3/17/09
All of Washington, and all of America, for that matter, is apoplectic about the $450mm in bonuses being paid to key employees of ward of the state, mother of all welfare queens AIG. (The much trumpeted $165 million that is the target of the latest burst of outrage is only one installment of the $450mm boodle, but is perhaps the most inflammatory because that particular bundle is going to employees of AIG’s financial products division, or the very people who got Hank Greenberg’s insurance company into so much trouble.) This is only the latest of the outrages perpetrated by AIG, which now has received $173 billion in federal largesse.
President Obama yesterday afternoon, displaying his usual feigned outrage, swore to “pursue every legal avenue to block” the $165mm in bonuses. Later in the afternoon, the White House pusillanimously retreated from that statement, saying that there really wasn’t anything it could do to recoup the $165m in payments that were made Friday. Instead, it served up the usual pabulum about seeking to ensure that taxpayers will somehow recoup the bonus money, insuring that no federal money goes to pay bonuses (as if money were somehow not a fungible asset), and to tighten up restrictions of further bonuses at AIG. Wow. Now that’s change we can believe in. One might have to be excessively cynical to suspect that checks from former AIG employees may have reached the DNC sometime between Obama’s (by now tiresome) display of righteous and phony outrage and the White House’s determination that nothing could be done about the AIG bonuses, but, as that great philosopher Lily Tomlin once said, “No matter how cynical you become, it’s never enough to keep up.”
One of the arguments used to justify these bonuses is that they are necessary to retain talent. Just as AIG and the other Wall Street Welfare Queens continue to push and shove for the most advantageous positions at the trough in order, of course, to protect us from “systemic risk,” they continue to use this laughable canard about retaining talent. The “securities” that AIG is attempting to “unwind” are bafflingly complex; outsiders could not possibly understand these enigmas wrapped in puzzles wrapped in riddles, and thus, we are told, if AIG is to save the taxpayers from further financial emasculation, it must retain the employees who got AIG into this mess with these horrendously complicated instruments.
Hmm…
I have no doubt that outsiders could not understand the time bombs that blew up in AIG’s face. But I also have no doubt that those who designed these financial Frankenstein’s monsters, those to whom we must pay huge bonuses to keep on board the financial equivalent of the Titanic’s sister ship, do not understand them either. Think about it; if these financial wunderkinds really understood these instruments, these very instruments they designed (slopped together really, with large doses of barnyard detritus for which their never to be perceived as obtuse managers fell in their overwhelming greed and emotional insecurity), so well, why the disastrous consequences for AIG, the financial system, and the taxpayers?
But let’s assume I am wrong and that these are valuable, indeed indispensable, employees. And let’s further assume that if they are not paid they will walk out the door, presumably because employers are just dying to hire the types of people who can land them on the financial rocks in no time with only a minimum of effort because their powers are obviously beyond those of mortal men. And let’s assume that the departure of these vital, much sought after geniuses does lead to the end of AIG. Oh, well. Lots of people, primarily overseas investors, will be upset (One does not have to be more than minimally cynical to suppose that the AIG bailout was designed to placate foreign investors, primarily the Chinese, but I digress.), but these are big boys who are well paid, were supposed to be familiar with the concept of counter-party risk, and presumably can take care of themselves. The taxpayers will finally be relieved of the water torture that AIG’s incessant demands for fatter and more frequent welfare checks have become. And what would you like to bet that the haunting specter of “systemic risk,” a concept cooked up by Wall Street, the Bush/Obama administration, and Obsequious Ben Bernanke in order to give their Wall Street bursars more leverage as they reach into the taxpayers’ pockets, is not all that horrifying a prospect after all? The economy will only recover when it no longer has to bear the burden of supporting the outrageous, silly, and shallow “lifestyles” of the Wall Street self-imagined thugs who baselessly deem themselves so special, so exceptional, and so positively wonderful that they are entitled to extract money from the ordinary taxpayer in order to pursue a lifestyle that makes decent people, the people who are presented with the tab for such extravagance, wretch.
The more plausible line of argument as to why nothing could be done about the AIG bonuses, and the one the White House was in all likelihood focusing on as it grasped at straws to hide its manifest cowardice and/or utter indistinguishability from the Bush administration, is that these bonuses are a matter of contract, and contracts can’t be broken.
Hmm…
The government has had no compunction whatsoever about demanding that the Big 3 auto companies find some way to abrogate their contracts with the UAW as a condition for federal money, even after the money was dispensed, as in the case of AIG. And the government has had no problem with asking banks to abrogate mortgage contracts as a condition for federal money, again, even after the money has been dispensed. What makes AIG so different, other than the lily livers, or the ulterior motives, of Barack Obama, Preppy Timmy Geithner, and the other patheticos who inhabit this new administration?
Another justification for the poltroonish Obama/Geithner “Well, I guess there’s nothing we can do, so all you taxpayers should just move along, shut up, and pay” policy is that, since these bonuses are matters of contract, it would cost more to fight the bonuses in court than it would cost to actually pay the bonuses. It’s amusing how quickly this assessment of the costs of fighting these contracts was made, in a matter of mere hours, when the government normally can’t estimate the price of a lunch at White Castle in less than fifteen months. But even if these estimates are right and the government would be financially better off paying these bonuses than fighting them, isn’t there a principle involved here? Isn’t it worth a bit more money in the short run to establish the principle that, in a free market economy, people shouldn’t be rewarded for failure?
Oh, wait; I forgot. This isn’t a free market economy. This is an economy in which big time success depends not on one’s efforts or hard work but, rather, on one’s connections to and standing in the big government/big business nexus that has strangled our once great nation in its never ending, ever more voracious thirst for power and money.
In the Bush/Obama era, there is no longer any principle to uphold.
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2 comments:
You missed the boat on this one. Taxing "bonuses" is moronic. It simply means that people should have taken higher bases salaries with no upside or downside reward.
Regardless of Bush corporate welfare, the populist response of changing the rules, retroactively taxing and breaking contracts is not the answer. The UAW and the "big" 3 at least negotiated and were not subject to a forced 90% reduction for working families.
Many of these people gave up other opportunities that paid more, stayed dedicated to companies that looked like they were failing, often time took pay cuts and worked harder/ longer and possibly better as their stock prices dropped and their futures looked bleaker.
That is not good social policy. Moreover, it unbelievably punishes married couples who were both productive members of society and taxpayers while not imposing the same burden on single taxpayers. It simply encourages the end of producitivity and the destruction of wealth.
As pointed out in the Business Insider:
If the "TARP bonus" bill the House passed yesterday becomes law, any of the hundreds of thousands of people who work for Citigroup, Bank of America, AIG, and nine other major US corporations will have to fork over 90 cents of every bonus dollar that puts their household income over $250,000.
That's household income, not individual income. If you're married and filing singly, you'll have to surrender anything over $125,000. Indefinitely.
...
And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)
3/20/09
Several things:
First, when did I say I was in favor of that abominable House bill to tax bonuses? How did you read that into my post? In fact, the post was put up before that abomination was even proposed. Yes, I’m against the bonuses, but I am almost as much against using the tax code retroactively (or proactively, for that matter) to achieve even useful social goals. The tax code should be used (sparingly) to raise revenue, not to shape society.
Second, I would be in favor of renegotiating the bonus contracts, just as the government demanded of the UAW and the Big 3 or the big housing lenders (even though the latter will prove relatively pointless). Where did I say I wouldn’t be? But the response from AIG, and from the pusillanimous White House, was just to say, effectively “Oh, well, it’s a contract and we can’t do anything about it, so we just have to live with it.” (I suspect the White House did so immediately before picking up the phone and hitting up the bonus babies for campaign checks or, even more cynically, before running out to cash the checks that had already been received between Obama’s expression of outrage and Preppy Timmy’s rollover.). No renegotiation, no nothing. Just “There’s nothing we can do about it, so just shut up and pay.” Yet these very same Bush/Obamacrats insisted that the UAW contracts be renegotiated, the bond contracts of the Big 3 be renegotiated, and the banks renegotiate with their mortgagors. There appeared to be nothing inviolate about THOSE contracts. And these demands for the Big 3 to renegotiate were made not only as a condition of the federal aid, but continue even now after the money has been released.
Further, if AIG had gone into bankruptcy, these contracts would have been abrogated, and the only thing that saved AIG from bankruptcy was the federal rescue.
And, yes, if the bonus babies don’t want to negotiate, I’d say go ahead and break the contract and let the traders sue. If it does cost the government more to fight the contracts, so be it. We’d establish a principal: if you’re taking our money, if you decide to become a ward of the state rather than to pursue the proper course of action, bankruptcy, you have to dance to our tune. And if we say you don’t pay bonuses, perhaps that would raise some resistance to the nationalization that seems all the rage of late.
Third, your point on getting around restrictions on bonuses by increasing base salaries is a brilliant one, but it’s been made before; see my 2/14/09 post “YOU MAKE ME…MR. SUCCESS!!!”
Fourth, these people turned down jobs that paid more? Who is in line to hire people skilled in putting together credit derivatives that have the effect of blowing up companies? This is not a skill that is in very much demand today. The demand for those who are seemingly so inept at putting these things together should be even lower; people don’t want to hire employees who don’t know what they’re doing, and these guys (collectively, at least) don’t know what they’re doing. Doubtless, in the world of modern moronic management, there are a few star-struck “managers” willing to hire a few such bumblers, but I, for one, would be happy to see such incompetents leave. I would seek out such clueless potential employers, give them my traders’ resumes, and, if they really were willing to take such “talent” off my hands, I would willingly pay a (small) bonus to both former (Hurrah!) employee and new employer to hasten the departure of such invaluable talents. But if any of these clowns demanded a retention bonus from me, I’d breathe a heavy sigh of relief and tell him not to let the door hit him in the posterior on the way out; he’d be lucky to have a job after what he did to the company.
Furthermore, eleven of the guys who took “retention” bonuses have left. So were they really retention bonuses or just “You’re in the club, Thurston, and if I don’t give you a bonus, I might not get a bonus, so sit down, take your invoice, and write yourself seven figures” bonuses? One might argue, and, since you are sharp, I know you will, that those guys’ having left proves that there is demand for such “talent” on the Street. But we don’t know if they left to go elsewhere on the Street or if they are on the beach. But we do know that the retention bonuses did not “retain” these people.
Fifth, these dolts may have worked long and hard, but they worked long and hard DESTROYING THE COMPANY. In a capitalist economy, we get paid for the RESULTS of our efforts, not for the AMOUNT of our efforts. If we work long and hard at counterproductive endeavors, why should anyone pay us anything, especially those who were the victim of those misspent, or worse, efforts?
Maybe they worked hard at cleaning up the messes they had previously made. But this should be done as a matter of honor. One shouldn’t destroy something and then demand to be paid huge sums to put it back together again or, in this case, minimize the costs of the funeral.
Sixth, again, since you went back to this at the end of your comment, I am firmly against the House bill taxing 90% of the bonuses. It is the wrong response for the reasons outlined at the beginning of this missive, and even for its particulars, especially that completely arbitrary $250,000 figure. EVEN IF there are plenty of people on Wall Street right now, doubtless more talented that the AIG bonus babies, who would love to be working for $250,000, Congress has no business setting salaries on Wall Street or anywhere. But, again, once AIG took the money, it subjected itself to the management and financial wisdom and vision of Nancy Pelosi. The right response would have been to let AIG go and let the courts sort this thing out. But even after Bush, Obsequious Ben, Preppy Timmy, and Honest Hank Paulson blew that opportunity, the right response is not to use the tax code, especially retroactively, to make AIG dance to Congress’s tune. The right response is to say “That’s it. That’s the last straw. We’ve had it. Find yourself a good bankruptcy attorney and have a nice day.”
Thanks, Reid.
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