Saturday, March 21, 2009

AIG Bonuses and Collective Amnesia

Joe Nocera has a perceptive column today describing the problem with the hysteria that has surrounded the AIG bonuses. Sure the bonuses are outrageous--any child can see that--but Nocera points out that rage over the bonuses tends to obscure more significant issues.

But there is a much bigger issue that has barely been touched upon by Congress: the way tens of billions of dollars of taxpayers’ money has been funneled to A.I.G.’s counterparties — at 100 cents on the dollar. How can it possibly make sense that Goldman Sachs, Bank of America, Citigroup and every other company that bought credit-default swaps from A.I.G. should be made whole by the government? Why isn’t it forcing them to take a haircut?
I'd add to Joe's list of misgivings another factor, which I call "collective amnesia." I'd wager any sum of money that this entire issue is going to be forgotten in a year's time. I'd be delighted to lose that wager, but that is how things work with Wall Street related issues. People get upset, there is the predictable congressional braying, and then--nothing.

Don't forget that a million years ago, back at the turn of the year 2006-2007, there was an immense brouhaha about the bonuses doled out to Goldman Sachs executives and other rich guys on Wall Street. I remember appearing on CNBC at the time quite frequently, facing off against apologists for Wall Street from the usual lobbying groups and libertarian think tanks. I remember in particular an obnoxious dude from an Ayn Rand organization shilling for the Street back then.

At this time, the Street was raking in massive profits, and my argument was, and is, that the bonuses were obscene and immoral and had just gotten out of hand. To me, the very size of the bonuses was insane, that little of that was returned to the community, and that it was time to examine the morality of such massive compensation levels. (If someone can find a web link to these interviews, please let me know; I only have 'em on VHS.)

Of course, we now know that the bonuses were not only immoral, but that the bonus system encouraged excessive risk-taking. But one didn't have to realize how awful the bonus system was from a systemic standpoint. They just, prima facie, in a Sunday school morality sense, stank on ice.

My point here is not just to say "I told you so" (though that's part of it), but to point out that bonuses are an issue that is so old that is reeks. It is turning yellow with age. Where were the congressional loudmouths two years ago? Why didn't Congress pass a law taxing bonuses 90% two years ago? Where was their moral outrage then?

Hypocrisy stinks, and the reaction to the AIG stinks not only of hypocrisy, but of political pandering to popular outrage. That's not leadership.

It isn't leadership, that is, if collective amnesia sets in, as it did after Enron. Political contributions are sweet things, and Congress always has its hand out. When it's a collision between contributions and populism, contributions win and collective amnesia will set in.

© 2009 Gary Weiss. All rights reserved.

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