the majority owner of a public company (in this case, the government) can't just abrogate enforceable contracts.

TO BE NOTED: From the Economics Of Contempt:

"The Government and AIG

Josh Marshall unleashes a very strange rant against AIG:

The problem is what appears to be the president's mortifying impotence in the face of bankers and financiers who created the problem. The president speaks and acts for the federal government, which is to say, the American people, who have mobilized more than a trillion dollars and all powers of the state to repair the damage emerging out of the financial sector. And with all that, he's jacked up on a employment agreement between a company the government now owns and derivatives traders who sank the world economy and may quite likely be looking at criminal charges for their activities in the not too distant future?

Anyone can look at that and see that the equation of power and accountability is all screwed up.
...
[F]undamentally, Obama needs to start showing that he's in charge, that he's operating as the American people's advocate and that he has the power to do it -- which these stories of getting jacked up by some Gordon Gecko wannabes in London just terribly undermines.

What's shocking is that Marshall finds any of this shocking. The government is in control. When the government took an 80% stake in AIG last September, it fired then-CEO Robert Willumstad, and hand-picked Ed Liddy to be the new CEO. The president doesn't have time to run AIG, so the government essentially hired Liddy to do it instead.

Liddy is, for all practical purposes, acting as "the American people's advocate." When confronted with the bonus contracts, Liddy consulted outside counsel, who informed him that AIG was, in fact, contractually obligated to pay the bonuses. Liddy determined that refusing to pay the bonuses would ultimately cost the taxpayers more than simply paying the bonuses—which is undoubtedly true, seeing as failure to pay the bonuses would have triggered the "cross-default" provisions in AIG's derivatives contracts. As CEO, that's Liddy's decision to make. Marshall just doesn't like Liddy's decision.

Now, some might argue that the bonus contracts wouldn't be enforceable if AIG was in bankruptcy, and that the only reason AIG isn't in bankruptcy is because the government bailed them out at the last minute. That's true, but the fact of the matter is that AIG isn't in bankruptcy. Marshall and others might wish that AIG was in bankruptcy, but it isn't, and so the bonus contracts are enforceable. Marshall seems to be appalled that the majority owner of a public company (in this case, the government) can't just abrogate enforceable contracts.

TPM is one of my favorite sites on the internet, but its coverage of the AIG bonus controversy has been sub-par. TPM is way out of its depth on matters of finance, so they've allowed pure emotion to replace thoughtful analysis.

Posted by Economics of Contempt "

"I don't see how this verbal nonsense is any more than a way to keep the shareholders of the banks whole. "

Via Free Exchange, on TPM:

"The Idea That Won't Die

01.19.09 -- 1:05AM

By Josh Marshall

We seem to be sweeping back around to the original TARP idea -- buying up the banks' 'toxic assets' to allow them to clear the decks and start lending again. It's not completely clear to me whether this is being pushed mainly by the carryover regulators like Sheila Bair who are trying to sell the idea to the Obama team or whether it's actually the Obama team that's now carrying this ball. But just as it was when this was Paulson's and Bernanke's idea back in the Fall, the whole premise is based on the idea that the US taxpayer buys these securities for far more than they're worth( I AGREE ) -- which we could do more honestly, if no more wisely, by just giving the banks a bunch of money to help them get back on their feet after losing so much money( TRUE ).

The tell is in the article that got this ball rolling in the Journal on Saturday (emphasis added): "Ms. Bair said the assets could be purchased at fair value, the figure banks use to value their own assets. Such a move would remove the challenge of placing a price on assets that rarely trade." In other words, buy these things at what the banks insist they're worth( YEP ), even though everyone seems to recognize that the essence of the problem is that the banks are still sitting on massive losses they're still unwilling to account for. (The same article in the Journal notes a study which holds that the banks have so far accounted for only about half their losses.)

The lesson here is the one Orwell was teaching in his famous essay on language. Garbled language leads to garbled thinking and is an invitation to lying. "Toxic assets" is simply the buzz word for stuff banks bought for far more than it was worth. Period. All these buy-back schemes involve buying them for the price the banks want them to be worth.( YEP )

It's like a scene out of some bizarro, Wall Streetified Antique Road Show. The bankers come in with their old china and cabinets from the attic that they're sure are worth $20,000. Sadly, the appraiser informs them they're only worth about $850. Only of course they're not from the attic. They bought them only last year convinced $20,000 was a steal back at the height of the antique crap craze. And now they're condemned to roam the byways of America looking for an appraiser or antique buyer who will finally recognize the true value of their crap and pay them $20,000 to help them get their money back. Unless of course we agree to pay them $20,000 for it now and let them get back to their lives and stop all the craziness.

I think we'll probably need to spend a lot more money unwinding the mess the banks got us into. But I don't see how this verbal nonsense is any more than a way to keep the shareholders of the banks whole."( THAT'S MY VIEW )

Midnight Regulations Traced Back To Early Error In Judicial Rulings

George W. Bush is following in the noble footsteps of John Adams. From the Washington Post:

"In a burst of activity meant to leave a lasting stamp on the federal government, the Bush White House in the past month has approved 61 new regulations on environmental, security, social and commercial matters that by its own estimate will have an economic impact exceeding $1.9 billion annually.

Some of the rules benefit key industries that have long had the administration's ear, such as oil and gas companies, banks and farms. Others impose counterterrorism security requirements on importers and private aircraft owners.

The rules cover obscure as well as high-profile social and economic issues: spelling out what kinds of records must be kept by sexually explicit performers and publications, exempting hobbyists' rocket motors from federal explosives controls, expanding the collection of DNA samples from federal prisoners.

In most cases, the new regulations are meant to spell out precisely how federal employees and private citizens must comply with laws passed by Congress. But the language in those laws often had ambiguities -- reflecting lawmakers' uncertainties or disagreements -- that gave Bush's appointees broad discretion to follow their policy preferences. Similar "midnight regulations" were approved by previous presidents."

From my perspective, this is not a happy precedent. You can read about the laws in the post. I'm sure they will be hailed by some as free market, but they're really favors to donors and special interests, whatever their pedigree in political economy.

"The Bush administration's impetus for hurrying to approve and publish so many of these regulations in the Federal Register is that those deemed to have a major economic impact -- defined by the Office of Management and Budget (OMB) as more than $100 million a year -- take legal effect after 60 days.

That means Nov. 21 was an important political deadline to ensure they become effective before President-elect Barack Obama's Jan. 20 inauguration. Less significant regulations, including many still in final stages of preparation, can take effect in 30 days or less.

Once the new rules take the form of law, Democrats can undo them only by three complicated means: through a new regulatory rulemaking that would probably take years; through congressional amendments to underlying laws; or through special, fast-track resolutions of disapproval approved by the House and Senate within a few months after the start of the new congressional session on Jan. 6."

What to do? Is there any precedent on this?

"Such a quick congressional rebuke has occurred only once before, in 2001, when a Republican-controlled Congress with President Bush's backing blocked a workplace safety regulation completed in the Clinton administration's final months. But recently, spokesmen for Senate Majority Leader Harry M. Reid (Nev.) and House Speaker Nancy Pelosi (Calif.) said Democrats were prepared to use that regulatory reversal power in consultation with Obama."

The power of precedent. It can come to be used against you.

"Based on the flurry of quiet directives coming from the White House as the end of the term nears, it looks like the Bush goose (or is it turducken?) isn't quite cooked yet.

In what has become a kind of presidential right-of-passage, the president (or really, the federal agencies that answer to him) has been pushing through a series of last-minute regulations that have the force of law. Everything from pollution controls to family-leave standards can be set by these rules.

And you thought your high school government teacher said that Congress made all the laws.

These de-facto laws are called "midnight rules" or "midnight regulations" because they happen at the end -- or midnight period -- of an administration. If the rules are published in the Federal Register by Friday, Nov. 21, they'll be very hard for President-elect Obama to reverse when he gets into office.

And that's the point. Sure, the administration had eight years to get a lot of this stuff accomplished. But according to senior research fellow at George Mason University, Veronique de Rugy, most midnight regulations "cater to special interests" and "that is why they are hurried into effect without the usual checks and balances."

George Bush isn't the first president to push through rules before the next guy can get in. Jimmy Carter gets that award. In fact, the New Yorker's Elizabeth Kolbert says Carter's whirlwind of last-minute activity before Ronald Reagan took office is when the practice got named. "They became known as 'midnight regulations,' after the 'midnight judges' appointed by John Adams in the final hours of his presidency."

George Bush doesn't get the award for the most rules shoved through after the two-minute warning either. That goes to Bill Clinton who, according to de Rugy, set the record for number of last-minute pages published in the Federal Register at "more than 26,000."

The Midnight Regulations have come to occasion quite a party.

"Midnight Judges refers to the judicial appointments made by President John Adams just before he was succeeded by President Thomas Jefferson. Adams saw the appointments as a way to preserve Federalist influence in the federal government during the Jeffersonian tenure. Congress, dominated in the next session by Jeffersonians, reconstructed the inferior courts and legislated most of the midnight judges out of their commissions. In the case of a justice of the peace for the District of Columbia, the delivery of his commission was refused. This act led to the famous Supreme Court case of Marbury V.Madison."

A little more detail.

"But one appointment of a midnight judge had gone largely unnoticed, and it proved to be one of the most important appointments in U.S. history. This was the nomination of John Marshall as chief justice of the Supreme Court. Marshall, who was an ardent Federalist, viewed President Jefferson as nothing less than an "absolute terrorist."

In 1803, when the Court reconvened, it ruled on a case that arose from Adams's District of Columbia appointments. Prevented from receiving his commission as a justice of the peace, William Marbury asked the Court to order that his commission be honored.

The Court's landmark opinion in Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L. Ed. 60 (1803), settled the immediate dispute and partially answered the constitutional question at stake. Writing for the unanimous Court, Chief Justice Marshall dismissed Marbury's suit on the grounds that the Supreme Court lacked jurisdiction. Marshall wanted to avoid an impasse between the judiciary and the White House. However, Marshall's opinion also greatly expanded the power of the Court by holding that the judiciary has the power to say what the law is, and, if necessary, to overturn acts of Congress that it finds unconstitutional. The Court did this in Marbury for the first time in history, striking down a section of the Judiciary Act of 1789.

The problem of the midnight judges was settled, but with unexpected results. The judges appointed by Adams could not take office, and in this way the Federalists were thwarted. Yet in an indirect way, they triumphed. Marshall would serve on the Supreme Court for the next thirty-four years and in the process become perhaps the greatest chief justice in history. Moreover, with his opinion in Marbury v. Madison, the Court established its power of judicial review, a principal goal of the Federalists."

So, there you have it. One of the most ignominious and unfortunate acts in our history. Fine, I understand that most everyone considers Marbury a blessing and a linchpin of our system of government. For all I know, it is.

But I identify with the Jeffersonians, and consider the appointments an abomination, and the Marbury decision was clearly incorrectly decided. It offends my sense of justice to this day.

So don't blame me for these Midnight Regulations.