“Arrogance. Ignorance. Greed.”
“A stone in America’s shoe.”
“All the (AIG) executives and their families should be executed with piano wire around their neck.”
These comments are but a tiny sampling of the outrage that exploded in the U.S. this week over the latest AIG mess — $165 million in “retention bonuses” paid to executives of the failed firm.
But as the Obama administration scrambles for a response to the domestic political peril posed by AIG, and the House of Representatives scrambles for legislation that will tax bonuses like these, the reaction we should be paying the most attention to is occurring far outside the Beltway.
Listen carefully to Chinese Premiere Wen Jiabao:
“We are very concerned about the economic developments in the U.S. economy,” the Chinese leader told reporters late last week. “We have lent a huge amount of money to the United States and of course we’re concerned about the security of our assets and, to be honest, I am a little bit worried.”
In the rarefied and reserved world of public diplomacy, this is a smackdown. It’s like your banker calling you into his corner office and saying: “Cool it on the spending. Now.”
China is the largest holder of U.S. debt, passing Japan in September for that honor. The country now owns roughly $1 trillion in U.S. Treasuries and other government-backed bonds, or about $1 dollar for every $10 in U.S. debt.
(For more on the Federal Reserve’s aggressive plan to buy $300 billion in U.S. government debt — and what it holds for China — see Andrew Parlin’s analysis).
China’s key financial position means that as Washington borrows record amounts to spend us out of recession, Beijing’s economic power grows stronger. It also means that the U.S.-China connection — already the world’s most important relationship — grows deeper.
“Nothing is more important than us no longer borrowing $700 billion or more from China and sending it to Saudi Arabia (to buy oil),” was one of candidate Obama’s biggest applause lines.
“Borrowing money from China to pay failed bankers on Wall Street,” doesn’t quite fly for a president.
Of course, China isn’t the only country that matters as the Obama administration tries to fix the global economic crisis. The timing of the AIG spectacle was bad for another important reason: On April 2 President Obama will meet with the heads of state of the world’s largest economies at the G20 summit in London.
Ahead of that event, U.S. credibility on the global economic stage has fallen to new lows. People and governments around the world — from Japan, to Brazil, to Russia, India and beyond — are quick to point out (sometimes gleefully) that this global crisis began in the U.S., the freewheeling home of capitalism.
But President Obama and the world’s other leaders need to step it up. As Simon Johnson of The Baseline Scenario blog puts it, we need something concrete:
“The G20 needs a deal. It doesn’t make much sense to pull 20-plus global leaders together on April 2 unless you can announce an agreement with some bearing on the current worldwide slump. One more meaningless communique might not go down well with the markets.”
Time is running out, and the stakes couldn’t be much higher.
Already the knives are out for beleaguered U.S. Treasury Secretary Timothy Geithner, even from some in his own party. “The more time passes, the more convinced I am that Tim Geithner is becoming a liability for the administration,” one senior Democratic lawmaker told the Financial Times. And that was before the AIG bonuses story exploded.
President Obama responded to the Geithner situation late Wednesday: “He is making all the right moves in terms of playing a bad hand. I have complete confidence in Tim Geithner and my entire economic team.”
Upheaval on the president's economic team — at this moment of economic crisis — would be another serious blow to U.S. credibility in Beijing, Paris, London, Berlin, Delhi and beyond.
So, yes, AIG could stand for arrogance, ignorance, and greed. But it’s also — clearly — an adventure in geopolitics.
Other recent stories by Thomas Mucha:
Mr. Geithner goes to Horsham
"Dumb Money" goes global
Peasant revolution 2.0
For more on the global economic crisis: