CNBC Asia Guest Host: U.S. Treasury is 'Wasting Money' with Bailouts
All the current outrage and attention to bonuses paid out to employees of institutions that received federal bailout money is misplaced, according to an analyst that appeared on CNBC Asia on March 16.
The media is making much of the news that American International Group (AIG) executives are receiving compensation in the form of bonuses. But Kirby Daley, senior strategist at the Newedge Group explained how the focus was in the wrong place. Although some say allowing Lehman Brothers to fail in September 2008 was a mistake, it prevented the problem of taxpayer money being used for executive compensation.
"I'm not so sure that was a mistake," Daley said. "And what I mean by that is, look I had dozens of friends there. It's very painful and to see an institution like that go down, one that I have followed for years - it hurts."
The lesson according to Daley - either allow the institutions to have the same fate as Lehman Brothers, or just outright nationalize them.
"But the bottom line is this - it's the same thing with the automakers, it's the same thing with the rest of the banks in the financial industry - we need to make a decision, the government needs to make a decision. They need to do something and one of the options that I believe needs to be played out is these institutions need to be allowed to fail or they need to be nationalized. What we're doing now, this purgatory is not working and it's draining the U.S. Treasury of money. It's wasting money."
The other flaw with the Obama administration's handling of the economy according to Daley are its efforts to attack AIG for the bonus compensation the company's employees reportedly have received. Obama, in a speech on March 16 called it an "outrage" and said Treasury Secretary Timothy Geithner was pursuing "legal avenues" to block the bonuses.
Daley referred to an appearance by the chairman of the White House National Economic Council, Larry Summers, on the March 15 edition of ABC's "This Week with George Stephanopoulos" who expressed his indignation over Troubled Asset Relief Program (TARP) money recipients paying out bonuses.
"And we're seeing Larry Summers out there now," Daley said. "It disappoints me to see him so vocal about $166 million of bonus. That means 1/1000th of the amount of money they've put into AIG. So they're waving over here more populist campaign-like rhetoric. ‘Look at these bonuses. I am just angry.' Bernanke says he's angry about these bonuses. Really? How about the $90 billion that was funneled through AIG to the rest of the system - that's 12-13 percent of the original TARP and we haven't even spent all the original TARP."
According to the Newedge Group senior strategist, one of two things are happening - the federal government either knows AIG is being used as a conduit to spread TARP money throughout the global financial system, or they're clueless.
"That money - either they didn't know what the hell was going on, or they're allowing it and they're trying to act like they don't know that this money is being funneled to the rest of the financial system around the world," Daley added.