Monday, 16 March 2009

How to bury the really bad news

Back on September 11, 2001 a UK government press officer by the name of Jo Moore sent out a memo to her associates saying that -"It's now a very good day to get out anything we want to bury." This kind of operation demonstrates the height of cynicism even for spin doctors.
But a slight variation on the tactic being advocated has been successfully used on both sides of the Atlantic in just the past few weeks in regard to releasing very bad financial news.

Let's start with the most current version. After much pressure AIG has finally released a list of the counter-parties who benefited from a pass through of government bailout money. According to a press report from AP

American International Group Inc. used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts.

Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks -- France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion.

This is a huge story which, even after the deluge of other bailout news and large number fatigue, should be shocking enough for US taxpayers to demand some serious investigation as to how this could have been conducted in such an opaque manner.
But instead of the focus being on this egregious misuse of public sector funds the real attention is being focused on the bonuses being paid to senior AIG executives who were responsible for all of the CDS nonsense that prevailed at the company.
The bonuses are reprehensible enough and have even elicited a comment from President Obama but they are in the order of hundreds of millions of dollars. Meanwhile $90 billions were paid out to banks, including non US banks, without any transparency and apparently without any attempt to negotiate the amounts supposedly that AIG was liable for. In some cases the payments were made without even the default event having occurred.
It is easier to divert the public's attention from the really large crimes by spinning with an easier narrative which revolves around a smaller crime but where the villains can be more readily visualized and demonized.
In the UK the story was slightly different and involved the announcement of the UK government's Asset Protection Scheme which effectively enabled RBS and Lloyds to step aside from 90% of the downside on more than a trillion dollars worth of troubled assets and yet the public's attention was diverted towards a pension plan for the former CEO of RBS.
Once again the popular press found it so much easier to get incensed by the fact that an individual was walking away with a lavish pension which he clearly didn't deserve but failed to address the systemic moral hazard issue that results directly from the public sector having to underwrite the vast bulk of the losses from troubled assets.
While the spinmeisters are able to get away with these kinds of diversionary tactics the looting of the public purse will continue.

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