AIG and Populist Rage

Photo by: Gene Hunt

Populist rage is all the…well…rage.  Everyone right now is outraged over how much people get paid to do their job poorly, or how much more some people have than everyone else.  Now of course you can make arguments that the income distribution of modern society is counter-productive, but one key question is:

Why Do We Care RIGHT NOW?

As of now Congress is considering passing a tax to basically recoup 100% of any bonuses paid to AIG employees.1  Everyone is incensed that people get paid these bonuses despite their companies doing poorly.  It seems that the public will not be satisfied until they get their pound of flesh.  This leads one to question why we stop at bonuses?  If the American government is willing to institute taxes to recoup money from the employees of this company, why not garnish their wages too?  

They did a bad job, so lets punish them, regardless of whether they were instructed to do what they did, and more importantly:  They have contracts stating they get this pay.2 These employees signed contracts indicating that if certain events happened they would get these bonuses.  We now want to invalidate them, simply because we don’t like what they are getting paid.  Imagine if you were guaranteed a signing bonus after one year of employment and then because the company did poorly, they decided to simply not honor that obligation.

“Yes But They’re Taking Our Bailout”

The justification for this 100% tax is that AIG took our bailout money so all their obligations are moot.  They want our money, they have to do whatever we say.  In theory that sounds fine, but then you have to question why we bailed out AIG in the first place.  The reason we bailed out AIG was so that the people to whom they had obligations would not be wiped out.  AIG had obligations to foreign banks and other institutions and investors that we didn’t want to see destroyed, so we bailed out AIG so they could meet those obligations.  Now we want to essentially pick and choose which obligations we’re willing to meet.

What’s interestingly lost in all of this is the release of AIG counterparties and where all your tax payer money has been going.  Among the recipients of these funds are foreign banks.3  In that same populist vein, had the bonus story not overshadowed this story, would the same people be advocating that we not pay back European banks?  Or other Wall Street firms?  Ultimately all of this bailout money is going to people who helped create the crisis, because if it wasn’t there wouldn’t be a crisis.  It is interesting that in all of this mess, alleged “populists” are getting outraged by individuals having their obligations met, but not institutions.

None Of This Is Fair

One thing you have to remember in all of this is that none of this is fair.  It’s not fair that poorly mismanaged companies get bailed out at all, while people who made much less egregious mistakes go without aid.  However the sum of these bonuses, $170 million dollars in a bailout in the trillions of dollars, seems like too little of a price to compromise the law.  Ultimately when it comes to the law we all like to have a certainty that if we have a contract to receive something, we will receive it.  I personally don’t think it’s wise to discard the law simply because of one of the smaller injustices in a story rife with injustice.  I’d rather not set the precident that in times of crisis, the law goes out the window.  My sharpest criticisms of the Bush administration were that when our principles were challenged we threw them all out the window in the pursuit of revenge, I have no desire to see us repeat that mistake.

1. AIG Bonus Checks May Be Taxed At Up to 100%, Says Sen. Chuck Schumer – U.S. News and World Report [↩]
2. The Case for Payout Out Bonuses at AIG – New York Times [↩]
3. AIG Outs Counterparties – Forbes.com [↩]

2 Responses to “AIG and Populist Rage”

1. G says:

   April 2, 2009 at 9:26 am

   “It is about time someone stepped up to the table with respect to the egregious bonuses paid by AIG and like companies – whether in the context of U.S. ‘bail-out funds’ being indirectly applied to pay such bonuses, or what otherwise in recent years was in essence arguably an expropriation of investor returns by the Boards and managements of these companies.”

2. Secure Saving says:

   April 2, 2009 at 6:44 pm

   Is that quote intended to refute the post?