I'm not an economist nor am I particularly interested in economics beyond my own checkbook. That bit of admission aside, I have to put out a complaint regarding the knee jerk, populist nonsense that entails impending legislative reactions to AIG's shameful payout of bonuses to those that, according to all the firebreathing pundits on both sides of the aisle, were instrumental in getting us into this mess in the first place. This complaint is directed at our fearless leaders.
First: I get and share the anger. I get the shameful irony of flinging millions of dollars in bonus cash at shit performance.
Second: The bonus pay out was based on contracted agreements made a year ago. I'm not a lawyer, and if I was I'd not be a specialist in Tort law but I suspect a contract is a binding, legal document. The patent stupidity in promising (via a legal document) a fixed bonus for performance as of yet not performed is not lost on me. Never the less, it was a contractual agreement.
Third: All the threats and general huffing and puffing lent forth by our government now should have taken place before they shoveled tax payers hard earned money into the pit of AIG. That TARP money should have included conditions regarding the payout of pre-arranged bonus's. It didn't. Lesson learned for our governmental pontiffs including our new President who's seeing his historic honeymoon collapse into a realist's nightmare. Welcome to reality during crisis, President Obama.
Study the affair fully (the assbackward bonus nonsense was hardly a new facet of America's financial elites) and react with measured consideration (even if a weekend holiday looms) not hair-on-fire-ass-catching haste. Remember this is the global economy we're dealing with here, not just the next election cycle.
Last: These Presidential and Legislative threats to levy taxes on those bonus's scare the shit out some of your constituents. Namely those not blinded by the populist nonsense you lot are spilling forth, but those that see weaponized or punitive tax to be way out of the boundary of both our countries constitution and spirit. AIG failed economically, the federal lunch lady's that flung our tax dollars over their shoulders failed to perceive and pre-empt this failure. The onus is on AIG but it's also on our fearless (and well tanned and manicured) leaders.
To our coiffed, rested and tanned leaders I say: Give these snake oil salesmen their promised gold and name them so that we prole's and the ratings driven mainstream might obliterate them in a satisfactory and constitutional fashion.
11 years ago
25 comments:
Replace AIG with twin towers, economically with structurally, and a few other terms, and there is a good 9/11 analogy in here.
"AIG failed economically, the federal lunch lady's that flung our tax dollars over their shoulders failed to perceive and pre-empt this failure. The onus is on AIG but it's also on our fearless (and well tanned and manicured) leaders."
Outrage is the natural human emotion to an attack by a group we are helpless against.
That is what we felt on 9/11, and what many feel now.
Rent-seekers are able to take billions from the treasury, and (unlike mere natural disasters) are able to do so cunningly, and use their power to negotiate other benefits for themselves, as well.
It is important that rent-seeking companies be so badly harmed that other companies in the future will not be tempted to do the same.
The decapitation of AIG-Financial is part of this.
Soob,
Reasonable questions. However, my understanding is that -- under bankruptcy laws -- contractual obligations are null and void.
That's one reason the U.S. automakers are probably being *prevented* from declaring bankruptcy: it would void warranties, and it would void union labor agreements.
If AIG was indeed receiving court protection due to bankruptcy proceedings, then the new CEO (who took charge after the crisis began) could have said "Tough luck."
Since he didn't, then I am inclined to agree with John Robb that "The Great Fleecing of Global Markets and Citizens" is well underway.
sf/ shane
Shane,
To my knowledge AIG DIDN'T enter bankruptcy, which is no small part why this occurred...as you say, if they had all contractual obligations would have been null and void and the incoming CEO could have told them all to pound sand. However, thanks to the massive influx of money from the feds, they didn't. Hence the current temper tantrum.
Jay,
Agree on all counts. The power to tax is the power to destroy. Personally, I think the best thing to do in a financial crisis is to not only use the power of government to break contractual obligations (kind of hard to do business when there is the precedent that the government will unilaterally break any and all contracts you might make) but to do it using TAXES, of all things. /sarcasm.
Shane's right, under bankruptcy, contracts aren't worth much. And companies that are facing bankruptcy can force renogotiation of terms in order to avoid bankruptcy, according to Glenn Greenwald (who is a lawyer).
http://www.salon.com/opinion/greenwald/2009/03/16/aig/index.html
Regarding your 3rd point - it'd have been easier to just nationalize the company and take it over outright, rather than throwing money down the drain.
"President who's seeing his historic honeymoon collapse into a realist's nightmare."
Obama's polls are still high so I don't see the problem.
And regarding the scariness of punitive tax - there's nothing wrong with following the letter of the law. The IRS code says "reasonable" salaries are deductable for tax purposes. These bonuses are obviously not reasonable. So, don't allow AIG to deduct them, problem solved.
http://www.huffingtonpost.com/aaron-zelinsky/larry-summers-stop-the-ai_b_175151.html
Given AIG engaged in what appears to be massive fraud (defrauding its business partners), I'd say don't pay the bonuses at all and dare the AIG people to sue the USG, forcing them to come out into the public glare.
The American people want blood, as Charles Krauthammer pointed out way back in September. Every day there seems to be a new scandal emanating from Wall Street or some other major business (with rumors rampant in the business community of upcoming accounting scandals at major corps), enraging people further and making them feel as Dan pointed out.
Obama would be wise to begin punitive measures:
sweeping personal IRS audits of Wall Street figures
pressuring the Swiss to give up the names of American offshore account holders and using the IRS to go after them
assign a Pat Fitzgerald/Rudy Guallani/Eliot Spitzer type to go after financial institutions suspected of fraud
support with more money and more attention the efforts of all the State Attorney Generals who are launching investigations and pressing charges of institutions guilty of fraud.
Whether it helps to stop what Shane and JR rightfully call "The Great Fleecing" is debatable.
Then again, if we can torture and deny Constitutional rights to suspected terrorists (including American citizens), why can't we do the same for the financial terrorists on Wall Street? The American people might actually like that more than anything else given how popular 24 is..
The people are pissed and I don't envy Obama or anyone else for trying to get ahead of the mob. This may be one time that calls for civility and responsibility fall on deaf ears given the populist rage out there from the right to the left.
I responded at my blog.
Making AIG pay back the bonuses is like stoning a rape victim for extramarital sex.
Destroying AIG is a good thing.
"Making AIG pay back the bonuses is like stoning a rape victim for extramarital sex."
WTF? You're arguing that the guys in the financial products division of AIG are like rape victims?
The idea of taxing the bonuses to get them back is just a quick and easy way to get the bonuses back. Other ways of getting them back are fine. Who cares about the MO as long as it's legal and it works?
Adrian,
WTF?
Profanity is often a sign of confusion, as it is now, in your case.
You're arguing that the guys in the financial products division of AIG are like rape victims?
No. The taxpayers are the rape victims. The guy in AIG-FP are the rapists.
Your proposal (which amounts to a fine against the taxpayer) punishes the victim for being raped.
The idea of taxing the bonuses to get them back is just a quick and easy way to get the bonuses back. Other ways of getting them back are fine. Who cares about the MO as long as it's legal and it works?
Your approach is like "getting back" money stolen from your pocket by going to an ATM and taking a cash advance against your own credit card.
My (actually Aaron Zelinsky's) proposal gets the government the AIG bonus money back via taxes. The TARP money given to AIG that goes to those bonuses will be given back to the Treasury via taxes. That's not penalizing the taxpayer, it's getting taxpayer money back.
Adrian,
AIG is 80% owned by the us taxpayer. The US taxpayer is AIG's largest creditor.
Transferring money from AIG to the US treasury is like transfering taking an advance against your credit card to put in your checking account. It accomplishes nothing, except for financial trickey.
Further, your plan does nothing to actually recovery the money from the AIG employees who took it. It is like 'punishing' the man who stole your TV by buying a new one on your own credit card!
The idea would be that threatening to declare the compensation "unreasonable" would give AIG an incentive to not pay the bonuses.
The Treasury can't simply take money from AIG bank accounts at will. That's why your credit card analogy makes no sense.
Adrian,
It's my understanding that the bonuses have already been paid. Are you reading something different?
They have been paid now, but the government knew about them for weeks if not months, and so could have taken this step. Also I think at the time Zelinsky wrote his HuffPo piece the bonuses had not yet been paid.
I've got plenty to say here, but before I do can we settle the AIG/Bankruptcy bit? It's my understanding that AIG's reaching out was to absolve itself from the prospect of bankruptcy? Am I wrong?
The bailout was to avoid legal bankruptcy but AIG is still effectively bankrupt. At least that's how I understand it.
During his testimony, AIG's CEO said that if AIG declared bankruptcy, AIG"s divisions around the world would be immediately seized by the regulatory agencies in those companies, breaking up the company.
As this means that AIG's subsidy to policyholders would be distributed around the world, I took this to mean the real fear is that AIG would be investigated for criminal wrongdoing by hundreds of not thousands of regulatory agencies, perturbed at their loss of billions.
I agree. Breaking up AIG should be a goal of fixing the financial system so that we avoid the "too big to fail" issue, not some horror to be avoided.
So AIG was never legally bankrupt and while it could, legally re work a contract it could not, as the populist savants in our legislative branch have demanded, redact that contract. Good and glad that matter is now decided. I've put down further thought on this at Tdaxp.
Jay@Soob,
True.
Likewise, GM had no authority to revoke the contract with the UAW.
Nonetheless, the UAW has made a series of concessions.
Why? The UAW is less politically powerful than 'executives' in the TARP-funded zombies.
Jay - Off subject entirely, I like the changes to your blog. If I may, I don't see your blog template in the Blogger templates. How did you accomplish the adjustments, for example, to you post section?
Jeff, this current template is a mildly altered form of this template which can be found here.
Thanks Jay. I've been debating a switch to a more elaborate blog host with more options for design. I will look at this site. I really like the post section layout you have now. Very nice. I'm thinking I need something like this. As always, your ahead of curve Jay.
Jay - I took a look at the template. Before I consider any changes I wonder if you'd let me know if this new blogger template is user friendly.
I notice the date line is obstructed. It is that way on the original template.
Are you able to adjust the colors of this template any?
Jeff,
Yes the date line is original. I liked the effect.
As for adjusting colors, not from the blogger control panel. You'd have to edit the templates html, something which I experimented with on my "test" blog before editing this template. My html is limited to experimentation.
As for adding widgets, blog lists, etc. it's all easily done via the blogger control panel.
Thanks Jay. My html is not too good. I'd have to read up. I guess it's probably best to stay with what I have for now. I'm not a steady blogger anyway. Finding time has always--I guess that's be true for anybody with a job--a problem.
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