Silly Little Country

Some Thoughtfulness on the AIG Bonuses

John Hinderaker paid attention to the testimony in Congress yesterday and noticed a lot of things I have not heard in my daily newscast.
First, there was no lack of authority to regulate, simply bad enforcement. This makes it far less clear that MORE regulation will improve anything - just give the regulators leeway to make more mistakes.

HENSARLING: So, again, in retrospect, it wasn't the lack of authority. It wasn't the lack of resources. It wasn't the lack of expertise. You just flat made a mistake. Is that a correct assessment?

POLAKOFF: In 2004, we failed to assess how bad the mortgage economy, the real estate economy would become in 2008. Yes, sir.

The bonuses are retention bonuses and if you read with care how they were structured, you recognize the rank injustice of clawing them back, as Congress is poised in its hypocritical way to do; so far as I know nobody in Congress or the administration is planning to pay back to AIG the campaign contributions they received.

AIG hired (or retained) employees to supervise and wind down the financial products division's book of business, then well in excess of $2 trillion. Since the business was being wound down, these jobs were not great career opportunities. So AIG entered into agreements with its employees that if they would stay for a given period of time, they would earn a bonus. The bonuses that fueled the current controversy were paid to employees who held up their end of the bargain by remaining with AIG.

So an employee is promised a bonus if he stays on and works another year in what would otherwise be a dead-end job; in reliance on that offer, he stays and works for a year. Now Congress wants the bonus back. It's hard to understand how that comports with anyone's idea of fairness, let alone legality.

If Congress could let Liddy do his job, maybe this could turn out not so badly.

LIDDY: ... They [the Fed] were able to acquire those assets at a discount at $0.40 or $0.50 or $0.60 on the dollar. They are currently performing. There's been no credit losses on them. And they are a patient investor. They, and the American public, will do very well on that investment.

So I believe what frequently happens is people take the 40 and they take -- we can have as much as $60 billion in the Federal Reserve. We've only tapped into, let's call it, $40 billion. But analysts -- writers will take 40 plus 60 plus the $50 billion of assets that the Federal Reserve has invested in and a few other things and they get to that $170 billion number. It's an important distinction because for us to pay off what we owe the federal government, it's roughly an $80 billion target right now. And we can do that. But we need some help from the markets to be able to do it.

"Help from the markets". What is MOST likely to make the markets less effective? Why, one of the things is exactly Congress' planned clawback.

Remember when George Bush was "shredding the Constitution?" Ah, those were the good old days! Now we have Congressional Democrats trying to give themselves political cover by advocating patently unconstitutional legislation singling out a few hundred employees of a single company for a "tax" that would reclaim money that they were promised, and earned, with the full knowledge and consent of the Federal Reserve and, it turns out, Congress.

The constitutionality is argued currently in many legal blogs, but the planned law is appalling, and nobody should now feel safe from this administration's willingness to decide that what you thought was yours is theirs.

posted by Alan Adamson @ 6:29 AM