Wednesday, March 18, 2009
News / Chicagoland Nothing to see here, move along, peons
Posted by Whet Moser on 03.18.09 at 05:00 PM
Just, wow. The official Chicago Tribune opinion on AIG is LEAVE AIG ALONE! LEAVE THEM ALONE!
"The government shouldn't be in the business of creating a special tax to invalidate contracts between a company and its workers because it doesn't like the outcome. The money was promised, it was paid. Trying to claw it back now will only encourage the talented people at any company that took federal help to look for a job elsewhere, preferably a place not so beholden to the whims of politicians and public anger."
This is not a paid advertorial for the Illuminati; it's the real-life opinion of the institution. I'm picturing Dorothy standing at the curtain thinking, "if I expose the Great and Powerful Oz, he might just blow up the city."
I think there are three arguments here.
1. We can't claw back the money on a strictly legal basis. But that's not clear at all; there's considerable disagreement.
2. We can't claw back the money on a philosophical basis. Do tell that to the UAW.
3. We can't claw back the money because the "talented people" who just blew up the world economy might have their feelings hurt and go blow it up again. This line is basically the AIG company line. Here are a couple other takes:
"Simon Johnson, a former chief economist at the International Monetary Fund, has pointed out that in financial crises, bankers often exaggerate the difficulty of cleaning up their mess. They do so partly to justify their own continued importance and also to fight off calls for a government takeover of banks. In reality, Mr. Johnson says, the mechanics of cleaning up hobbled banks turned out to be fairly straightforward during other recent crises, like the Asian one in the ’90s." - David Leonhardt
"The testaments to 'the best and the brightest' - here, referring to the people of AIG Financial Products - reflect, I don’t know, either absolute, brazen obscenity, or a world-historical example of making the mistake of believing your own hype. The fact that people on Wall Street believe that they are the best among us is bad enough. The fact that people in Washington are willing to accept it is worse." - James Kwak
Meanwhile, Mary Schmich plays the world's smallest violin for a well-to-do friend (starts about 4:45). Describing a former journalist friend who decided to cash in and become an analyst at a large firm: "people budget their lives upon the money they've been told they're going to make. Which we all do. She's dependent on this. And all of a sudden the idea that it's going to be shut off... if she knew a year in advance, she would budget in a different way."
Unlike, you know, the U.S. government.
Eric Zorn just admits he'd take the money were it offered to him. I have to admit I'm pretty surprised.
It's not so much the arguments in and of themselves as the tone - a near complete lack of surprise and a total lack of any kind of outrage. The Chicago Tribune: sticking up for the extremely enfranchised.
NB: Meanwhile, Newsweek reports that AIG's theoretically stable insurance business might be just as screwed as the financial products subsidiary.
Update: Steve Chapman leaps to the defense of AIG's best and brightest: "No one in the lynch mob wants to admit that the amount is piddling from the point of view of taxpayers. It adds up to less than 1 percent of the $170 billion the government has poured into AIG."
I don't know what "lynch mob" Chapman is referring to, but it's a lynch mob of strawmen.
Josh Marshall: "In this sense, this isn't a distraction. Yes, the dollar amounts are small. And pols across the spectrum are demagoguing the thing for all its worth. But the real issue of who's in control, and whose interests are being served, cuts through every dollar we've dedicated to this project."
Duncan Black: This has always been about protection money.
Naked Capitalism: "It appears that Congress may finally be growing impatient with Obama. If these Congressional initiatives pass (and Speaker Pelosi seems likely to push these through in the next couple of days), they will be a direct rebuke to Geithner's vision of providing bailout money with minimal strings attached."
Marcy Wheeler: "The kind of people who would threaten to do this are threatening to bring down the global finance system. Again."
Comments (12)
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Well, now wait a minute, Whet. It strikes me that the outrage is over the symbolism and the word "bonus," which, as I say in the World's Greatest Podcast, to most of us means a little unexpected reward at the end of the year for a job well done, not part of our contractural package; an incentive, a reward...not just money on top agreed to in advance. So if my company told me I was getting paid $X for the year for doing Y and I did Y then, yeah, I'd want and take my $X, particularly if I'd made a number of personal financial decisions based on it. Again as I say, I'm not convinced that these execs and traders are worth what they earn even in a good year, but I don't know that it's right to retroactively and unanimously dock them. IF the Reader had this form of peculiar compensation -- most of it disguised for some reason as a "bonus" at the end of the year -- would YOU turn it down because the Reader fell on hard times?
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That same editorial lauds AIG chief exec Edward Lilly as someone who's "shown he can cut costs. At Allstate, for instance, he fired 6,000 of the company's highest-paid agents." Positively Zell-like! Hang in there, Eric.
The Reader did used to have a bonus system for freelancers. I have no idea if they still do -- but right now, given their current hard times, I wouldn't have any problem telling them to save their bonus money. But the analogy with AIG is not exact. Instead we'd have to imagine the Reader as somehow managing to trigger a global economic crash, and that my articles had made a particularly large contribution to the general chaos. I'd like to think I'd have the strength of character to refuse their money, and instead walk away with nothing more than satisfaction at a job well done.
Well, today Edward Liddy testified that AIG had paid "retention bonuses" to employees so that they would stick around and "wind down" their books instead of just walking. I do think I can say that if I ever did something so irresponsible that I couldn't be fired, and instead had to *stay* to fix my mess, I wouldn't feel the need to be paid extra to do so (some would say "extort"). In other words, if I worked in one of AIG's theoretically solvent divisions, I wouldn't feel the need to kick back my bonus. But I don't think anyone's suggesting that. FWIW, the Reader is in fact in hard times, and if my figures are correct I made less money in my second and third years than in my first, which has effected my budgeting. Given that I make under the U.S. median for all individuals 25+, it's significant. As to which and how many bonuses should be tracked back, that's a very difficult question, but the forced renegotiation of UAW contracts makes me less sympathetic to AIG, even to employees that weren't directly responsible for the debacle.
Jason, While I'm not well-informed enough to break down Spitzer's essay (which I read with fascination), I'd say that the bonuses are both insignificant and not, if that makes sense. Obviously they're a drop in the bucket compared to the bailout generally. As Eric Zorn pointed out in the podcast, they're a tiny fraction of the actual AIG bailout (which, as Spitzer points out, is more a counterparty bailout). And as far as the actual use of our taxpayer money across the board - be it to AIG, Citi, or whatnot- clearly there are bigger fish to fry if we're just running the numbers. From a purely short-term perspective, maybe we should just hand over the money so we don't get shot. I clearly can't say for sure. But: a plausible argument can be made that these sorts of "bonuses"--whether performance-based or guaranteed deferred compensation which isn't a bonus at all--are the reason we're in this mess in the first place, or at least the reason that the mess got big enough to take down the entire economy. There's just no doubt that a payment structure that rewards short-term risk, and the utter lack of transparency that the "only the people who screwed this up can fix it" argument feeds off of, encouraged the creation and irresponsible trading of nutty financial instruments that really blew all this up. There's also the idea (and I highly recommend Tyler Cowen's essay about it) that what amounts to a guarantee that the Fed will fix any level of mistake that anyone makes just keeps making the problem worse. I don't know. But I can't help but ask: why not call for the reckoning now? Cowen's essay, btw: http://www.nytimes.com/2008/12/28/business/economy/28view.html?ref=business
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That op-ed reads like a master-work of surrealist fiction. It’s worth noting that we’re in this current mess (both the financial one and Iraq) because there are people who think that the wasting millions of dollars (or thousands of lives) are minor plot points in a larger, billion-dollar performance. Every dollar counts and some speak volumes beyond their value as currency (just ask the homeless guy who holds onto each dollar like a life-preserver). As for Mr. Zorn’s belief that the geniuses at AIG are going to walk away from the task of unsinking the Titanic because they’re lacking the proper financial incentive: let them. Hell, I’d be willing to pay them to stay away from the markets for the rest of their lives. To the point that these geniuses are being unduly punished by the American people’s interest in undoing their promised merit pay: let’s stop pretending that they’re Clark Griswold. There are lots of people working all over the place that aren’t getting the money they thought they earned (not to mention pensions that evaporated and benefits being slashed or negotiated away) so at least they’ll have sympathetic drinking buddies across the nation...that is, until they tell them that the work they did hoping to earn that bonus was WRECKING THE GLOBAL ECONOMY.
Um, @Aaron, if you're going to carp about people writing "fiction," maybe you should stop attributing to me things I didn't say or even imply: "...Zorn’s belief that the geniuses at AIG are going to walk away from the task of unsinking the Titanic because they’re lacking the proper financial incentive..." I'm not a leather-lungs to pay these folks their bonuses and I won't feel sorry for them if the courts turn back an almost certain challenge to the plan to place a 90 percent tax on their bonuses. But I think changing the rules on people after the game has, in effect, been played, is wrong. It's wrong if they do it to union workers, it was wrong when Hillary Clinton tried to do it with the Florida and Michigan primaries and it's wrong here.
Aside from the question of whether the new tax is a good idea, I think it's clear what happened: 1. AIG screwed up by breaking the economy. 2. Treasury, acting weaselly, screwed up by cutting a sweetheart deal to save their asses. 3. Congress screwed up by not getting sufficiently pissed about the bonuses. So the result is this post-hoc tax. It is not as good an option as Treasury actually negotiating a good deal, but that ship sailed. What bothers me isn't so much the substance of the Trib argument as, I said, the tone: a tone of noblesse oblige and corporatism. Being told by the editorial page and Chapman that we should mind our manners and let our betters fix everything just sounds condescending.
Everybody's wrong here. The AIG folks are pigs, mostly, but the government is proving to be the worst possible managers, the sort who give you permission to do something and then turn right around to rip you a new one for doing what they said you could do. And I thought Leo Burnett was bad at sticking you on something to fix it and then blaming you for all its existing problems!
