Tuesday, March 17, 2009

It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses.

In the midst of a nice Citi-led run up in bank stocks these last couple of days, there's been a big uproar over these AIG bonuses.

Let's first note that I'm not one to go all class-war-rich-v-poor on you. I've got no beef with people making ridiculous amounts of money: entrepreneurs, innovators, entertainers, athletes, capitalists, or even bankers. In fact, I'm all for it. The idea that hard-working and/or talented people are rewarded, and that even people of little talent often get rich for being in the right place at the right time, or for simply having -- purely by luck -- something that others are willing to pay a lot for, is one of the great things about America.

But then let's also note that the bonuses which are currently the subject of such righteous outrage are being paid to executives in the "Financial Products" division of AIG; the very same division that wrote billions upon billions of dollars worth of derivatives contracts that caused AIG to fail, and very nearly brought down the entire global financial system with it. These people were at the very epicenter of this whole mess.

Now, I will grant you that these folks were presented with some pretty perverse incentives: they were compensated on the basis of the revenue generated by sales of these derivatives, without any regard for the potential liabilities of such derivatives. (I can only imagine what the monumentally stupid people in AIG's risk management shop thought about this. But probably they didn't "think" about it in any way that could be considered meaningful.) But even given such perverse incentives, these derivatives traders cannot by any measure be considered productive or successful employees. In short, what they did was terrible -- catastrophic, in fact -- for their employer. And given this inescapable fact, they do not deserve bonuses, but more likely deserve to be sued for gross negligence or prosecuted for criminal fraud.

Ok, so hopefully we can all agree on that. The question then becomes whether tax dollars (the only kind of dollars AIG has or will have for the foreseeable future) should be used for the payment of these bonuses. The story we first got was that when Geithner heard about this, he immediately called up AIG's CEO and expressed his outrage and insisted (demanded!) that AIG suspend payment of the bonuses. Given what subsequently transpired, we can assume this was the Treasury Secretary's version of the Democratic Congress's "Sternly Worded Letter(TM)" so often in use during the Bush Administration.

If you'll recall, sending the Sternly Worded Letter is a ruse one will put into use when one becomes aware of a public circumstance that he or she believes is sure to outrage a significant segment of his or her constituency, but with respect to such circumstance he or she: (1) considers any meaningful action which might counteract it to be too much hard work, (2) actually has little or no disagreement with, (3) is personally benefited by, (4) is secretly personally implicated by, or (5) all of the above. So the preferred action is to take a public stance of stern outrage toward such circumstance, while taking little or no further action to impede it.

This describes Geithner's ploy in regard to the AIG bonuses. As we will see, it may also describe Obama's. In response to Geithner's "outraged" phone call (the substance of which was promptly leaked to the press), the AIG CEO sent him a letter stating that the bonuses were contractual obligations which could not be abrogated (for reasons I don't feel like typing out right now, this is a transparently idiotic excuse), and in any event they were being paid for the purposes of "retention" of valuable employees (neglecting, of course, to mention that many of them had already left the company, and astutely eliding any explanation as to why, of all the people in the world, one would want these particular employees to continue working for one's organization).

And so then Geithner, having made his outrage publicly known, meekly (though in a manner thoroughly evidencing his Outrage) acquiesed and turned immediately back to the project of funneling billions of dollars to his friends and colleagues in the financial services sector.

In other circumstances, this is where the story would end. But in the panicked and -- yes -- outraged America that we live in today, 2009, the public had finally has had enough of seeing guys in $8,000 suits, through the good auspices of (unwilling and largely un-consulted) taxpayers, being kept in the lifestyles to which they have become accustomed. And thus there was a great public outcry.

In response to such great public outcry, then, Obama took to the airwaves on Monday vowing that he would instruct the Treasury Department to do everything within its power, to "pursue every legal avenue", in order to block the payment of these bonuses. To my ears, he sounded very sincere about this.

But then later, sadly, some frowny-faced "administration officials" stepped forward to explain that the bonuses had already been paid on Friday and to opine that they "couldn't be extracted from their recipients without a legal fight that would cost the taxpayers even more." How very, very unfortunate. So, instead, "officials said the White House will focus on ensuring taxpayers recoup the cost of the bonuses and, going forward, executive compensation at AIG would be on a much tighter leash." Which means, I guess, that the Treasury will give AIG $165M so that AIG can then turn around and pay exactly the same amount back to the Treasury as a "recoupment" of these bonuses. See? Problem solved.

So we'll just go on down the road, "turn the page" as they say, and resolve to do better the next time around. And in the meantime, all of us poor schmucks out here in flyover country had a great opportunity to vent our displeasure at those who have made such an unfortunate mess of our economy. Ahhh. All better? Good.

Just one slight complication here, however. The meek frightened squirrel -- Congress -- appears to have found a nut, Democrats and Republicans alike. We now have many prominent Congressional Democrats screaming for an emergency tax bill which will, if successful, turn the AIG Financial Products shop into a flat, smoking abrasion in the earth's crust. Cleverly, they will tax these AIG execs at a 60% rate (in addition to the existing 35%) on all bonus money over $10,000. For their part, the Republicans are insisting that Geithner be hauled into the Capitol to be cross-examined on what he knew about the bonuses and when he knew it (apparently months ago!).

It promises to be quite the interesting story now, with Congresspersons of both parties vying to outdo each other in demagoguing this issue. Cynicism aside, my personal feeling is: (a) these bonuses should never have been paid, (b) Obama and Geithner made a huge political mistake by allowing them to be paid, and (c) whether or not it is, in the larger scheme of things, good policy to punish these AIG execs by taxing them into oblivion, it would make me very happy to see it done, because, well, fuck those assholes; there are a lot of people suffering in this economy right now, and no one deserves to do a bit of suffering more than the handful of sociopathic dickheads who had such a large hand in bringing the shitstorm down on everyone else.


Anonymous said...

viva la meritocracy!

Kingfish said...

Speaking of bankers. It is much more efficient to shoot them when they are in a straight line. Saves on bullets:)

AIG is the greatest insurance company in the history of insurance. Why? Because insurance presumes risk. Must be nice to not have any.

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