Apparently this is what’s on everybody’s mind. AIG gave bonuses to some employees, bonuses that were promised to these employees months ago. The total cost of the bonuses is somewhere around $165 million. This is a lot of money, more than I can really even imagine. It’s 1000 times more than my house is worth–if not more–it’s simply beyond my comprehension. I can understand why people are upset about these seemingly lavish bonuses being handed out with taxpayer money.
But let’s get real: in Wall Street terms, $165 million is peanuts. The government bailout of AIG is $173 billion. It seems bigger if it’s written out: that’s $173,000,000,000. 9 zeros. Talk about incomprehensible amounts of money. The congressional and populist furor over the bonuses is completely valid. Anger is a legitimate response in the face of what surely seems like unbelievable audacity on the part of AIG.
As a result of the bonuses, Congress decided to levy a 90% tax on bonuses given out by companies receiving at least $5 billion from the bailout plan to individuals earning more than $250,000 annually. The tax would apply retroactvely beginning December 2008. So…it’s called a tax, and if passed by the Senate and signed by the President it would enter into the tax code, but…it would probably apply to just the AIG employees currently being lambasted in the media. Now, I’m not an accountant, but are there many provisions in the tax code that only apply to a select group? And are taxes often applied retroactively? I imagine quite a bit of this money has already been spent.
In the abstract, it seems justifiable to take “our money” back from those bastards at AIG who helped run the national economy into the ground. Those bonuses came from the taxpayers via the U.S. Treasury, and now the money is being used to, I don’t know, pay for private school tuition or the rent on a penthouse in the Upper East Side of Manhattan. All this while “real” Americans suffer during the downturn, living paycheck to paycheck (as long as they haven’t lost their jobs) and barely scraping by. Where’s the accountability? Why isn’t Tim Geithner, flanked by Ben Bernanke and Larry Summers (just imagine the tableau), barging into AIG and demanding that money be returned?
It’s an easy political position to take. Everyone gets why the money should be returned, and it takes a lot of thought and abstraction to figure out why it might be of more use staying with its original recipient. The truth is, most of the recipients of these bonuses are in no way responsible for AIG’s downfall, let alone the trouble in the larger economy. Remember, AIG is principally an insurance company, so many of the bonuses went to insurance salespeople and fund managers and underwriters, all kinds of people who are far from the derivatives scheme that has essentially bankrupt the company.
So what do we do? If I’m Speaker of the House Nancy Pelosi or President Barack Obama, what should I do? Some pundits talked about the “outrage meter,” suggesting that Obama in particular didn’t get angry enough. Fact is, it’s not fair to the recipients of the bonuses to tax it at an outrageous rate. The request from AIG CEO Edward Liddy and others that recipients return some or most f the money is a good one. Responsible citizens would and should return the majority of the money, if not for ethical reasons then simply to avoid the public lynching that seems to await them if they are “outed.” The government needs to exercise some oversight in the future–and here, the mistake is inexcusable given the long advance notice Treasury had about these bonuses.
The takeaway is, #1, bailout companies need to be fiscally responsible, although this can hardly be expected given most of the corporations’ track records–and how they ended up needing bailout money in the first place. Secondly, the government needs to do two things: exercise every bit of its oversight and regulatory power and attach serious strings to any future bailout money and, very importantly, don’t get involved in populist rantings that endanger the trust these companies put into the government by accepting bailout money and dealing openly and honestly with the Treasury Dept.
Hopefully with these lessons, this kind of mess can be avoided in the future. And if the Dow’s trajectory over the past two weeks is any indication–it probably isn’t, but if it is–perhaps we can wait until the next recession to get into these issues again.
-Will
1 Comment
December 23, 2009 at 7:50 pm
Encena…
Hi, Great Post Thanks.:)…