There is an interesting and kind of disturbing kerfluffle taking place the past few days over the now-infamous AIG bonuses, evidently paid to some of the worst offenders in the now-taxpayer-owned venture.
I have mixed feelings on the matter: it's of course offensive, unconscionable, etc, to use taxpayer money to pay these sorts of bonuses ($165M paid to 73 people per the Journal); let's get all our moral outrage out of the way up front here. Sure, angry and mortified, check.
But. There are two really big problems here with what the Congress is trying to do, and what BHO is badgering AIG to do, namely to return the money. Let's deal with the smaller of the two first:
Bonuses are funny things in the banking industry. I think banking bonuses are about as hard to stomach as Alex Rodriguez's steroids-inflated salary. I sure don't get that type of bonus as an accountant. But they are kind of like inflation in a way: actual inflation is hard to take, but what really keeps economists and central bankers up at night is the possibility of increasing inflation expectations. When the expectation of inflation takes hold it becomes largely self-sustaining and self-fulfilling--ask Jimmy Carter and Paul Volcker. This is why Bernanke spent so much time during last year's excursion into the realm of $147 oil talking insouciantly about "inflation expectations are well anchored," and so forth.
The problem with forcibly curtailing bonuses in the financial industry is that they are expected. They are just as expected (however unjustified) as a $44M contract for a pitcher with a career winning percentage just over .500 (cough Dan Heran). If you single out one company and forbid competitive bonuses, or one baseball team and mandate they not pay salaries competitive with those offered elsewhere, you get a slow-motion self-destruct sequence as talent predictably drifts away and new talent stubbornly refuses to be recruited. Policy has consequences, no matter how much you wish it didn't.
And, having injected $160B of taxpayer money into AIG, it would be kind of preferable not to voluntarily begin a chain reaction which necessarily must eventuate in AIG's certain implosion down the road just because we feel good about tipping that first domino. If we wanted AIG to fail, we had a golden opportunity last year to simply let it fail and allow for an orderly disposal of its assets in a bankruptcy. In a free market economy, we punish mistakes by permitting bankruptcies to happen. In the modern, perilously-close-to-socialist America, the only business mistakes we punish are when executives fail to genuflect quickly enough to avoid the displeasure of the Congress.
Which brings me to the larger point. There is an interesting post from David Freddoso over at the National Review blog, the Corner:
Because, at the insistence of the possibly criminal Chris Dodd, these AIG bonuses are legal. Shallow, greedy, possibly competitively necessary, whatever: they don't appear to have been illegal under a plain reading of the law. To write a law after the fact which criminalizes the bonuses appears to me to plainly run afoul of Article 1, Section 9 of the Constitution, which states among other Limitations on Congress, that "No Bill of Attainder or ex post facto Law shall be passed." That they may not be quite criminalizing the behavior, only seeking to write a law after the fact which de facto (if not de jure) prohibits the offending behavior and then find a way to apply this prohibition retroactively sounds rather like they have at best perhaps not violated the letter of Article 1, Section 9, while they have in fact willfully and almost gleefully micturated upon its plain spirit and intent. Bravo, gentlemen, and not even 8 weeks into Dear Leader's Reign (I almost said Reign of Terror).
If the Congress is willing to disregard the Constitution (and not for the first time just this year, either) in order to achieve the outcomes it prefers, and in order to select the winners and the losers depending solely on their own judgment (not to say depending on the size of their campaign contributions), we are in danger of having the Constitution itself rendered useless in broad disregard. One might argue the courts essentially supplanted the plain text of the Constitution with their own particular flavor of momentary whimsy years ago, and it's possible that the other two branches are even now racing to catch up.
The government has demonstrated that its chief principle in managing its affairs will be to adopt those positions which maximize its own control over events and the citizens of our fair republic and has done so while evidencing a, shall we say, diminished regard for the rule of law. History, and our mascot for the day at the top of the post, should teach us that this is an unwelcome omen.
I have mixed feelings on the matter: it's of course offensive, unconscionable, etc, to use taxpayer money to pay these sorts of bonuses ($165M paid to 73 people per the Journal); let's get all our moral outrage out of the way up front here. Sure, angry and mortified, check.
But. There are two really big problems here with what the Congress is trying to do, and what BHO is badgering AIG to do, namely to return the money. Let's deal with the smaller of the two first:
Bonuses are funny things in the banking industry. I think banking bonuses are about as hard to stomach as Alex Rodriguez's steroids-inflated salary. I sure don't get that type of bonus as an accountant. But they are kind of like inflation in a way: actual inflation is hard to take, but what really keeps economists and central bankers up at night is the possibility of increasing inflation expectations. When the expectation of inflation takes hold it becomes largely self-sustaining and self-fulfilling--ask Jimmy Carter and Paul Volcker. This is why Bernanke spent so much time during last year's excursion into the realm of $147 oil talking insouciantly about "inflation expectations are well anchored," and so forth.
The problem with forcibly curtailing bonuses in the financial industry is that they are expected. They are just as expected (however unjustified) as a $44M contract for a pitcher with a career winning percentage just over .500 (cough Dan Heran). If you single out one company and forbid competitive bonuses, or one baseball team and mandate they not pay salaries competitive with those offered elsewhere, you get a slow-motion self-destruct sequence as talent predictably drifts away and new talent stubbornly refuses to be recruited. Policy has consequences, no matter how much you wish it didn't.
And, having injected $160B of taxpayer money into AIG, it would be kind of preferable not to voluntarily begin a chain reaction which necessarily must eventuate in AIG's certain implosion down the road just because we feel good about tipping that first domino. If we wanted AIG to fail, we had a golden opportunity last year to simply let it fail and allow for an orderly disposal of its assets in a bankruptcy. In a free market economy, we punish mistakes by permitting bankruptcies to happen. In the modern, perilously-close-to-socialist America, the only business mistakes we punish are when executives fail to genuflect quickly enough to avoid the displeasure of the Congress.
Which brings me to the larger point. There is an interesting post from David Freddoso over at the National Review blog, the Corner:
But why is Obama so outraged and surprised? Today we learn that he signed the very bill that quite clearly made those bonuses legal — the $787 billion stimulus package he had traveled around the nation promoting. The bill includes restrictions on executive compensation, but creates an exception for bonuses contractually obligated before February 11 of this year. The provision, and the exception, were inserted into the bill by the chairman of the Senate Banking Committee, Chris Dodd (D, Conn.), who has received more than $100,000 from AIG employees in the last 20 years, had written and inserted the relevant provision, with the relevant loophole. How can he, the president, or anyone else who voted for the stimulus, suddenly act surprised? Don't tell us they didn't read the bill.Well, yes. But the difficulty in imagining it doesn't seem to have stopped the Congress from trying (from today's Journal):
House Republicans are already calling for a return of the money, and holding a press conference. Here is the statement from House Minority Whip Eric Cantor (R, Va.) from this afternoon.
“Today, news reports reveal that a last minute provision in the stimulus bill inserted by Democrats protected bonuses like those received by AIG executives. Taxpayers deserve better than this from their government, and this is just the latest reason why legislation must be transparent for all Americans to see before it is recklessly signed into law.”
UPDATE: Here is the loophole, from the section of the stimulus package that deals with compensation rules for TARP recipients:
The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.
Frankly, it's hard to imagine how the government could prevent such contracts from being honored. But the presence of this loophole, in black and white, certainly gives the lie to all of this phony outrage — by the senator who created the loophole, by the president who signed it into law, and by everyone else who voted for the stimulus package.
Congress Looks to a Tax to Recoup Bonus MoneySome lawmakers may see it that way. This voter sees it rather differently and this stems from the fact that I see a government's duties as being narrow and limited: provide for common defense, ensure the rule of law and property rights, and provide an architecture in which persons who haven't broken a law can go about their business unmolested, free to pursue economic success or religious fulfilment or a great suntan or whatever makes an individual happy. I fail to find much in the Constitution or the Federalist Papers which suggests government should be involved in managing outcomes like this.
By JONATHAN WEISMAN, NAFTALI BENDAVID and DEBORAH SOLOMON
WASHINGTON -- Lawmakers moved to tax away almost all of the $165 million in bonuses paid to employees of tottering insurance titan American International Group Inc. as Obama administration officials scrambled to assign blame for the payouts.
Legislators, including Senate Finance Committee Chairman Max Baucus (D., Mont.), proposed to levy a special tax on the so-called retention bonuses paid to 73 people in AIG's Financial Products subsidiary. Recipients of the funds include 11 persons who no longer work at the company. Details of the various tax plans differed, but one idea calls for a tax rate of 90% to 95%, with much of the remainder claimed by state and local levies. Some lawmakers saw the move as an attempt to pressure the employees into giving up their bonuses voluntarily.
Because, at the insistence of the possibly criminal Chris Dodd, these AIG bonuses are legal. Shallow, greedy, possibly competitively necessary, whatever: they don't appear to have been illegal under a plain reading of the law. To write a law after the fact which criminalizes the bonuses appears to me to plainly run afoul of Article 1, Section 9 of the Constitution, which states among other Limitations on Congress, that "No Bill of Attainder or ex post facto Law shall be passed." That they may not be quite criminalizing the behavior, only seeking to write a law after the fact which de facto (if not de jure) prohibits the offending behavior and then find a way to apply this prohibition retroactively sounds rather like they have at best perhaps not violated the letter of Article 1, Section 9, while they have in fact willfully and almost gleefully micturated upon its plain spirit and intent. Bravo, gentlemen, and not even 8 weeks into Dear Leader's Reign (I almost said Reign of Terror).
If the Congress is willing to disregard the Constitution (and not for the first time just this year, either) in order to achieve the outcomes it prefers, and in order to select the winners and the losers depending solely on their own judgment (not to say depending on the size of their campaign contributions), we are in danger of having the Constitution itself rendered useless in broad disregard. One might argue the courts essentially supplanted the plain text of the Constitution with their own particular flavor of momentary whimsy years ago, and it's possible that the other two branches are even now racing to catch up.
The government has demonstrated that its chief principle in managing its affairs will be to adopt those positions which maximize its own control over events and the citizens of our fair republic and has done so while evidencing a, shall we say, diminished regard for the rule of law. History, and our mascot for the day at the top of the post, should teach us that this is an unwelcome omen.
No comments:
Post a Comment