy before, nor that the public sector isn’t capable of it as well. The Pennsylvania Higher Education Assistance Agency had its own retreat scandal not so long ago, leading to hearings and recriminations.
There’s a perfectly logical business case to be made for the occasional retreat, in which an organization’s top decision-makers physically remove themselves from the premises for a few days and engage in long-term planning without the distractions of the daily routine. And AIG certainly had a lot to think about, as it had only been a few days since the company’s future was in serious doubt.
Indeed, Eric Dinallo, superintendent of the New York State Insurance Department, made that very case to a congressional committee engaging in oversight of the taxpayers’ latest investment.
However justifiable a business retreat can be, it remains clear that the AIG officials who put together this little excursion abused their discretion. Perhaps bureaucratic inertia prevented them from seeing that a half-million-dollar executive retreat considered justifiable for a wealthy and profitable private enterprise was no longer appropriate when a major infusion of taxpayer money was the only thing keeping the company’s doors open.
And even though AIG’s deal with the government was made separately from the larger Wall Street rescue package, the firm’s profligacy serves to undermine citizens’ faith that the measure was necessary or that the money will be used judiciously, either by the companies who receive aid or by the officials in charge of doling it out.
We can take some comfort in knowing that AIG’s folly came out in the course of the government exercising its oversight function. But we should not kid ourselves — there almost certainly will be further abuses in this process, and as long as they fall short of the criminal code, they aren’t likely to result in very many people being penalized.
Unfortunately, the problem the bailout was initiated to solve is much bigger than one company’s tone-deaf abuse of its expense account. Let’s hope those repercussions don’t make us wish we only had AIG’s greedy executives to complain about.
