Most, if not all my articles deal with some facet of fashion as I work in this industry. My previous job in consulting and investment banking coupled with my background in Business have been largely unmentioned on this blog until now.
Upon hearing that AIG, one of the predominant predatory lenders in the credit crunch, paid out bonus' totaling $170 million to top executives in the very unit that caused the downfall of the investment and finance industry- I couldn't be more disappointed. Having worked at one of the top investment banks that even to this day is still intact (narrows your options for those astute readers out there)- I know that Finance is a game and morality oftentimes takes a backseat to immediate profit. Perhaps, it has to do with my background in banking but contrary to popular opinion, I don't believe it is the fault of the investment banks or these lenders that their investments faced high risk and exposure because a system without regulation. In life, we learn that everything needs moderation and structure and in society, we learn that the government is there to provide a sustainable structure-- and this is why I believe ultimately the downfall of the economy lay in the Bush Administration for lax regulations, delayed reaction, and poor decision making.
I agree that the bailout of financial institutions is necessary to withhold the economy since global business is so interconnected, and also because this affects so many people regardless of income level, and socioeconomic demographics. However, the lack of guidelines and policy in delivering such bailouts to companies who have already proved to be poor decision makers at best, corrupt by most standards- is at fault and this is none the clearer in this current news of AIG's payout of $170 in bonus' to executives in their failing unit. The incoming cash flow is therefore nothing but a temporary liquidity for the economy and without policies and regulations set in place for such bailouts, no real economic stimulus or trickling down effect will be felt.
When Bush delivered the bailout plan prior to the end of his 8 year-too-long term, I knew we were in trouble. In an attempt to prove that his failed Republican strategy of economics worked, Bush handed out the money without regulation to prove that a system with minimal government intervention will work. Now- using the same bailout package, AIG has spent it internally while homeowners unable to pay their steep loans are trapped and facing foreclosure. As much as the executives at AIG are unscrupulous and frustrating- they have not broken any laws. This is not to say that what they do is not evil by any means, but just that law and morality are seperate and ultimately it is the job of the State to ensure that justice is upheld.
So far the government has given AIG $170 Billion in bailout money unconditionally. This is the taxpayers money- the same taxpayers who have been cheated out of their homes and jobs. Essentially this feels like pouring money onto a sinking ship that refuses to go in for repairs. I don't believe we should give them more 'unconditional' liquidity to use as they please, but I also don't believe they should go unpunished for ultimately rewarding themselves for poor behavoir. If they were to collapse now, financial markets would lose the temporary stability they have struggled to attain in the previous month and who knows what detrimental effects this would have on those suffering the credit crunch. At the same time, I hope they don't use this knowledge to 'extort' more money out of taxpayer pockets. I believe the next steps should be as follows:
- Transparency with bailouts so that the public knows and understands the conditions financial institutions must meet when a package is accepted.
- Creating, maintaining, and enforcing regulations. Enough with the 'free market' talk- we all know that no nation-state is "truly" state run and no nation-state is "truly" run by the Laissez-faire system of no government intervention. Why not create regulations that would limit 'questionable' spending?
- Educating the public about financial-responsibility. As much as the financial institutions are getting the blame, the ultimate responsibility lies on those who spend outside of their means, who buy a $2M house without the real income and savings for it, who save for the Louis Vuitton bag while buying diapers for their babies in a ghetto Walgreens back alley, etc. We need to stress the importance of building a credit score- and it amazes me how many 20 year olds have a credit score that is under 700. Without the demand generated by this population, predatory loans would not have been in place.
- Cut off funding to AIG. Make AIG realize that they don't actually hold much real power. In extreme circumstances the State could just opt to spend the stimulus package on the population instead of the ailing businesses who refuse to change their shortsighted financial models. This will make AIG ask for money, and you can bet at this point they will gladly accept and even propose regulations to get buyer confidence.
--
By the way, I apologize for the lack of updates. I've been working and traveling so much lately. I will definitely keep you all posted.
Posts
