There has been a great deal of anger expressed by the public over the payment of huge bonuses to AIG officials. This anger is understandable, especially if one's hard-earned retirement 401(k) has been converted into a retention bonus to keep those who committed the massive lending errors to remain in position to commit more wrong. Despite the popularity of the dubiously-legal bonus tax bill which passed the House this week, I have doubts that it would achieve the goal desired. Worse, it certainly establishes a dangerous legal precedent which would come back to haunt us in the future, assuming that the GOP-complicit Supreme Court doesn't declare it unconstitutional.
Despite the claims of proponents of the bonus tax bill, and its popularity with the public, there are times when the Will of The People is not in sync with the Constitution. This is, for example, the main argument raised in opposition to California's Prop 8. But the cowardly "conservatives" who make up the California Supreme Court are avoiding their legal duty by expressing a desire to hide behind the Will of The People instead of concurring with their own earlier decision overturning the previous anti-Constitutional and discriminatory effort produced by popular referendum.
It is also thus with the House-passed bonus tax bill. I am as angry as anyone over these outrages, yet I am against the special tax. It isn't for the roundup of the usual suspect reasons, such as those now being pontificated from high above the pavement of Wall Street (click here for an excellent example). I am actually more in line with the reasons presented here: "First, it is retroactive" (not that this mattered any when it was the Telcos benefiting from an unconstitutional ex post facto immunity for illegal spying on The People).
I disagree with the second reason, as there is no valid defense presented for the position. I'm angry enough over the whole scandal to temporarily forget "innocent until proven guilty" as banks across the nation and around the globe were all involved with this scam to varying degrees.
"Third, and most importantly, it creates a set of bad incentives." Despite the specific position presented in the linked article, the incentives which I feel are important and agree are accurate are those expressed reactions listed after the defense of the position: returning the TARP funds and shutting off the credit tap needs to be prevented, and blocking chaos taking over the process of recovery is vital. I don't give a damn about the "necessary" employees leaving for what they may deem greener pastures. They did enough damage already, so why give them another opportunity to foment mischief? Don't let the Golden Door hit you on the ass on the way out!
There are other concerns with which I am in alignment with the proposed recipients of the bailout bonuses. Despite my ire at these so-called "experts", AIG CEO Edward M. Liddy said something regarding his employees that I understood and agreed with. That was to not reveal publicly the names of his employees who refused to return retention bonuses they took just prior to resigning. The email he read before the House subcommittee is familiar to those of us who opposed the Bush policies of the last eight years, only one of which was the one unleashing the banking industry (with Bill Clinton's blind assistance in 1998) to wreak havoc on the American and world economies through irresponsible financial stewardship. I know something myself of the anger of those who style themselves as spokesmen for The People who authored that clear threat to life and limb, and I understand Liddy's concern.
But Liddy's fears are now realizable with the public release of a partial list of several bonus recipients by the Connecticut State Attorney General. Having exposed these people to the wrath of the mob, it is now the responsibility of the State of Connecticut to protect these men and their innocent families from harm based on the angry Will of The People — even if most are contributors to the tottering Sen. Chris Dodd.
Is there major revolt brewing amid the upset Will of The People? Sure! Bryan Zepp Jamieson compares the AIG situation to the early French Revolution: "…little old ladies sat…watching with mild amusement as the guillotine chopped off the heads of hundreds found by the Revolutionary Committee to be at odds with the needs of the people." He continues with as apt a description of the popular rage aimed at AIG in particular, and at the banks in general, as any I've yet read.
But will this rage be directed at Merrill Lynch when it becomes known that $2.5 billion in Merrill bonuses would not be subjected to the pending House bonus tax bill? Maybe, but they are only doing what they are allowed to get away with. Who then would be the worthy target of the persecution emanating from the irate Will of the People?
Among those who qualify should include Former Fed Chairmen Bernanke and Greenspan — and former Treasury Secretaries Summers, O'Neill, Snow, and Paulson — for doing nothing to regulate the economy as they were changed to perform. But they (except for Paulson) will escape the coming trials by media ordeal. That fate will befall Obama's most egregious mistake to date, Treasury Secretary Tim Geithner. Besides being directly involved in coercing Sen. Chris Dodd (not that it took much pressure) into changing the provisions of his stimulus bill compensation limits, Geithner is being defended from those he's supposed to be regulating. That is, those against whom the wrath of The People is directed.
The Barons of Wall Street rise in Geithner's defense as does Senator John McCain, whose own whoring for bank fraud is legendary: directly in the case of Lincoln Savings, and indirectly through his son Andrew in the case of Silver State Bancorp. There is much for these defenders of the Treasury Secretary to support based on the recent commentary issued regarding Geithner's latest version of his toxic asset recovery plan.
CalculatedRisk posts that "This [plan] amounts to a direct subsidy from the taxpayers to the banks." Paul Krugman, who knows enough about economics to have been awarded a Nobel Prize in 2008, analyzed Geithner's plan and found it "exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago."
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.
Despite what seem as obvious benefits to those investors intrepid enough to participate, Michael Oneill of The Chicago Tribune reports that the necessary confidence is lacking in investors that Obama and his Treasury Secretary know what they are doing with this bill. The Congress is eroding the already shaky relationship between Obama/Geithner and the investors despite White House assurances that the investors' won't have to open their books to scrutiny. This courtesy isn't going to make the angry taxpayers feel better about the man who offered them Change and Hope.
The risk to the taxpayers is great, as Krugman points out. Mistakes must be prevented. There is only going to be one shot for success, for pressure is mounting to throw Geithner and Dodd onto the peasants' pitchforks. Failure won't be granted time for explanation, nor would there be time to formulate a redo. The Republican National Committee has already released a Web video that slams Dodd and the White House on the bonus cap provision scraped off the stimulus bill at the last minute, and you know that Rush is tuning his foghorn to blast the Democrats for their impending failure — aided and abetted by the Congressional Republicans.
But with the rise of the Internet, spotting GOP crocodile tears is accomplished so much easier. Sam Stein of the Huntington Post reminds us that Bush and the GOP opposed executive compensation caps themselves back when they were in power. Yet hostile public opprobrium never stopped the GOP from scoring political points. Neither did the truth. You know the situation on Wall Street is completely indefensible when BusinessWeek takes up the Red Banner by declaring that "Wall Street's economic crimes go against humanity".
The faux Republican outrage doesn't stop there. David Brooks of The New York Times often volunteers to be the voice of the Republican party, especially when Rush is too busy treating with his pilonidal cysts. Jim Hightower takes Brooks to task over his latest disinformation screed and reminds Brooks that "This 'small minority' he weeps for is the same bunch of elites who've created tax dodges, trade scams, deregulation fantasies, de-unionization schemes, financial hustles, and other mechanisms to redistribute wealth from workaday families to them." Blogger Milt Shook then plays the audience's new favorite tune, the popular Top 40 platter entitled, "How The Neocons Screwed Us, And Why We Can't Let It Happen Again". Catchy! Love the beat!
But none of this absolves Obama from his promise to be The Official Blame Guy. "It's my job!" he declared. So Obama is in the very place he aspired to be, which is the center of the activity. But there are serious questions being raised about his intentions as well as his abilities, and We, The People will hold him to that announcement. He already has much to answer for.
Paul Craig Roberts, Reagan's Assistant Secretary of the US Treasury, is wondering if the entire bailout itself isn't just a scam played out on the taxpayers. Even if it isn't, Barbara Kellerman of Harvard University’s Kennedy School of Government observes that “The thing [the Obama administration] have to avoid is a sense they’re quick to bail out Wall Street, but not Main Street.”
This position and observation are reinforced by the return of the disgraced former NY Governor Eliot Spitzer. He was hot on the trail of Wall Street's excesses when he was tackled deep in his hooker's end zone, so when he declares that The Real AIG Scandal is not the bonuses but that AIG's counterparties are getting paid back in full with taxpayer dollars, I would tend to believe him.
David Michael Green of The Regressive Antidote was a staunch supporter of Obama during the campaign. As such, he finds himself deeply disappointed in his knight errant, whom he feels has taken up the wrong challenge:
…it is no exaggeration to say that this vibrant and well-liked president, who carries the hopes and aspirations of a nation on his shoulders with a robust foundation of good will to match, is potentially giving away everything in order to make sure that a band of corporate pirates keep their stolen taxpayer money.
This observation isn't being lost on the American people, as former chief economist at the International Monetary Fund Simon Johnson — now a professor at the M.I.T. Sloan School of Management — and his partner James Kwak wrote recently. "A.I.G. is essentially advocating survival of the weakest," they wrote. "Thankfully, the American people are not buying it."
Eugene Robinson of The Washington Post sees the arousal of the rabble as well, noting that "The vast amount of money poured into Wall Street has bought American taxpayers the right to say that business-as-usual practices such as the AIG bonuses are over."
Even Suze Orman, who normally avoids blatant politicking, chides George W Bush for his role in creating this incredible mess:
"Commander in Chief?" she says of George W. Bush, with a mix of disbelief and scorn. "You blew up every single financial vessel we had and if you think you aren't personally responsible, well, the blame starts at the top. There is no higher top than you, SIR! If I were you, I would feel so absolutely horrific that I would take every penny I had and distribute it to anybody and everybody to help them in whatever way I could. You owe the American people every penny of your fortune and your family's fortune."
With this kind of anger ranging unfettered across the land, E.J. Dionne of The Washington Post wonders whether Obama can surf this tidal wave of populist angst without wiping out. Dionne observes that "President Obama seems thoroughly ambivalent about this strain of American politics." He adds in another commentary, "We are at the beginning of a great popular rebellion against those who showed no self-restraint when it came to lining their own pockets." Woe betide those seen as aiding and abetting such greed!
The one vessel of state that can reverse course more quickly is the US Congress, itself under suspicion for the very reasons both Obama and Bush are being held to account by We, the People. The new heading is called out by Slate's Moneybox columnist Daniel Gross, who calls for Congress to "call in CNBC's Rick Santelli and force him to explain why subsidizing these [Wall Street] losers is somehow different than subsidizing losers who are behind in their mortgages."
Those "losers" of Santelli's scorn are very unhappy right now. They feel they were betrayed, and party affiliation is no armor. That may be why rising GOP star Eric Cantor is supporting the House bonus tax bill. Being Jewish like too many of these financial "experts" isn't going to help him when the Ohio redneck red staters come calling with real steel pitchforks in hand, so maybe he's hoping that going after the greedy wealthy will score some points with the rabble in the future. Being a Democrat certainly isn't helping Chris Dodd, whose Senate career is realistically at an end.
My advice to Cantor, and Dodd, and the entire Congress — and especially to Obama and Geithner — is to quit playing favorites against the needs of the nation. Quit playing games with the people's future. Fix the economy's need for credit, and put out of business any concern that cannot stand on its own two economic feet. Quit babying millionaires when mere mortals cry out for relief.
Do this, and quickly, or else you won't have to ask for whom the Liberty Bell tolls. It won't toll for thee.