Every time I walk into the kitchen at work to get a coffee or a Diet Coke, I experience thirty seconds or so of CNN. Which, this week has been: “Outraged! Are you outraged? People are outraged! It’s outrageous! Let’s checked in with outraged people in Idaho. Look at the outrage on Twitter! Congress is outraged! The President is outraged! It’s outrageous!”
And then back to my desk.
And yes, the whole AIG situation is outrageous, but… enough.
Outrage is sometime useful and sometimes (like now) not.
I am having trouble with Congressional outrage because it seems to me that when the bailout package was being put together, there was discussion over whether part of it should be limits of executive bonuses, and they chose not to do that, in no small part because the same people currently outraged, outraged, outraged thought that it was a bad idea. (It would be nice if that would be on the table without a hundred members of Congress taking a break from handing out favors to their pals and pushing market-distorting pet projects to look up say, that’s crazy socialist thinking! But that’s not the country we live in.)
One of the options was always letting companies like AIG go into bankruptcy protection – which gives you the ability to reject contractual obligations – and that path was not chosen.
Another path was nationalization of some of these institutions, which also would have given the owners of the companies – that would be the public – more ability to intervene on these matters – and that path was not chosen. (Instead, we the people own 80% of AIG but legally can’t just decide not to honor contractual obligations. Because this is America and that’s how we like it!)
So, having been faced with options, and choosing one, we’re now outraged that what we got is exactly what we chose to get?
Don’t get me wrong – it is outrageous, and it does occur to me that in some cultures, wrecking the financial system of the world’s most powerful nation would be a cause for shame, not a time for asking, “Okay, so where’s my bonus?” But if we didn’t know that executives at AIG lacked a healthy sense of shame, we weren’t paying attention.
Moreover, this is becoming one of those situations where the cures are worse than the problem. Do we want to be a country where the government steps in and overturns legal contracts to avoid obligations? Isn’t this kind of interference in legal arrangements exactly the kind of banana-republic the kind of thing that makes investors hesitatant to put their money into some countries? Is a situation where any unpopular agreement that generates CNN- and Fox-fueled public outrage could be nullified by Congress going to give us a healthy financial system? I don’t think so.
And let’s not forget that the sums of money at stake here are, in the context of the bailout, spare change. This is less money than Congress regularly shits out before breakfast in the form of favors to politically connected people. For the individuals who created insanely complicated toxic financial instruments that few people understand, of course, it’s quite a lot of money, but for all of us it’s basically nothing.
So it’s galling. And yes, outrageous. It’s also not all that significant in the grand scheme of the economy melting down and putting everyone’s future at risk.
It is appropriate to be outraged. Briefly. It’s then a good idea to move on. That this has occupied the administration and Congress all week is frankly more dangerous and disturbing than the bonuses themselves.
I’m not saying that if you saw one of this executives in your headlights in the middle of the road, you should swerve. Just that there are far more important things for our representatives in Washington to be doing with their time.
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All good thoughts. Another angle that annoys me on this story is that these aren’t bonuses like Xmas bonuses, a windfall of funds handed out unexpectedly. The AIG “bonuses” are really deferred compensation, negotiated from day one — no different than a friend who went in-house at a pharma, and his hiring letter says he makes $150K a year plus a 20% bonus. That bonus is expected compensation, taken into account when the employee decided to accept the offer. In my mind it’s far more outrageous that some bank CEO is making an eight- or nine-digit salary, than some AIG employee is getting a six-figure bonus… yet there’s a notable lack of stories about CEO mega-salaries.
I notice that the most e-mailed stories on the NYTimes website are:
1. Obamas to Plant Vegetable Garden at White House
2. Obamas Prepare to Plant White House Vegetable Garden
AIG handouts are all well and good, but I wanna know about the Obamas vegetables!
The reason the media and Congress are giving so much play to the AIG bonuses is because, with rare exceptions (e.g., 60 Minutes, PBS), they are unwilling to explain to Americans what caused this crisis in the first place. Americans are rightfully outraged. But instead of giving us context for that outrage, it is being focused on scapegoats, like AIG.
What caused the meltdown?
1. During the Bush Administration, Congress repealed the relevant “bucket laws” of a century earlier that prevented the kinds of derivatives practices that led directly to the meltdown.
2. A $60 Trillion unregulated real estate swap derivatives market that purported to insure banks against losses in case of failed mortgages. AIG, and the other brokerage houses, had not put aside any money to pay off these “insurance polices,” but sold them aggressively to American banks.
3. U.S. banks found themselves holding trillions of dollars of worthless derivatives that were supposed to insure against bad loans, but ended up having the effect of multiplying their exposure to risk and bringing many of them to the brink of bankruptcy.
What is required to prevent this from ever happening again is a complete overhaul of, not only banking regulations, but of the entire international monetary and trading system. And this is what no one in Washington wants to discuss. And when it is discussed, the talking heads all come out screaming “socialism” and “nationalization.”
My righteous outrage is directed at Congress and the Presidents who have allowed and encouraged the culture of greed, irresponsibility and corporate welfare that have led us to this point.
For example, in 1972, U.S. workers were the highest paid workers on the planet. Today, we are amongst the lowest paid workers in the industrialized world, working many more hours than our European counterparts. To disguise this from the American people, we were encouraged to live large and splurge with credit and to roll our credit card debt into our mortgages when they became too high to repay. (One of the primary reasons mortgages exceed their house values is because consumers have rolled their credit card debt into their mortgages.) And all the while, the very institutions that protect us from eroding wages, corporate hegemony and substandard welfare standards — unions — have been weakened and politically undermined.
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