Real Estate and Those AIG Bonuses
Posted by JimOK, I can understand all of the outrage over the multi-million dollar bonuses about to be paid to the geniuses over at A.I.G., the giant insurer who profited mightly during the boom. When I read the article yesterday about the small army of failed executives who managed to destroy one of the world’s fianancial giants, I too was as outraged as much as Barney Frank who is taking on the bonus issue.
I would like the bonuses rolled back or at least have them re-negotiated. It is nothing more than giving a highly paid major league outfielder a huge bonus at the end of the season for hitting below the Mendoza Line. The problem is this, AIG is truly too big to fail and that is because their customers are banks and institutions, like Bank of American and the State of California.
Here is the money trail: The guy in Stockton walks away from his house and defaults on his mortgage he got from the Bank Of America, who is a vital player in our sluggish credit markets The Bank loses 40% of the value of the mortgage. Fortunately, the Bank insured the mortgage, as part of a larger pool of mortgages, through AIG and now wants to get paid.
As B of A goes so goes real estate prices. The circle is complete. As distastefull as this all is, we have little choice but to hold our noses and move forward. In the end, we will all be better off.
