Bailout lessons

Barack Obama is angry at AIG - as is the rest of America - for using bailout money to pay big bonuses to its executives. Fair enough.

Yet the problem with throwing money at businesses and people is that it is hard to legislate how they spend it. Here in Australia, Kevin Rudd's economic stimulus program has resulted in a "back to school" bonus for families. The idea is that families get this cash and use it for their child's education. But it is obvious that many, if not most, won't. They'll use it to pay off debt, buy Plasma Screen TVs or gamble it away. Unless the cash is given in the form of a voucher to be used to only procure certain goods and services from approved sellers, the granting of cash leads only to whatever the person wants to do with it.

AIG's bailout should have come with strings attached - not a string about limiting bonuses because there will be ways and means around that (which the execs are no doubt currently exploring) - but a string that would have made the bailout payment contingent upon the termination of the employment of all major executives, with a special law added to circumvent any contractual agreements that would have resulted in payments made upon termination (such as golden parachutes or handshakes).

In short - if you want the money then you fire your top executives, including the CEO, and rearrange your board. It was these people who led the company into the red, so it only stands to reason that such people pay the price for their failure.

And if they say "Hell no we won't go!", then no bailout money will be granted. Simple as that.

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