WASHINGTON POST: A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn’t show up at all. MORE
TIME: The rescue of AIG is warping the banking system and unnecessarily extending the credit crisis. This misguided effort stems from a lack of transparency and some basic misconceptions about AIG’s business. [...]But there’s a true insight into this mess if you just step back and consider the bigger picture, not just AIG. Regardless of the details of the various swap contracts, they all represent potential transfers of wealth between financial institutions. If we consolidated the entire financial sector, all these debts would effectively vanish. [...] At the very least, there should be full transparency. Any institution receiving money from the government — and ultimately from American taxpayers — should reveal its holdings. Even institutions that do not require a bailout should be more closely tracked by regulators. The government can and should monitor all transactions, even those over-the-counter. We have focused too much on each individual bank and its possibility for failure. The economy does not need every bank to survive; it needs most. Right now, we need to know which ones. By propping up financial institutions that are subject to unknown potential losses, the government is prolonging the uncertainty about whether they will fail. This perpetuates the crisis of confidence in which banks do not trust one another enough to loan money. MORE
NEW YORKER: Another option—which recently received the reluctant endorsements of even Alan Greenspan, James Baker, and Lindsey Graham—is temporary nationalization: the government takes over the most troubled banks, splits off their toxic assets, puts those assets in a publicly owned “bad bank,” and sells off the healthy parts of the businesses. After a ruinous boom-bust cycle in the late nineteen-eighties, some Scandinavian governments followed this approach. Within a couple of years, their economies were recovering strongly, and the Swedish government ended up making a profit. Here the strategy could punish irresponsible bankers (whose shares and options would be wiped out), avoid having to put a price on the toxic stuff, and enable the government to order the institutions under their control to make more loans.