The AIG Mystery: Who's Receiving Those Bonuses?

Just who's getting those AIG bonuses?

For days, media commentators, Republican and Democratic Legislators, and just plain folks have been ranting about the news that AIG, the belly-up insurance-giant-cum-hedge-fund that has been bailed out by the US government to the tune (so far) of $175 billion, is handing out at least $165 million in bonuses to its executives. The outrage has been flying fast and thick. Sen. Chuck Grassley (R-Iowa) called for AIG executives to resign or commit suicide. Stephen Colbert screamed and waved a pitchfork. Rep. Barney Frank (D-Mass.), declared that some of AIG's employees ought to be fired. President Barack Obama said he was "choked up with anger." Sen. Harry Reid (D-Nev.), the Senate majority leader, promised late Tuesday that Democrats would propose legislation taxing the bonuses at severe rates unless the bonus contracts were renegotiated. At the White House press briefings, press secretary Robert Gibbs has been pelted with questions about what Obama is going to do to stop—or reclaim—the bonuses.

But in all the furor, one unanswered question has been who precisely is receiving this largesse. Andrew Cuomo, the New York state attorney general, has been on the case. On Monday, he subpoenaed AIG for the names of the executives who received bonuses. The idea, presumably, would be to try to publicly shame some of the executives into returning the money. And Cuomo received something of a boost from the White House. At the end of Tuesday's press briefing at 1600 Pennsylvania Avenue, Gibbs said that the president is supportive of Cuomo's efforts and is also "looking into" obtaining and making public the names of the AIG employees awarded bonuses. This was not a rip-roaring endorsement, but a signal that Obama wouldn't mind if Cuomo succeeded in publicly humiliating these executives. After all, Cuomo's endeavor makes sense: If it's really so hard to get the money back from these folks (because preexisting contracts supposedly can't be broken), taxpayers should at least know whose bank accounts they're padding.

Death and Taxes

The AIG bonuses have already been paid out, so how can we get them back even if we want to?  Some clever congressmen think they have the answer:

Senate Democrats will seek to recoup $165 million in bonuses paid to executives of the troubled insurance giant American International Group through a narrowly focused tax, unless the money is returned voluntarily, party leaders announced this morning.

Senate Majority Leader Harry M. Reid (Nev.) said Finance Committee Chairman  Max Baucus (Mont.) would unveil a proposal by tomorrow that would tax up to 98 percent of the bonus money. "That will certainly send a message to the people at AIG and all others who try to benefit from the hardships the American people face," Reid said.

In the House,  Reps. Steve Israel (N.Y.) and  Tim Ryan (Ohio) introduced the "Bailout Bonus Tax Bracket Act" to create a 100 percent tax on bonuses over $100,000 that are distributed to employees of financial firms receiving federal bailout funds.

On the scale of grand karmic justice, this all sounds fine.  Screw 'em.  Sadly, though, the world doesn't work on the principle of karmic justice.  If it did, Rush Limbaugh would be flipping burgers at a McDonalds in West Sacramento.  So, some random thoughts:

• Would this cause havoc with the sanctity of contracts?  Would no one ever trust the United States government again?  I've now read variations on this theme several times, and I'm unimpressed.  More likely, I'd say, is that the lesson everyone would learn is that if you destroy the global financial system then you might have your bonuses taken away.  This does not strike me as such a bad lesson.

• Would this be legal?  Just curious.  The Supreme Court is fine with retroactive tax increases, but if you target this too finely couldn't it be read as a bill of attainder?  Maybe some legal eagles can chime in on this.

• I wonder how many of the folks at AIG getting the big bonuses are American?  Can we get Gordon Brown to put the screws to the ones who aren't?

• There's actually a genuine unfairness in applying this to every financial firm that's received federal bailout funds.  This is one of the reasons I opposed Hank Paulson's dramatic October gathering where he insisted that every big bank accept TARP funds: it means that we don't know which banks really needed the money and which ones didn't.  If, as Richard Kovacevich continues to insist, Wells Fargo never needed the money in the first place, does the government really have the moral authority to wipe out Wells Fargo's bonuses?

• Are we afraid that if we don't pay these guys millions of dollars they'll all quit and AIG will implode even worse than they already have?  Here's an idea: draft 'em.  Rewrite the selective service law to remove age limits, make financial wizards a special category, and then induct them into the Army.  Unlike the world of foreign affairs, this is one place where the carrot and stick metaphor is genuinely appropriate: instead of the carrot of millions of dollars for good performance, we'd use the stick of years in the stockade as a way of preventing bad performance.  Plus we could make them all wear uniforms and clean out the latrines in their spare time.

That last idea is dedicated to Tyler Cowen. We don't want bloggy fame making us too conventional, do we?

Hmm, About Mobilizing Those Obama Millions....

Organizing for America, the next iteration of President Obama's campaign apparatus, is launching a web tool today that is designed to mobilize millions of Obamaniacs in support of the president's budget. Right now, the tool, which you can find here, mainly makes calling your elected representatives easier.

Not to be the skunk at the party here, but I have a question: shouldn't people know what is in the budget before they start demanding support for it?

Ditka 237, da Russian Bear 3: Ambassador Iron Mike

In honor of St. Patrick's Day President Obama announced Dan Rooney, the Irish-American owner of the Pittsburgh Steelers, as ambassador to Ireland. The merger of professional football and politics is a promising one, and Obama should look closer to home when naming his official envoy to Ukraine. Being from Chicago, Obama knows that if anyone should be our man in Kiev, it's Iron Mike Ditka.

Ditka, who is of Ukrainian descent, ushered in the gilded age of the Chicago Bears. He's one of two people to win Super Bowls as a player, assistant coach, and head coach. He runs a chain of self-named restaurants, dabbles in California wines, launched resorts in Florida, and works as a sports commentator. If anyone could tackle the challenges of running an embassy, it's Ditka. As SNL's Superfans remind us, who wins in a fight, Ditka versus god? Trick question—Ditka is god. 

A Question

I've asked this before, but I'm going to ask it again.  This time I don't want it to get lost, so I'm including no long discussion or analysis.  Just the question.  Here it is:

Why is the modern financial system so profitable?  Shouldn't it actually be getting less profitable over time?

All types of guesses are welcome.  Give it your best shot.

I'm Flicking the Lights Off



Sarah Silverman did it first but this crew does it DARKER for Earth Hour: Saturday 28 March 8:30pm. You can too. Don't forget.

Madagascar's Coup d'Etat

During a college semester abroad in Fort Dauphin, Madagascar, I suddenly felt compelled to write long letters to anyone who I thought might read them. Partly it was to plaster entire envelopes with the country's beautiful palette of penny stamps--everything from lemur scenes to Elvis tributes. But I also really needed to tell someone about the malnourished, 24-hour banana salesmen who slept in doorways, the giant hissing cockroaches in the outhouses, and the men who stood on the rocks alongside the coral beaches and hurled out fishing line, bending over as it unspooled off the tops of their heads.

Madagascar has never been a practical country, and I suppose that's part of its charm. The bridges are all washed out. The national highway is a soup of laterite. Rural folk live in mud-brick hovels yet spend the afterlife within palatial cement replicas of airplanes and taxi brousses--the jacked-up WWII-era troop carriers that are the only way to get around. The less intractable of these problems were, according to Fort Dauphin's students, caused by the greed and ineptness of the country's then-president, Didier Ratsirika, who clung to power only because his party rode into town before each election atop huge loads of free rice.

An island off the southeast coast of Africa, Madagascar is in some ways even more tragic than the continent's cliches. When humans first drifted there from Africa and Indonesia beginning only about 1000 B.C., it was as if they followed the wake of a second Noah's Ark. They found lemurs the size of gorillas, pygmy hippos no bigger than pigs, and elephant birds, which stood 10 feet tall and weighed half a ton. Those creatures were long ago engulfed in wave of extinction that continues to this day. Among the most tenuous survivors is the Aye Aye, which seems like a fusion of monkey, bat, and woodpecker. Despite Madagascar's status as a virtual mini-continent where 80 percent of species are found nowhere else, its infrastructure has been too unreliable to support what should be a thriving tourism industry.

There was once hope that politicians could turn things around. In 2002, Malagasy president Marc Ravalomanana, a self-made dairy farmer, ousted Ratsirika at the polls in a wave of popular support and optimism. Of course, Madagascar was still a country where children stood on the side of the road in the middle of nowhere, waiting to dance for the occasional driver in hopes he'd toss coins out the window; poverty ran deep. So when Andry Rajoelina, the young, charismatic disc jockey who'd become mayor of the nation's capital, Antananarivo, organized protests against rising food prices and government graft last year, Ravalomanana had him ousted. The ensuing three-month standoff ended this week when troops sympathetic to Rajeolina stormed the presidential palace and forced Ravalomanana to cede power.

"This is no clash of policies; it is a clash of personalities," the BBC opined. That doesn't mean it's any less a disaster. The Madagascar military has ended its tradition of not taking political sides. Rajoelena has refused to submit to a referendum on the presidency, paving the way for an uncertain period of dictatorship. And tourism has ground to a halt and will likely take months or years to start up again, especially in the midst of a global downturn.

As the coup clearly shows,  tourism and poverty are uneasy bedfellows. The tragedy in Madagascar is that they need not be. Though hard to reach and difficult to navigate, Madagascar is far from dangerous. It simply needs more ways for tourist money to flow to people at the bottom of the economic ladder, and more tourists who won't let a few sand fleas, stomach bugs, and lost tires get in the way of seeing the most unique place on the planet.

The Great Recession

Justin Fox posted this chart yesterday showing job losses (so far) during the current recession compared to job losses during the Great Depression.  It's a pretty good panic corrective, showing just how far away we are from the problems of the 30s.

It's also, I think, a tribute to how much more we know about the economy these days than we did back then.  Sure, it often seems as if we're still so far in the dark we can barely see our own hands in front of our faces, but the fact is that we're doing pretty well despite the fact that our underlying problems are probably every bit as severe as the imbalances that caused the Great Depression.

Consider, after all, that our response to the Depression appears to have been 180 degrees wrong.  We literally did almost everything possible to make it worse: we tightened the money supply, balanced the budget, raised interest rates, passed protectionist legislation, and allowed banks to fail by the hundreds.  It escalated a panic into a Depression.

And this time around?  Just the opposite: interest rates are close to zero, we're running an enormous budget deficit, protectionism has largely been kept at bay, money is being pumped into the economy prodigiously, and with the notable exception of Lehman Brothers banks are being saved right and left.  These actions have reduced a panic to a severe recession.

If we had taken the same policy actions that Hoover and Mellon took in the 30s, does anyone doubt that the results would have been another Great Depression?  I don't.  We may still be doing a lot of dumb things, but we're an awful lot smarter than we were 80 years ago.

More on Crises

This subject is admittedly a little arcane, but here's Matt Yglesias arguing, contra Ezra Klein and me, that the United States is indeed unsuited to dealing with short-term crises:

The U.S. political system, with its high number of veto points, is arguably unsuited to taking decisive action in response to a crisis compared to alternative models, such as the Westminster system in play in the United Kingdom and Canada or to the multiparty coalition systems of northern Europe. It’s hard to know how to evaluate that claim. There is, however, a political science literature indicating that American-style systems are more prone to total constitutional breakdown in a crisis.

I can't comment on the political science literature, but it seems to me that the U.S. doesn't do any worse than other developed countries on this score.  You can argue about whether our historical responses to immediate crises have been correct, but they certainly seem to have been as decisive as anyone else.  To pick the example of our current economic meltdown, which countries have done better?  Japan?  Germany?  China?  Iceland?

There's a pretty good case to be made that these countries have all acted both more slowly and with less sense of genuine urgency than the U.S.  At the very least, it's safe to say that almost no one has done demonstrably better.  We do indeed have a large number of veto points in our political system, but in practice it's not clear that this has prevented decisive action during a genuine emergency.

The inadequacy of the Federal Elections Commission is an old hobby-horse around here. Today, CREW has some wise things to say on the subject:

Come May 1, President Barack Obama will face a first test of whether he will make good on his promise to change the way Washington works. The test will come at an agency that most Americans have never even heard of — the Federal Election Commission — where there could be three vacancies that day.

...the FEC has long been made up of commissioners hand-picked from the ranks of the political party faithful, and its interpretation of the nation’s campaign finance laws has consistently been to the benefit of the parties rather than the people.

CREW then spends some time providing examples of the FEC's failings, which you should check out if you're not well-versed on the subject. Then it lays out Obama's options: