The Bonus Round
[Column for March 18, 2009]
Regular readers of this column may recall our discussion of how the $800 Billion Bailout Bill shot through Congress last month, with nary a bothersome eye perusing its pages. We are now witnessing the first of many post-Bailout flaps sure to emerge as time goes on.
American International Group, a massive insurance and investment corporation with fingers in pies around the world, faced ruin last November. Neck deep in shaky mortgage paper, AIG nearly came apart when the sub-prime market imploded. Both the Bush and Obama administrations warned that an AIG collapse would drive devastating shockwaves throughout the economy, and decided to put it on life support rather than letting nature take its course. As a result, AIG has received $170 billion in booster shots over the last six months.
Some of this money was used to pay hefty bonuses to top level executives – $165 million at last count. We are accurately reminded by various media outlets that AIG is partially responsible for the mortgage meltdown, and the common wisdom is that AIG executives should not be living large on money borrowed from taxpayers.
Two ingredients to make the story more delicious: First, leading the charge against these bonuses is the venerable Senator Chris Dodd (D – CT). However, as has been recently discovered, it was Chris Dodd himself who introduced legislation into the Bailout bill protecting these very same bonuses. Second, since AIG is an insurance corporation with policies held by companies around the world, they have, with the money gifted to them by Congress, paid out $50 billion to various interests overseas.
In short, you and I are paying 200 times more to financial institutions outside our nation than to the executives of AIG. This being the case, why is there so much outrage at these AIG bonuses, but no outrage at the funneling of taxpayer money into foreign banks?
For an answer, perhaps we can look to Barney Frank (D – MA). During an appearance on the Today show last Monday, Mr. Frank attacked AIG, stating that “These bonuses are going to people who screwed this thing up enormously, who made terrible decisions.”
Indeed, he is correct. A number of AIG managers made poor decisions regarding the mortgage crisis. However, as chairman of the House Financial Services Committee, Mr. Frank was tasked with watchdogging the mortgage market. Is he any less culpable than the AIG fat cats? Congress has voted themselves a pay raise this year, to the tune of $2.5 million. If, as Mr. Frank implies, the people who landed us in this mess have no business enjoying a windfall, then perhaps Congress should agree to a pay cut. Or, at the very least, perhaps Mr. Frank could live by his own rule and forgo his raise.
Do not be fooled. This is pure stage magic. The AIG bonuses are inconsequential - they represent less than one tenth of one percent of the total money in the Bailout bill. By waving a penny in one hand, this administration hopes to draw our attention away from the fistful of cash in the other.
Even more chilling are the implications of the anti-bonus legislation now being discussed in the House. Democrats are barking for a 90% tax on the bonuses paid to AIG executives. Speaker Nancy Pelosi actually had the metal to say “We want our money back now for the taxpayers.” She was certainly ringing a different bell last month, when the most massive spending bill in history was overnighted through Congress. By what right does Congress intend to step between an employer/employee contract? Are we to believe that Congress holds the moral high ground? And if these bonuses are so terribly improper, then why bail out AIG at all?
The President and his deputies have made no bones about their agenda. They have focused their crosshairs on those with higher incomes, and refunded income taxes to those who pay none. I fear that this manufactured bonus scandal, while cleverly wrapped in populist platitudes, foreshadows greater redistributions yet to come. Time will tell.