Wednesday, March 25, 2009

Power Grabs

What was the furor about the AIG bonuses really about? I'm not sure that any of the outraged could tell you except in the most general terms. Here are some of the reasons that were passed around last week:
  • That bailout money was going to fund big bonus checks. (true but less than 1%)
  • That people who caused AIG's problems were still getting bonuses. (not necessarily)
  • That performance bonuses were going to people who lost billions of dollars. (false)
  • That people working for bailed-out companies are still getting high salaries.
There was a level of hysteria in Congress that did not seem to be reflected elsewhere. While there were some protests about the bonuses, they never reached the level of the Tea Party protests and these are not having any effect on Congress. Why should the bonuses cause so much uproar. I think that there are multiple answers.

First a little review - the bonuses were promised in April of 2008 in an effort to keep vital people at AIG while the company wound down its money-losing section. The worry was that, even in a bad economy, the top people were in demand and would jump ship without bonuses and AIG would collapse. A collapse is undesirable which is why the government bailed out AIG in the first place. Keep in mind that in April, 2008, we were still debating if there was a recession. The stimulus bill passed in February, 2009 would have capped or eliminated these bonuses but a crucial paragraph was quietly removed in conference allowing the bonuses to proceed. By the time the furor erupted, the checks had already gone out.

President Obama originally came out sounding outraged. Barney Frank threatened the jobs of anyone who took a bonus. The House quickly voted to enact a retroactive 90% tax on the bonuses. This violates the spirit of the Constitution if not the letter.

By Saturday the MSM was reporting protests at the homes of AIG executives. This caught my attention since it seems more organized than most protests. It turns out that the protests were actually a group of people on chartered buses going from executive's house to house to leave a letter asking that the executive return the bonus and support a tax rate of 90%. The protesters were outnumbered by the press. The whole thing was organized by the Working Families Party of Connecticut. This in turn is an offshoot of ACORN which has long-standing ties with the President.

The same day Obama announced that he wanted to regulate the top salaries of all companies in the financial sector, regardless of federal funds. He was unclear about what this regulation would consist of.

By Monday the Obama administration was announcing its toxic debt reduction plan. This relied on exactly the same sort of investors that Obama had been railing against so he moderated his rhetoric for a while. The next day his administration suggested that the Treasury Secretary should be able to seize any business that he judged a danger to the economy. This was also sold as a way of keeping future bonuses from being paid.

So, what is going on?

The members of Congress involved in allowing the bonuses to go through insist that they were following the wishes of the Obama administration. Their outrage is probably a cover for their complicity.

The Obama administration seems to be at cross-purposes with itself. Is it in favor of the bonuses or against them? Probably both, but for different reasons.

There is a strong case to be made for the bonuses. If it is worth pouring billions of dollars of bail-out money into AIG then it is worth keeping enough of the management in place to prevent a total collapse of the company. Also, we are supposed to be a nation of laws. This means that contracts are honored, even if you don't like them.

On the other hand, the outrage is also useful for the Obama administration. It is taking advantage of the furor to propose new international regulations, to propose some level of control over executive pay of private companies, and to extend control that the government has over banks to other industries. There is even an element of increasing tax rates back to the confiscatory levels of the 1950s.

Put together and we have an unprecedented power grab. I don't know if the Obama administration is up to the follow-through on this but they have proposed taking over our financial sector. Add in their plans to take over the medical sector of the economy and we will soon have the government controlling more than half the economy.

Then there is the news that the EPA classified CO2 a pollutant. This potentially gives the president control over the rest of the economy plus how people live.

Now, ask yourself - do you trust these Bozos to run the economy? Follow-up question for anyone who answered yes - the Republicans will eventually come back in power. Do you trust them with the economy?

1 comment:

林依晨Amber said...
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