by the Night Writer

I’ve read emails that tell how the US government once took over the infamous Mustang Ranch brothel in Nevada because of unpaid taxes…and subsequently managed the business into the ground. The moral of the story was if the government can’t even make a go of selling sex and whiskey, how does it expect to be the de facto, nationalized owner of banks and insurance companies?

I don’t think about brothels much, but the story keeps coming to me as the AIG saga staggers through the never-ending news cycle as the company’s executives and new congressional overseers compete to kill the company in the most Darwin-award winning manner. The current bonus brouhaha may merely be the arsenic icing on a cake made with too many cooks. First, it is incredibly dunder-headed to pay bonuses for behavior that put your company — and the economy — into a tailspin. I work in this industry and regardless of what the contracts say, I’ve not heard of bonuses being paid for screwing up. I do know that the financial services industry is as brand-conscious (if not more-so) as any industry out there and this kind of publicity is like shooting both of your feet off. You could even speculate whether the company would come out ahead in the long run by refusing to pay the bonuses and fighting it out in court even if the eventually had to fulfill the contracts. The perception that they were trying to do the right thing could have been worth hundreds of millions alone — and avoided a congressional coup-de-grace.

Now Congress is shocked — shocked — that gambling is going on, even though it wrote the rules years ago that led AIG into this thicket, then steadfastly refused to do anything to provide oversight, and finally wrote the specific codicil in the bail-out (thank you, Sen. Dodd) that requires companies that take bail-out money to pay scheduled bonuses. Now, to divert the possibility that any blame might come back on them, they’re stomping about, beating their paper-thin chests about the evil and greedy company misusing a small fraction of the billion-dollar suppository of tax-payer dollars Congress shoved up you-know-where — apparently forgetting that the U.S. taxpayer now owns that company and this grandstanding is driving the stock-price down to penny-stock status.

What Congress is also forgetting, as it threatens ever-more-onerous regulations, is that the market — thank you very much — has already exacted its sanctions. (Not only in terms of stock-price and public perception; my company has already benefited by AIG’s stumbles as both customers and top producers have come over to us).

On top of that, what message does it send to the investor community when the government starts threatening confiscatory taxes based on feelings rather than the rule of law? AIG operated on the assumption that it was “too big to fail” but after the last week I’m beginning to think everyone connected with this circus is too stupid to live.

Update:

When I wrote “too stupid to live” up above I didn’t mean it in a “take them out and shoot them” way, but in the extinct Dodo bird way.

I wanted to be clear about that.

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