We need a globally coordinated bank nationalisation. It has long been clear that a globally coordinated stimulus plan is needed. And despite the parlous performance of Europe at last week-end's G20, it is clear that there is broad agreement that the IMF needs to be strengthened in its ability to coordinate emergency financial rescues.
But the need for coordinated bank nationalisation is only becoming clear through the continuing bonus scandals. Edward Liddy, CEO of AIG, gave the game away in his testimony to congress: “We have to continue managing our business as a business - taking into account the cold realities of competition for customers, for revenues and for employees."
So here is the logic. The US taxpayer has to prop up AIG (or the UK taxpayer RBS --- do the substitutions yourselves) because its gambling on house loans have gone bad; those bets were made with the big banks --- Goldman, Deutsche, etc --- who are all, in one way or another, currently benefiting from the extraordinary measures of central banks to keep them cash-solvent. So billions go to AIG that go straight to the others too big to fail.
Hundreds of millions of those billions go to employee bonuses. What kind on leverage do these gamblers have on their blighted employers? Well, if they weren't at AIG looking after attempts to keep the level of payouts low on the bad bets that they made---they have intimate knowledge of the complicated positions the institution holds---they would be at one of the counterparty banks managing the opposite side of the positions. Those who had the expertise to lose trillions find themselves with the bargaining power yet again.
So the taxpayer not only has to shovel cash at banks too big to fail through insurers too big to fail, but, held up by its employees, AIG has to keep shovelling cash at them too. No wonder popular resentment and populist sentiment is high. When Geithner's lame response is that whatever is paid in bonuses will be docked from AIG's next bail-out, who does he think he is fooling?
There really is only one sensible way out of here: a globally coordinated nationalisation of large parts of the global financial sector. Only once the employees no longer have the opportunity to hold-up the taxpayer will the bonus circus stop. Every banker needs to be thinking: "My alternative to working for the US government at Goldman's is to be working for the German government at Deutsche or the UK government at Barclays."
