Alex Blaze

AIG bonuses: Shaking down the peasants

Filed By Alex Blaze | March 18, 2009 2:30 PM | comments

Filed in: Living
Tags: AIG, bonuses, Glenn Greenwald, government bailout, insurance, money, rule of law, ruth marcus, Wall Street

I was going to just avoid the scandal of the week here on TBP since it isn't particularly LGBT-specific, but I need some sort of outlet after reading this atrocious column from Ruth Marcus on the AIG bonuses.

After a few paragraphs of dismissive and condescending rhetoric directed at the peasants (referring to Americans as a "mob," calling their outrage "fury" as if it's completely irrational to want taxpayer money to create credit instead of bonuses for failures, and presenting us as kids having a temper tantrum with "The public is worked up"), she asks us to cry the banksters who are taking this money a river:

bagatelle.jpgWell, because in the short run, hammering the AIG employees to give back their bonuses risks costing the government more than honoring the contracts would. The worst malefactors at AIG are gone. The new top management isn't taking bonuses. Those in the bonus pool are making sums that for most of us would be astronomical but that are significantly less than what they used to make. Driving away the very people who understand how to fix this complicated mess may make everyone else feel better, but it isn't particularly cost-effective.

In the longer term, having the government void existing contracts, directly or indirectly, as with the suggestions of a punitive tax on such bonuses, will make enterprises less likely to enter into arrangements with the government -- even when that is in the national interest. This is similarly counterproductive.

Remember, we had to force-feed them these hundreds of billions of dollars. And they're taking your money for your own good, ingrates.

Marcus's argument doesn't even make sense: "The worst malefactors at AIG are gone. The new top management isn't taking bonuses." Well, then, it looks like people aren't mad at the new top management; they're mad at the malefactors who stuck around. Which is the truth: the people who sunk this company and threatened to destroy the world's finance system are collecting bonuses for a job poorly done. I can't think of any system in which that's fair.

And even the banksters themselves see it as free money:

15part1.span.jpgAs for another set of partyers, the New York investment bankers whose once-hefty bonuses may have significantly diminished in recent months, "instead of having the $10,000 to $15,000 to spend on a Saturday afternoon, they might spend $2,000 to $3,000," Mr. Laba said. "Which is fine."[...]

Whatever diversion these afternoons bring, some acknowledged that the sight of the young well-to-do partying hard when many financial firms are being castigated for profligate spending could appear embarrassing.

A man who works in finance and was standing near the bar of Merkato 55 the following Saturday started to talk about this issue, but then he had second thoughts, saying he could be fired for drawing attention to the subject in the news media. Any overt display of conspicuous spending, he added, even if not a dime was expensed to a corporate account, would not sit well with his employer. "Excess," he said, "is frowned upon heavily."

As for how he and his fellow Wall Streeters could still afford such afternoons, he said: "We all made so much money in the past five years, it doesn't matter."

A 29-year-old man who works for a large investment management firm and was at Bagatelle's brunch one recent Saturday and at Merkato 55's the next, put it another way: "If you'd asked me in October, I'd say it'd be a different situation, and I don't think I'd be here. Then the government gave us $10 billion."

Then Ruth Marcus deigns to make the pseudo-legal argument against rescinding those bonuses:

Remember, the contracts were negotiated long before the government put a cent into AIG. "The plan was implemented because there was a significant risk of departures among employees at [the company]," AIG wrote in a paper explaining the plan, "and given the $2.7 trillion of derivative positions at [the company] at that time, retention incentives appeared to be in the best interest of all of AIG's stakeholders."

And federal legislation explicitly states that compensation limits for companies receiving bailout funds do not apply to preexisting contracts. Not to mention that the existence of the retention bonuses has been known for more than a year.

"That was then and this is now" is not a valid legal principle. "We are a country of law," Obama economic adviser Lawrence Summers said Sunday. "There are contracts. The government cannot just abrogate contracts." He was right.

Because, of course, no one in America has ever had pay for work they've already done arbitrarily reduced.

But what makes her statement even more obviously a substitute for outright worship of the rich and famous is her rather, to put this gently, inconsistent views on the rule of law. Glenn Greenwald, an attorney by trade, explains how easy it would be to have a court rule to change the contracts. Legally. But a couple of months ago, Ruth Marcus had this to say on why the rule of law should be thrown away in order to let war criminals from the Bush administration go unpunished:

In the current unspooling, I unexpectedly find myself more in the camp of Reagan than Nields. I understand -- I even share -- Nields's anger over the insult to the rule of law. Yet I'm coming to the conclusion that what's most crucial here is ensuring that these mistakes are not repeated. In the end, that may be more important than punishing those who acted wrongly in pursuit of what they thought was right.

She even acknowledges that her position is an "insult to the rule of law" when it comes to letting powerful people off the hook when it comes to actual war crimes they committed. But when it comes to contracts that give rich people money, contracts that could be legally broken, she suddenly becomes Ms. Sound and Fury about the US being "a country of laws."

It obvious that the rules of logic don't apply in Ruth Marcus's universe. The only rule she respects when writing a column is how best to placate the peasants so they don't get too mad at the nobility doing pretty much whatever it wants to do.

Is this the role of journalism in a free society? Should they really be tut-tutting people who don't have much power to protect the interests of people with power? It would be interesting to read Ruth Marcus's response to that.

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Robert Ganshorn Robert Ganshorn | March 18, 2009 11:03 PM

I note that the New York Times entertainment article you have chosen includes no AIG employees and focuses on those who are relatively the lower paid portion. These people are highly educated, still young, people who work 70 hours a week. They were still working late on Friday or Saturday night and thank goodness they are spending their money keeping some New York waiters and suppliers in business if not in the black.

There are loonies out there who are threatening the families of workers of AIG, AIG offices in America and UK have been targeted and employees are staying at home rather than going to work under these conditions. Now that the government appointed head of the company has appeared before congress to announce that many of the execs paid bonuses over 100K are voluntarily giving the bonuses back. Senator Dodd (who wrote the exemption) is on camera acknowledging that he wrote the portion allowing the bonuses. The greatest crime in all this is that it is a distraction from real issues. It is cheap fodder to keep people occupied with class envy rather than solutions.

Ms. Marcus remarks about "the mob" are appropriate in a scenario where even a non bonus employee is under threat of physical harassment just for showing up to work. As "We the People" now own 80% of this behemoth company it is time to make certain that we get our moneys worth which includes allowing them to get work done.

I'm wondering how you know that the NYT article includes no AIG employees, since it includes quotations from many who don't identify their place of work, and discusses a phenomenon that includes many, many people who weren't quoted or named in the article (although one person quoted in the article does work for a bank that received TARP funds).

Working 70 hours a week doesn't entitle anyone to this kind of money. My mother (who's smart, highly-educated, and used to be young, thank you very much) worked far more if you include child-rearing into the equation at multiple part-time jobs and was still paid far less than what she could have lived off. And yet no one was writing columns in the Washington Post demanding she be paid million-dollar bonuses.

This isn't a distraction; rather it's a symbol of the severe rot in the system that gives disgustingly huge sums of money without even thinking about competence and that reeks of entitlement for a small sector of society.

Can you imagine if any of the "Welfare Queens" Reagan was talking about in the 80's was partying down at Bagatelle's with federal money intended for something else? Well, no, because when poor people ask for money they don't deserve it and don't get it, but when rich people just take it these folks bend over backwards to justify it.

Robert Ganshorn Robert Ganshorn | March 19, 2009 11:52 PM

Ah, but without "Noble Rot" you would be drinking no quality French red wine. I wonder how you KNOW the entertainment article includes any AIG employees? Do you presume to set the national MAXIMUM wage for those who work 70 hours a week? (or double the French hours per week worked)

Even so, AIG is now 80% the property of the American tax payer and we need to allow the rank and file to begin digging their way out of the economic hole to provide the taxpayer with a return. Picketing their offices, threatening their families and fiddling while congress laments over legal contracts drawn up before AIG was acquired. What company would you want to do business with?, one who honors contracts or one who does not? When you acquire anything you take the obligations that come with acquisition.

168 mill is a lot of money in bonuses, but it pales in comparison to a trillion. If we are not careful we strangle the future.

And I am not discussing your mother, but my own, who worked harder than any woman I know, including operating a crane at an armaments factory during WWII with her fifth grade education. This so that there would be a France today among other things.

Rick Elliott | March 19, 2009 2:09 AM

As Peter Finch memorialized in this last film, "I'm mad as hell and I'm not going to take it anymore! I feel Finch's rage in my gut when I ponder that I'm worth 30% of what I was 1.5 years ago and their shenanigans are the major reason I had to stop taking income from that account.
I believe the assets of the players who created this greedy scheme should be forced to liquidate all there assets--even those in the Caymans and Switzerland. The proceeds should be put into government accounts to stimulate the economy. Then serious jail time should be given or they should be required to live off the amount of welfare given the poor, use public transportation, and help folks plan their spending.
I'm already mad that Fastow, Lay and Skilling of Enron fame got piddly little fines and jail time. There assets should have forfeit and given to the pension fund of Enron and the rest distributed who can only risk small sums because that's all they can afford. I'll bet Fastow and Skilling will be able to rebuild a nest egg from zero.

Robert Ganshorn Robert Ganshorn | March 19, 2009 3:01 AM

Kenneth Lay died before he was sentenced. Was that enough punishment? Don't get emotional about stocks. Everyone feels the pain, but blind anger won't help anyone.

Is your new philosophy towards law-breaking "If a person who committed a crime, no matter how serious, dies at some point for any reason, she or he has been punished enough"?

If so, I could only hope that more people take up that mentality. It sure would save a lot of money on prisons. :)

Robert Ganshorn Robert Ganshorn | March 20, 2009 9:25 AM

No I was correcting a factual error rather than depending upon the entertainment section of the Times as a source.

Good lord.

I read an article at Z Communications recently about Obama and current economic crisis. I forget the exact title, but it was something like "The Curious Absence of Riots".

If only Marcus was correct and Americans decided to form ACTUAL mobs when the government rapes its own citizens like this. I think Thomas Frank underestimated the narcotic effect of the American Dream in What's the Matter with Kansas. I suppose I should adjust my expectations of public outrage accordingly and recognize that in the US, the amount of public complaining about AIG is tantamount to rioting in the streets.

Robert Ganshorn Robert Ganshorn | March 19, 2009 7:22 AM

Happy that I am that you failed to capitalize "lord" a call for any sort of "mob" to organize is the beginning of your financial end along with anyone else who wants to straighten out our insurance-bank-credit card-investments dilemma. These bonuses are a "shame on you" media moment which I stated above is righting itself.

Properly, calmly and without fear we have institutions Bush allowed to shrivel which will again be resuscitated to meet future and present needs. Now for the Socialist Workers Party view I will defer to others to come. :)

beachcomberT | March 19, 2009 11:38 AM

Thanks for spotlighting the AIG bonus issue even if it lacks a gay angle. (Well, maybe some of the AIG execs kick back on weekends on Fire Island, I don't know.) Anyway, the part I find most incredible in the Marcus column (and a similar op-ed piece by CEO Edward Liffy his own se'f) is the assertion that only AIG insiders know how to straighten out this mess. Weren't these credit-default-swap deals executed in the form of written contracts? If so, then I think any lawyer or broker specializing in investments could figure out how to dispose of them. Or is the argument actually, in unstated terms, that only the AIG hucksters have the skill and influence to con the counterparties into releasing AIG from its overstretched commitments.

No gay angle? Why do most of us Peasants feel like we were raped against our will by the BIG AIG people? It is not a comfortable feeling! Regina