Class Warfare and AIG

Lots of hand-wringing out there about the 90% tax on bailout bonus money… to which I say…

Why don’t you take a flying fuck at a rolling donut?…

Set aside for a moment the fact that if AIG were a regular company, they would be in the midst of bankruptcy proceedings, with employees no longer receiving paychecks, much less bonuses.  Pretend, if you will, that AIG is not/was not a massive criminal enterprise engaged in fraudulent behavior only one step removed from Bernie Madoff.  The fact remains that the 10% take-home on a million dollar bonus is still $100,000.  Not too shabby!

The sense of entitlement from our ruling class is just appalling.  Here’s a graph from Ezra Klein that does a nice job of illustrating contemporary political and media opinion toward wealth.

The first thing to note: McCain has no business commenting on economic affairs. None. His conception of “rich” makes the $1.6 million earned by the top 0.1% seem reasonable by comparison. Somebody find him a Canasta game and get him off the national scene already. 

And yet, one hardly suspects that his views are unusual around the Senate.  And because rich folks aren’t in the business of taking money from other rich folks (that’s what the rubes are for), his colleagues are currently in the process of cutting the nuts out of the bonus tax, opting for 35% instead.  

I’ve got news for them: we already have that, it’s called the income tax.  You may not know this, but it already applies to the bonus money.  At least that’s how it works for the rest of us.  Maybe quit wasting everyone’s time on this?

Honestly, all I ask is that once they get past the grandstanding, if nothing else comes out of this economic fiasco, let it be the end of Wall Street business as usual.  Brad DeLong makes a great argument against the whole concept of the guaranteed bonus.  This paragraph was especially compelling:

The failure of the major institutions of Wall Street to adopt Silicon Valley compensation schemes in the 1980s and 1990s was always a great worry to regulators and policymakers. The strong view was that the venture capitalists of Silicon Valley knew what they were doing and were acting as prudent and responsible agents of their investors when they insisted on SVCS for their startups. So why didn’t the shareholders of the major banks do the same with their traders, quants, and strategists? The decisive argument in regulatory and policymaker bull sessions about this issue was that this was the shareholders’ business–that if the shareholders of these companies thought that there was good reason to elect board members and CEOs who did not impose SVCSs, the government should be cautious about stepping in. And the argument that “maybe the shareholders know of some good reason not to adopt SVCSs” no longer applies: we are the shareholders, we know of no reason, and we see no reason not to align the interests of our employees at AIG and at TARP-receiving companies with the long-run interests of the U.S. Treasury.

In other words, their license to steal is not a God-given birthright.  There are in fact other, better ways to incentivize corporate initiative (and part of that is to penalize failure). Granted, the Big Money Boys were riding high in the go-go 80’s, until junk bonds and the savings & loan scandal spawned the phrase “Die Yuppie Scum”. But the aftermath of those crises never resulted in the kind of institutional reforms that could prevent the rise of the over-leveraged shitstorm we see today.  

The point is, there has been ample opportunity in our recent history to reign in the greed train that is high finance, but the weasels always manage to slip the collar.  That’s what’s most disturbing about Treasury’s various bailout schemes (TARP, AIG, Citibank, etc).  The message seems to be that we’re going to do whatever it takes to restore these failed institutions.  But it’s not apparent that there will be any consequences for their failure (that is, not counting the consequence of putting the economy in a ditch for the rest of us).

Hey, Geithner, it’s official! They crashed the car! Now take away the keys! Krugman:

At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.

This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.

Suddenly all the “Obama is a socialist” talk begins to make sense… Rather than being the failed electoral strategy it seemed at the time, perhaps big business saw their house of cards tumbling and decided to get out in front of “nationalization” by keeping pressure on Obama to make it the option of last resort, lest he reveal his “true” communist nature. Even though in a perfect world these banks would already be in receivership.

Who the fuck knows?  So long as Obama doesn’t let it stop him.  For a great article on the current state of the crisis and what needs to be done, be sure to read James Galbraith’s article, “No Return to Normal“.

And just to finish my earlier thought:

…why don’t you take a flying fuck at the MOOOOOOOOOOOOON!!

(with apologies to Kurt Vonnegut)

  • M.Uila

    My posts are obsolete the second I hit “Publish”…

    Treasury leaked the details of Geithner’s bank bailout plan last night, no doubt to deflect talk of the bonus fiasco, and lo and behold it’s every bit as regressive as Krugman has feared. John Cole has the synopsis of liberal economist opinion and concludes with:

    If this were a medical emergency, it appears it would look something like this:

    The Illness- reckless and irresponsible betting led to huge losses
    The Diagnosis- Insufficient gambling.
    The Cure- a Trillion dollar stack of chips provided by the house.
    The Prognosis- We are so screwed.

  • M.Uila

    Also, Matt Taibbi is a must read, as usual.

    People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

  • Madman

    Matt is exactly right as usual. The American people are too ill informed to be pissed off about the real problem, so instead we focus on the easy but unimportant details while the big picture floats on by. Do the poo flinging monkeys notice they’re all in a cage?

  • lookie lookie

    yep yep, and unfortnately Obamas decision to select an insider like Geitner is NOT GOOD. The Obama hypocrisy meter is finally starting to rise.