March 22, 2009
Congress: Enemy of Competence
Powerline’s John Hinderaker thinks the outrage over the AIG bonuses is misplaced – it’s the bailout itself that ought to have us looking for the tar and feathers.
There is no legal principle that would justify not paying these bonuses. If you make an offer to someone along the lines of, if you do X I will pay you Y dollars, and he does X, it's too late to change your mind. You're on the hook for Y dollars, and you should be.
The legislation introduced by the Democrats today to tax these bonuses (and possibly a few others, although it isn't clear that any others have been or will be paid that are covered by the statute) at a 90 percent rate is an outrage. It is, in my legal opinion, obviously unconstitutional. It is evidently intended to calm the current political firestorm and not to achieve any real objective.
The Republicans' alternative, which basically just demands that AIG give the money back, somehow, is better but still silly. No doubt one could deduct $165 million from past and future bailout payments to AIG and thereby make the taxpayers "whole." But that just illustrates the foolishness of concentrating on these bonuses rather than the larger picture.
The Obama administration has done a great many things about which taxpayers should be livid--one bailout after another, mammoth tax increases, the bogus "stimulus" bill, the $410 billion leftover appropriations bill, the multi-trillion dollar budget with a $1.7 trillion deficit. Paying employees of AIG money which they have earned and are owed is at the very bottom of the list of actions for which we should be enraged at the Obama administration.
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AIG, like GM, should have been allowed to go into bankruptcy. In bankruptcy, it could have wound down its financial products division just as it is doing now. Bankruptcy would not have affected the company's international insurance businesses, distinct corporate entities which are both solvent and profitable. Those businesses could have been sold, which is what AIG now plans to do.
Why did the federal government prefer to bail AIG out rather than let the bankruptcy court unwind its business? Because of "systemic" risk; that is, the feds wanted AIG in business and funded with $80 billion in taxpayer money so that it could make good on its commitments to third parties, especially third parties to whom it had guaranteed the value of residential mortgage-backed securities. But if AIG had gone into bankruptcy, and there were third parties in danger of failing because AIG couldn't pay what it owed, and it really was in the taxpayers' interest to save those third parties, then the government could have paid the bailout money not to AIG, but selectively to the third parties it deemed important to the economy.
Why wasn't that approach followed? Because of politics. Much of the money that AIG owed was due to European banks. For the American government to bail out European banks would have been a tough sell, to put it mildly. Other third parties were entities like Goldman Sachs, which said it didn't need to be bailed out but received, I believe, $13 billion in taxpayer dollars that was funneled through AIG.
What is happening in Washington is a scandal and an outrage. Barack Obama, Harry Reid and Nancy Pelosi should not be allowed to divert attention from the disastrous policies they are pursuing by focusing on the sideshow of AIG bonuses.
I don’t disagree with a word of that. Bankruptcy was always the right way to deal with failing corporations. It allows them to renegotiate everything, in order to try and save the business, something that’s in the best interest of all parties involved, including employees and their unions, who are better off with jobs, even if they have to give back some of their previously-negotiated benefits.
These bonuses – which were protected at the last minute by an amendment added to the Porkulus Bill by Sen. Chris Dodd (D-Conn.), at the request of the Obama Administration – could have been eliminated, had Congress taken the time to actually read and debate the damn thing.
But, as with everything else they do, incompetence, corruption and cowardice ruled the day.
Hinderaker offers another perspective, this one from Commentary’s Jennifer Rubin:
The lesson from AIG is that the entire premise of the Obama administration – we know better – is fundamentally flawed. The Obama team can't effectively manage a single troubled company without getting itself and the whole country tied up in knots.
The notion that we should invest the federal government with authority to control vast swatches of the economy can now be seen for what it is: madness. We should consider ourselves lucky that the public is getting a glimpse of its government in action on a (relatively speaking) low-dollar item of limited consequences.
Exactly right. Letting the Washington incompetents run anything is madness, just madness. It would be crazy if we let Republicans – who supposedly believe in free markets and capitalism – do it. It’s wearing-tinfoil-helmet-make-the-voices-stop! crazy to let the socialists and their fellow travelers try and take charge of the economy.
God help us.
Posted by Mike Lief at March 22, 2009 08:50 AM
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