Congress Shows Backbone on AIG Bonuses
Congratulations to the august members of the House of Representatives. You just saved America $148.5M. Of course, after countless hours of wrangling with the Senate, that will surely be reduced by half. And then, there will be the lawsuits challenging the bill-of-attainder tax on a particular company--a really, really, really bad company which deserves to be disemboweled and which we would definitely do if that pesky economic depression weren't in the way. But as I was saying, after the lawsuits and the bureaucratic overhead costs for collecting the cash, the DBO (Dagblog Budget Office) estimates the net savings for the American taxpayers to be somewhere between 0 and -$148.5M. But that doesn't matter because the point is JUSTICE! We demand that all the rich assholes deserve to pay the ultimate penalty for their greedy, greedy awfulness: TAXES! That will show the bastards.
Now I know that the American taxpayers elected George W. Bush, twice (ok, once), the same guy who lowered the taxes on the rich in the first place. And I know that we the people used to believe that the free market knows best and that the government should stay out of our wallets, purses, piggy-banks, and overvalued investments. I also admit that a few of us may have chuckled happily as our 401K's bustled and our houses boomed and Japanese HDTV's flowered like digital dandelions in our living rooms, bedrooms, dining rooms, anywhere else we could fit them, which is a lot of places because they're so incredibly thin. And maybe back then we weren't so down on greed, and so we nodded complacently while AIG and the other bad boys bought up all the mortgages that inflated our real estate and when they awarded those absurdly generous contracts with mandatory bonuses to the evil greedy bankers.
But that was before they sucked all the froth out of our 401K's and fired our neighbors and foreclosed our houses and forced us to sell 12 of our 15 televisions on craigslist so that now we only have one in the bedroom, one in the living room, and one in the den which doubles as a computer monitor so it doesn't really count. In short, that was before we were MAD!
And when the American people get MAD!, we don't want to sit around and wait for our plodding leaders to come up with plans and ideas and ways to make sure that this whole mess doesn't happen again after we're not MAD! anymore. We want JUSTICE! NOW! We want to see our our leaders stick it to some token bankers where the sun don't shine: their wallets! Let's see how many HDTV's they can buy now!
I had thought that our craven representatives would just hem and haw and talk about how mad they were but how the past was the past and how it was too late to stop the bonuses and how we have to think about the future. But I underestimated the willingness of our elected leaders to do the right thing, which is to say whatever they think will get them re-elected next time round. So thank you House of Representatives for standing up to the evil bankers and bowing, nay groveling, before the unrivaled wisdom of the American voter.
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Cross posted as usual at dagblog.com. You can subscribe to all my posts via RSS feed or email. For those who missed my video before and for those who missed the point of my video before: The House That George Built...
I'm new to all this linking and finding posts on more than one site. What is dagblog? Is that something like the Follow Me option found here at TPM?
March 20, 2009 1:01 PM | Reply | Permalink
It's a blog I launched with a few TPM cafe contributors and other assorted writers. We write about politics but also business, sports, and entertainment among other topics. I still cross-post most of my political pieces at TPM. Stop in anytime. We post daily.
Surgeon General's Warning: Blogsurfing is a addictive and hazardous to your health. Side effects include ocular disintegration, carpal tunnel syndrome, nervous tics, and subversive education.
March 20, 2009 1:26 PM | Reply | Permalink
I tried to join up but nothing happened. You might want to make it easier to figure out. Looks like an interesting place from just a first glance.
March 21, 2009 9:55 AM | Reply | Permalink
Fortunately, Ghengis reduced the seizure risk by changing his shirt.
March 21, 2009 10:31 AM | Reply | Permalink
Fine post, and great video, Gengis! (if I forgot to mention it last time)
March 20, 2009 1:32 PM | Reply | Permalink
Really fine Genghis. The video is perfect.
Hey I wanted to thank you for the kind words on the other blog. I tried to reply to you four or five times and it would not go through. I do not know the rules over there.
Great post. Except the message gets me all riled up on the first day of spring.
March 20, 2009 1:39 PM | Reply | Permalink
That's strange. Next time it happens, please send me a note in contact-us, and I'll help take care of it.
And thanks for the compliment.
March 20, 2009 2:05 PM | Reply | Permalink
In complete agreement about the craven hypocrisy of Congress, ladling out their fake outrage once they realized the extent of real popular outrage.
Legislation shouldn't merely parrot populist sentiment, but it's also essential that legislators recognize who their theoretical masters are: the voters, not the corporate lobbyists.
The clawback bill was necessary -- a necessary evil, perhaps -- as a wake-up call to business and government. Let's hope Obama channels the anger that led to it into meaningful financial reforms.
March 20, 2009 2:05 PM | Reply | Permalink
Is anyone giving odds on the slim chance this legislation ever makes it past the Senate?
March 20, 2009 2:07 PM | Reply | Permalink
ps - The best commentary on this so far has centered around the fact that Nancy Pelosi got Eric Cantor and 84 other tax-hating Republicans to vote for the highest tax bracket ever (90%)in US history! These guys will soon be wondering what hit them. Beautiful.
March 20, 2009 2:11 PM | Reply | Permalink
Yes, I liked that aspect. Talk about using a crisis to push through radical legislation. Klein described "disaster capitalism", and we are seeing attempts at what I've called disaster socialism (tho' this is really a kind of reactionary populism, in my view).
I suspect the Repos in the Senate won't be so easy.
March 20, 2009 5:20 PM | Reply | Permalink
If I'm reading this right, banks may be just raising fixed salaries in lieu of the bonuses.
New York Times:
"A pay raise might be the last thing a bank is expected to offer these days. But UBS is doing exactly that as the Swiss bank is looking for new ways to compensate its investment bankers, two people with direct knowledge of the changes told DealBook.
UBS is increasing the base salary of senior investment bankers after reducing many bonuses to a fraction and to align overall compensation more with other financial services professions, such as consultants. The step is part of a bigger overhaul of UBS's remuneration system, said the people, who declined to be identified because the changes are not public."
March 20, 2009 2:25 PM | Reply | Permalink
There is a fundamental misunderstanding of i-banker compensation structures by almost everyone who has been spewing about it. The guaranteed bonuses ARE salaries. The banks just award them at the end of the year to make sure that no one leaves before bonus time. There is a performance-based bonus on top of the guaranteed bonus, and they may be delivered in a single check, but two should not be conflated.
So of course banks are switching to salaries because the guaranteed bonuses have proven to be PR debacle.
And essentially, what the government is doing is punitively taxing the salaries of current employees from a particular company. I don't care about the bankers themselves, but I find the whole circus absurd and a waste of legislative time and energy (if "wasting" legislators' time is even a meaningful concept).
March 20, 2009 2:41 PM | Reply | Permalink
Genghis, for an old Ukranian woman posing as a 30-something progressive blogger, even going so far as to hire models to construct a fictitious biographrical post depicting a defining life moment, you are something else (in a good sense).
Agreed and, as usual, recommended.
March 20, 2009 3:14 PM | Reply | Permalink
I don't think "guaranteed" is the correct word. A base level of a banker's bonus is assumed. But guaranteed makes it sound like each banker has something in writing with regards to a minimum level of their bonus.
March 20, 2009 9:45 PM | Reply | Permalink
That's exactly the point. They do have it writing. The bonuses are contractually guaranteed. In fact, you can read an example of the AIG contract yourself, courtesy of Cuomo' subpoena:
March 21, 2009 1:31 AM | Reply | Permalink
Try again with the link: http://dealbook.blogs.nytimes.com/2009/03/18/the-aig-bonus-contract/
March 21, 2009 1:32 AM | Reply | Permalink
OK - I thought you were talking about the typical investment banker. For those guys, unless you were recently hired by a competitor, you DON'T have a guarantee in writing for your bonus. I was at an investment bank for 10 years and the only people whose bonuses were guaranteed were the ones who we recently hired from a competitor. It was pretty standard to get your first year's bonus guaranteed and in the go-go days you'd get your 2nd year's bonus guaranteed too.
But you're misrepresenting the other 90% of the investment banking workforce that has zero guarantee.
March 21, 2009 7:32 AM | Reply | Permalink
As I understand it, the AIG bonuses in question are contractually guaranteed. I have not examined the preponderance of contractually guaranteed bonuses in the larger investment banking community, but it's my understanding that they are routine for senior bankers and even became common for junior executives recently:
From 2006:
http://news.efinancialcareers.co.uk/NEWS_ITEM/newsItemId-6500
And in case there was any question of what is meant by a guaranteed bonus:
http://news.fx.riskcareers.com/ITEM_FR/newsItemId-11770Sorry for the British sources. That's just what came up.
March 24, 2009 9:46 AM | Reply | Permalink
Yes you're correct for AIG but then you incorrectly applied that to the rest of the financial community.
And 2006 was a much different time than 2008 and 2009. Rather than quote a UK website, why not just ask someone who works for one of the TARP banks? I figure since you live in NY you must have friends at the TARP banks.
March 24, 2009 8:23 PM | Reply | Permalink
I'd say, genghis, to look to: how did it come to this? Who's really to blame?
Could you do a post on Obama's TARP plan? What is it? Does anyone know what it is? Is it secret on purpose? Or is it that he just doesn't think it's that big of a deal, just a sideshow that Geithner and Summers can handle? Are the banks really sorta blackmailing him with the world economy like a suicide bomber sitting with his hand on the trigger? Doesn't that mean the people need to rescue Obama from these evil bombers, that he's helpless? Is there some particular reason why Congress was not busy debating Obama's choice of Deputy Treasury Secretary instead of this? Especially since he's known he was probably going to be handling TARP and AIG and all that since like September?
March 20, 2009 3:16 PM | Reply | Permalink
If we're really going to use Obama's analogy, I think what you are proposing is that all of the police negotiators, psychologists and other professionals be pulled off the task - and the job of "talking this down" be given to the line of people pressing against the police barricades with "The end is near" signs and football slogans painted on their chests.
Sounds like a formula for getting blown-the-fuck-up to me.
BTW: They ALL have known about this for months - this has been an exercise in parsing what the meaning of the word "known" is.
March 20, 2009 3:43 PM | Reply | Permalink
Re: They ALL have known about this for months
More at the New York Times today. I especially love the picture of the civil servants realizing a problem, emailing each other about it, but no one's paying any attention to them, as usual. No leadership, just chaos. (That's how you get all those zany conflicting leaks.)
Was thinking I might like to go with calling it the Scarlett O'Hara Rescue Plan, in honor of the GWTW closing line, I can't think about that right now. If I do, I'll go crazy. I'll think about that tomorrow.
March 20, 2009 4:41 PM | Reply | Permalink
LOL! That's a great tagline.
I seriously believe we're going to be hearing many assorted variations of "Well, I knew they were planning on *some* payments ... but I had *NO IDEA* they were so BIG."
March 20, 2009 5:32 PM | Reply | Permalink
Here's another one to put on the "Ripley's Believe-it-or-not about A.I.G." front:
A.I.G. Sues U.S. for Return of $306 Million in Tax Payments
March 20, New York Times Business
That one would be even tougher to explain to Jack and Jill Taxpayer?
Meanwhile back on the House bill, I see that Obama basically "looks forward to seeing a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated." That's, er, clever wording, no? I suspect he may be thinking that worse comes to worse, the upside is that it will be stimulus work for fellow constitutional lawyers?
March 20, 2009 10:00 PM | Reply | Permalink
Update on Obama's tricky wording above:
Obama Hesitant on Move to Tax Bonuses
By DAVID M. HERSZENHORN 19 minutes ago
...Mr. Obama, who initially said he welcomed the effort by Congress to tax bonuses, is now taking a more measured approach. The White House press secretary, Robert Gibbs, said the administration would have to consider the impact of the legislation on its wider efforts to prop up banks and increase the flow of consumer credit to families and small businesses....
March 20, 2009 11:16 PM | Reply | Permalink
I am really mad that I had to sell off my 12 teevees which meant that I had to watch my fave dude only on three teevees. Like, that is a huge hardship. Really. Also, as much as I have an ingrained revulsion and fear of pitchfork wielding mobs, I could join on if it lead to AIGFP/CITI. Yes we can. Heh.
March 20, 2009 4:17 PM | Reply | Permalink
um, yeah. What about the fact that many of them paid twice? Like when AIG gave money to other entities who had already received money from the govt. I see no problem with this taxing.
Hey, if they don't like it, they can quit and find another job. Or better yet, they can stop the kvetching and fix teh freaking problem. I don't think they should have the bonus. It's not just PR, it's ethics!! Jeez.
March 20, 2009 4:23 PM | Reply | Permalink
I'm with you E. And I've grown weary of the "you're such a middle class plebe you couldn't possibly understand the inner workings of a banking contract" crowd.
What I understand is that these assholes, while possibly not breaking any laws, made hugely irresponsible bets assuming that they couldn't lose. And now the government is covering those bets and the assholes that made them in the first place see nothing wrong with getting million dollar payouts. Let me say that again: million dollar payouts.
Retention bonus. What a joke. If I screwed up that badly in my job, I'd get fired sans severance. I guess I should have been a banker. Screw up royally, collect a million dollars. Sounds good to me.
March 20, 2009 10:19 PM | Reply | Permalink
E & O, this is not about ethics. I have never claimed that AIG employees deserve the salaries, bonuses, or what have you. Many of them are greedy, irresponsible bastards, and you're totally justified in being angry. But encouraging illegal, useless legislation to satisfy your rage is unproductive, indeed counterproductive.
March 21, 2009 1:43 AM | Reply | Permalink
How about legislation mandating two years of public service for any executive, manager, or board member of a company that needs to be financially bailed out by the federal government. Two years teaching in the inner city ought to realign some priorities, I would think.
March 21, 2009 9:43 AM | Reply | Permalink
Here's the really, really hard thing to accept that people are going to have to learn to accept:
a) Retribution against the people and companies who caused this mess right this minute.
b) The personal financial well-being of the nation, the world, you personally and everyone you love.
Pick one.
It sucks. I hate it. I don't blame you if you hate it. But the choice is real and you can't just deny it away by saying "I hate this choice therefore it doesn't exist." That kind of thinking by GWB and Cheney and their neocon and Randian buddies is a major contributing factor to this situation. More of that kind of thinking from the left is not going to correct it. I get that we're scared (again) and therefore angry (again), and therefore want some motherfucking evildoers waterboarded (again), but its not going to be any more productive in this situation than it was when they were torturing all that really great "actionable intelligence" out of evildoers at Cheney's "black sites."
We cannot get the economy running again without incidentally economically benefitting some of the people and companies that caused this mess. And we cannot punish them for their evildoing, right this second, anyway, without creating perverse incentives and effects that could make things worse--and potentially, a lot worse. Maybe if we had a time machine, we could go forward to the time after all this is over, we'd be able to identify some evildoers we could punish now without giving the economy that last little nudge off the ledge and into the abyss. But we don't.
That's just the way it works in the world of economics. Neither "common sense" nor "deserve" have anything to do with it.
March 21, 2009 10:57 AM | Reply | Permalink
NCSteve, your 1 and 2 are false choices. It is false because you say this is not the time to want retribution. If not now, when? When will it be the right time? When? It will never be the right time.
Ok. How about we walk retribution back to wanting simple accountability and change in how these kinds of banks do business here and abroad. It's one thing for you and me, living in purportedly the richest country in the world, with the time for an online life, but think of the peasant in other countries who is going to suffer because his buyer, the middleman to his connection to the global market, is likely telling him that there is no market for his goods/crops this year. So, then, contrast that with the BonusMongers. In fact, you don't even have to go abroad to deal with some peasant, how about right here on ground, in our own lives, how many people do you and I see affected? I think our anger is so justified.
March 21, 2009 1:22 PM | Reply | Permalink
Eloquently put, NC. I've been thinking about the 9/11 parallels as well.
March 21, 2009 1:42 PM | Reply | Permalink
@ O and G.
O --- that's exactly where I have been going -- community service -- with one of my oldest friends, a hometown guy in fact, on email. He works for a financial house in NYC. For two days we have been hammering each other hard and then he called, like, really late last night to talk. And of course showed again why he is one of my oldest friend. :) Some good realizations did come out for me, personally, from this stupid debacle. heh. But yeah, I want to support what you have suggested -- community service for their freaking bonuses. Working pro-bono for a non-profit, a homeless shelter, a nursing home, with returning soldiers or wounded soldiers, a hospital, a school where things are tough economically and socially and yes, weekend roadside trash collector, whatever, two years sounds good.
G --- beg to differ -- this is so about ethics, even if it is tangentially about it or more precisely, the absence of it. Or at least, on the most benign end -- it is about how marginalized ethics has become in specific financial dealings. How does one separate legislative motives from ethics, G, and why would you want to? That's specious reasoning.
I think I hear some portion of what you are saying in that spending this amount of time legislating about punitive agendas are a waste of time. Agreed, partially. However, your argument has an enabling component to it, G. I hope you see that. Where does accountability begin?
I don't believe that punitiveness ever produces change or even accountability, and yet, I am left wondering how change and ethical accountability can be brought into these big finance houses and their product divisions and auctions of instruments? By and large they are that way, but there are rogues who have driven this over the precipice. Where and how can reform even enter the scene if public anger does not overcome legislative ennui to enable an ethical incision into this form of doing business? When will we learn, as a culture, to rethink and displace the loci of credit/debt in our lives? Those are the changes I want to see.
March 21, 2009 12:55 PM | Reply | Permalink
I'm way, way into accountability. But the way to legislate accountability is not to pass laws punishing particular people for having done something wrong. It's to pass laws to discourage people from doing something that they have yet to do. We're missing a great opportunity.
March 21, 2009 1:37 PM | Reply | Permalink
--Paul Krugman, March 20
Consider the idea that what you really want, what you are really asking for, is for Congress to stand up to Obama and Geithner. Criminy, he even had Dodd falling on his sword for him without much complaint, and he's one arrogant guy. None of this would have happened if the legislation hadn't been altered at Treasury's request. They aren't handling what they want to do correctly and don't have enough staff to do what they are trying to do. There's news again today that the TALF plan has been so "untransparent" simply because they haven't been able to work on it enough. When it's ready, they are just going to spring it on everyone, possibly without adequate review. The next famously mismanaged institution may be the Obama administration unless there's some "change" right soon.
March 21, 2009 10:39 AM | Reply | Permalink
The concern is valid. Details are coming out today. I haven't had a time to examine them but look forward to discussing something important with significant consequences.
March 21, 2009 1:40 PM | Reply | Permalink