Money is really still fungible

By Conor Clarke

It looks like the administration is giving up on getting back the bonuses that AIG has awarded, since the "Treasury has determined there is no way the government can actually extract the money from the individuals who already received the bonus payments," and "would face lawsuits with the potential of significant damage payouts and lawyer fees that could easily exceed the cost of the bonuses." But I don't understand the new plan:

[T]he administration said it will use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear on AIG. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG's contract to ensure no government money goes toward paying financial-products division bonuses.

I hope there's something more here, because money is fungible. Even if all the bailout dollars were going to straight into the pockets of the financial-products department, these new restrictions would be ineffective: the new "bailout" dollars would be plunked into the general operating revenue, and an equivalent amount of "regular" dollars would be transferred out for bonuses. As long as AIG has more pre-bailout revenue than they planned on awarding in the form of bonuses, such restrictions wouldn't matter.

What's funny is that banking executives tried the "no government money" argument a couple of weeks ago, and Congress didn't bite. But apparently the administration did.

This article available online at:

http://www.theatlantic.com/politics/archive/2009/03/money-is-really-still-fungible/1558/