Lynch Mob

I have always been against lynch mobs. (This one is from the show South Park.)

When they're wrong they're evil. When they're right they subvert the system they are designed to protect.

The AIG lynch mob is a case in point. Acting on a few snippets of information even Republicans like Charles Grassley were demanding death to the infidel.

That should be a warning. When a Republican starts shouting "kill the bankers," maybe you're going after the wrong people.

Once AIG chair Edward Libby explained it all today, it actually made sense.

These people built a huge pyramid of debts. When they did it, what they did was legal.

Now the pyramid has to be unwound, taken down without destroying it. The people who built the pyramid could have walked away, but AIG promised those who stayed that, once their part of the pyramid was unwound, they could go with their bonus, and everyone would get a bonus if they stayed a year.

That actually makes sense. It happens all the time. Say you want to build  a new computer system that will take the place of a legacy system. The people who run the old system will be laid-off once the new system is running. So you give them a bonus, to keep them around doing obsolete work (rather than training for something more valuable) until they are no longer needed. Then they go away.

Forget for a minute how evil it was to allow all this. The people who enabled this scam, those are the people we need to go after. We need to name them (Phil Gramm), shame them (Hank Paulson), and make certain they never get near the levers of power again. We need to build systems that prevent people like them from doing something like this — remotely like this — in the future.

But the law was changed, the government made the scam legal, the scam happened, and those who executed it are small fish. Now they can either walk away, while the pyramid collapses behind them, or stay and fix things. They're smart people and they each negotiated a contract to unwind their bits in exchange for money.

Remember, at the height of this mess there were $2.7 trillion dollars in this pyramid. There's now $1.6 trillion — still a lot, but a lot less. In a year or two it should all be unwound, and the U.S. will be left with a highly profitable company it can sell to get its money out. All its money.

So stop the lynch mob. Walk away. Go to court. Bring in good regulators and better regulations. Use the law.

Don't take it into your own hands.