Our Conor Clarke asked Larry Tribe whether or not one could, legally, tax away the bonuses paid to AIG employees. Larry Tribe seems to think that the answer is yes.
This has interesting implications for the banks that have already taken government funds, and certainly, any banks that might be considering doing so in the future. I suspect it would be hard to write a specific tax that applied only to AIG and not, say, to Citibank--and that's assuming that the Democrats in Congress would want to. I think it's safe to assume that if this passes, any banks that possibly can will rush to return bailout funds to the Treasury. And perhaps this is a good thing. But the attempt to shield shaky banks behind a general distribution of funds will be over.
I suspect that it would also not do any good things for whatever future plans Treasury has. All of the plans I'm currently aware of involve substantial voluntary participation from sound financial institutions. I don't think you'll get much voluntary cooperation from banks if you declare that any acceptance of government funds will involve substantial risk that they will appropriate your paycheck.
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I am enjoying this development immensely.
Legally speaking they would be able to sue, and win their money back. The Income Tax amendment does not allow unequal taxation by the federal Government. What they're going to do with Bernie Madoff victims might work, only because there was deliberate fraud involved.
I do think you'd be surprised at how receptive banks would be at the opportunity to stick it to people who helped put their business in a spot. Remember contracts don't always work the way a business wants them to either.
Tribe is much more confident than I am that this won't be seen as punitive. The narrower any tax is, the more punitive it looks; but the broader it is, the more it screws up the whole bailout.
I'm also curious about government contract issues. The constitution does somewhat constrain the federal government's ability to back out of its contractual obligations -- see, e.g., United States v. Winstar. I don't know if these bonus contracts count as government contracts or not. I could see the employees arguing that the corporation acts as an agent for its shareholders when it negotiates contracts (though, of course, shareholders' personal liability is limited by the corporate form). Indeed, a lot of the outrage here is explicitly based on the fact that the bonuses were paid with government dollars.
Maybe someone who knows more can tell me whether this is a complete non-issue or not.
When it became clear that Obama would win the nomination (and the election) I told my conservative and libertarian friends that they should ignore the regular-as-clockwork conservative carping that the next Democrat would spell the end of the free market, would create an economic collapse, etc., etc., etc.
If I had learned one thing from Bill Clinton it was that there are centrist democrats who can govern pretty reasonably - better than W, for example.
I also thought that his connection to Ayers was no more relevant than, say, Hillary's left-wing undergraduate papers - folks do and say a lot of crazy stuff when they're young.
I still voted against Obama, of course, but I didn't think he'd be that bad.
As it turns out, I am deeply shocked by just how incompetent he's turning out to be. If anything, he's managing to exceed the dire predictions of the Limbaugh and National Review crowds.
While I think that banker bonuses are overly generous, the regime uncertainty that comes when a president and senators go around calling out individual capitalists by name and suggesting that they'll pass retroactive tax layws scares the crap out of me.
Many people are upset - and rightly so - that profits remain in private hands while taxpayers are expected to pick up losses. So the answer is to put burdensome taxes on profits too? Are the flippers who got out of housing with 100% or more gains in two or three years going to be taxed at, say, 80% of whatever government claims is excess profits? Are artists ready to give back windfalls when an album suddenly goes platinum or movie royalties soar? What proclivity for taking risks will disappear from our culture if rewards are truncated by politicians? Someone once suggested that the best way to find a cure for cancer is to allow the discoverer to remain free of all taxes forever. As angry as we are that some AIG employees didn't merit bonuses, we need to avoid draconian measures that allow government to change the rules of the game at a whim.
It would be easy to draft a provision that would tax these bonuses and no one else's. Congress does things like that all the time, though usually it's tax breaks rather than tax burdens. You just tax bonuses "paid by a corporation that ..." and then specify details that only AIG satisfies.
When the Tax Reform Act of 1986 was passed, one of the things journalists did was learn how to identify favored taxpayers described in the legislation only by detail lists.
I wish Ben were right about tax laws having to apply equally. Alas, they don't, and they haven't for a very long time (a development for which Republicans are probably even more to blame than Democrats, though there are really no good guys here).
If I'm reading Tribe correctly, it sounds like he's saying that such a bill would be constitutional if were crafted to cover bonuses handed out by firms receiving large amounts of federal cash.
The larger issue is whether Congress WOULD craft such a bill. I think they'll try, and it will put Obama in a very tough position. He really doesn't want to go down that road, if for no other reason than it will cause a great deal of upset in the markets and private sector at precisely the wrong time. On a more basic level, it puts the Democrats farther to the Left on economic and legal issues (contract law, especially) than I think Obama is. Problem is, it's not clear he's got many options.
AIG is killing his administration.
TJIC and creech, I think your posts are right on ... but for a different reason than you probably meant. I think it's highly constructive in the long run that the reaction to the failure of AIG and its total reliance on the goverment is fear that our capitalistic system is coming apart at the seams. Yes, crazy socialist and populists tendencies are popping out everywhere, but American business invited them to the party.
Moral hazard coming from failure of the company is fine, although not really that painful for anyone other than the stockholders. Moral hazard coming from the manic reaction to AIG become a ward of the state is more powerful by a lot.
Clearly I'm not alone in this, but this latest round of bonuses has put me over the top. Up until now I've been at least tentatively persuaded that a something short of nationalization might able to stabilize the financial system.
At this point I do not see the point in trying to keep people at AIG, particularly employees of the Financial Products Division. I am not at all persuaded that they are saving taxpayers money or acting in the long term interest of the company (it is not clear to me that they were ever doing that) - I suspect that they are simply using their continued employment to figure out new ways to sneak money out the back door before they jump ship.
Much like the good bank / bad bank, I think AIG needs a breakup - we (the 80% owners) sell off the traditional insurance lines, and then keep / payoff / partially payoff the obligations on the CDO swaps.
Which leads me to a thought - I havent' heard many people actually discussing or advocating this kind of approach with AIG - am I missing a major roadblock, or just the usual "its a very complicated, interconnected web, and we don't know what will happen if we mess with it" explaination?
Also, why are we biased in favor of the do nothing, or do as little as possible approaches to this crisis if we really are not sure of the risks involved - isn't the risk if we do nothing just as great?
I suspect it would be hard to write a specific tax that applied only to AIG and not, say, to Citibank--and that's assuming that the Democrats in Congress would want to. I think it's safe to assume that if this passes, any banks that possibly can will rush to return bailout funds to the Treasury.
Ditto what Alan Gunn said above. It absolutely would be possible to write a bill that taxes pretty much only AIG bonuses, or at least leaves the bonuses alone at banks that didn't really need the bailout -- you just have to figure out what the right criteria is. If memory serves, the administration already tried to do something like this by promulgating regs that allowed executive compensation cuts in corporations that received "highly substantial" bailout aid (or somesuch).
And yes, there is a possibility that some really shaky banks that would have gone under but for TARP funds might get caught in this net, but I really don't see the problem in saying that de facto insolvent banks shouldn't be paying bonuses.
Which leads me to a thought - I havent' heard many people actually discussing or advocating this kind of approach with AIG - am I missing a major roadblock, or just the usual "its a very complicated, interconnected web, and we don't know what will happen if we mess with it" explaination?
Most of AIG's swaps have punitive consequences -- usually involving drastically increased collateral requirements -- in a situation like this. You could try to legislate around that or reach an agreement with swap counterparties involving a government guaranty, but that is complicated and time consuming.
Oh man this is REAALLYY getting good. Check it out.
So Bammy, Geitner, Dodd and Summers have to either "shoot themselves in the foot", (penalize their sick friends and all those who come after = be punitive) or
"shoot themselves in the foot." (lose the right to govern and get tar and feathered).
This is the last chance for the conservatives to get it right and lump all the neocons and neolib corporate-lovers together. At any rate, pass the popcorn. Its always great when the emperor has no clothes.
It would be easy to draft a provision that would tax these bonuses and no one else's. Congress does things like that all the time, though usually it's tax breaks rather than tax burdens. You just tax bonuses "paid by a corporation that ..." and then specify details that only AIG satisfies.
How about "any corporation that recieves loans from the federal government to avoid bankruptcy..."?
Seriously, this isn't difficult, nor is it even a bad precendent. If anything, it would be a good one. If your business fails and has to get government funding in order to survive, don't expect deferred bonus payments. Or, don't accept deferred bonuses as payment in the first place, shmucks. These people chose to get paid in this manner, they should have to reap the consequences of poor decision-making. People around the country are paying for their own poor decisions, why should AIG be any different.
Megan seems to think that this will drive out all the good talent. If that is the case, incentivize future recovery or earnings. That way, people who, you know, actually want to work there and make the company successful are the ones that stay.
Megan's posturing is the direct result of her simply not understanding the ramifications of the bailout she supported. She simply doesn't understand that it is indeed immoral to use my money to pay somebody 10x my salary.
And I am a pretty hardcore libertarian at that.
The bonuses issue is a distraction. The scandal is that the AIG bail-out amounted to a bail-out of Goldman Sachs and by extension a bail-out of Paulson's and Bernanke's friends and portfolios. These guys make Maxine Waters look like a saint.
AIG shows that no matter how poorly a company is run, government can always do even worse. Retaining valuable employees by withholding compensation makes as much sense an nation-building by bombing countries to rubble.
Retaining valuable employees by withholding compensation makes as much sense an nation-building by bombing countries to rubble.
Unless those employees receiving the bonuses aren't valuable, and are only there to collect as much money as possible. How many star employees wouldn't have jumped ship from AIG at this point? If you were a top producer, wouldn't you have left AIG a long time ago? I have a feeling that those at AIG are stuck there, and have no place else to go.
TJIC: "While I think that banker bonuses are overly generous, the regime uncertainty that comes when a president and senators go around calling out individual capitalists by name and suggesting that they'll pass retroactive tax layws scares the crap out of me."
I agree, there is too much uncertainty. I also agree that we should not be retroactively taxing these retroactive individual capitalists. What we ought to do is send in delta force, round up every executive on Wall Street, and then guillotine them one by one them on live television until the blood washes into the Hudson River. Then pass a constitutional amendment so that any executive of a financial company that commits fraud will be summarily executed.
Byrk, the politicians don't even know who is valuable and who isn't. Even if they did, they can't trim the fat without the right tools. It's like a surgeon with Parkinson's operating on a patient with a steak knife.
We are the one's who are stuck. We all bought a company with negative net assets and staffed by a grab bag of talent.
How many star employees wouldn't have jumped ship from AIG at this point?
I guess we'll find out now.
Perhaps the problem is how to stick to the narrative, Bush created this problem by deregulation, and collect money in a punitive, legal action which would favor sticking to the facts. The CDS contracts were written out of the London office of AIG. I'm suspicious that that might be to avoid disclosure to a US authority. If that argument can be successfully made, then a fraud prosecution could be made.
What is it we are trying to save? Even before the bail-outs, the system was not Capitalism in any meaningful sense. It looks like crony corporatism to me. Why the hell should a bunch or rich East Coast Jews get to deduct their losses from the Madoff scam when I can't deduct my losses at the MGM craps table? The insiders get all these special deals and the shlubs like us get to pay for it.
Let AIG fail. Let the banks fail and let the companies still standing bid on the pieces. I'd rather suffer deflation than this death march toward fascism.
No bill of attainder or ex post facto Law shall be passed.
What's amazing about this situation is that these bonuses haven't diverted attention from the fact that all the money distributed to AIG by the government has gone directly into Goldman's pockets. The money in these bonuses are peanuts. In the meantime, Goldman has taken us for real money and hasn't earned much in the way of public derision.
"Bush created this problem by deregulation"
Bullshit. The problem is that the Fed is unregulated. Greenspan inflated the bubble when he dropped rates to 1% IN 2002.
This is a bipartisan rape of taxpayers. Obama did inherit a mess, but he's made it much worse. Partisan warfare is just a tool used by the power elite to divide and conquer the great unwashed masses. In that respect, it's no different than race or class warfare.
A pox on both houses. There's not a nickel's worth of difference between them anyway.
I love the smell of fear (to borrow a Naked Gun title) wafting from Megan's blog these days. When Stewart disemboweled Cramer in public, the oligarchs actually felt fear for the first time in a long time. Megan's current message can be summarized as "Agh! Stop it, you unwashed hordes! Go back to sleep!"
The bonuses issue is a distraction. The scandal is that the AIG bail-out amounted to a bail-out of Goldman Sachs and by extension a bail-out of Paulson's and Bernanke's friends and portfolios.
This. I don't know if it's deliberate or not, but all this focus on the bonuses is masking the enormous transfer of wealth from taxpayers to bank shareholders in the US and Europe. And to think people used to hyperventilate over connections between Cheney and Haliburton.
I love the smell of fear (to borrow a Naked Gun title) wafting from Megan's blog these days. When Stewart disemboweled Cramer in public, the oligarchs actually felt fear for the first time in a long time. Megan's current message can be summarized as "Agh! Stop it, you unwashed hordes! Go back to sleep!"
Cramer doesn't represent anyone but himself, Stewart is a clown taken seriously by a tiny fraction of the populace, and if Megan is an "oligarch" I'm the Pope. What color is they sky on your planet?
Let AIG fail. Let the banks fail and let the companies still standing bid on the pieces. I'd rather suffer deflation than this death march toward fascism.
A lot of jobs would go away with all this failure. Are you really prepared to see half of your neighbors out of work in the space of a week?
"Disemboweled"? Jesus, go back to your lit crit classes.
TJIC, I agree with you. I even voted for the man and I'm really shocked to see vulgar leftism in his policies. I thought we were going for a centrism more like Summers' of the past, but even he's become a lapdog to preserve the seat of power.
"A lot of jobs would go away with all this failure. Are you really prepared to see half of your neighbors out of work in the space of a week?"
They are phony jobs! The manager at Coldstone Creamery doesn't produce anything useful or necessary. Let him work at Wal-Mart. Yeah, people who sell eight dollar sandwiches and four dollar coffees will have to find real work. Boo freakin' Hoo. Houses will trade at 2X annual salaries of the buyers rather than 10X. People won't be able to trade in their cars every other year or have second cars and second houses. We might have to vacation at state parks rather than Europe. Is that so terrible?
A lot of jobs would go away with all this failure.
A lot of jobs will go away with or without bailing-out particular players, it's just a matter of how quickly and what they get replaced with. We've chosen to pay trillions to ensure the bubble bursts as slowly as possible, to sacrifice efficiency and fairness for security and stability.
Speaking specifically of failed and bailed institutions:
I heard the "we can't lose the trust of business" meme a few times today before it occurred to me how exactly backwards that was.
At this point in time, business needs to earn our trust. They need to convince us that they are not playing the game laid out by Taleb (and probably others) before this blew up. They need to convince us that they aren't making long-term risky bets in exchange for short-term bonuses.
Until they convince us of that, I am not going to trust them with an unregulated, too big to fail, investment bank and bonus structure.
Man! The Republicans foolish enough to put themselves on TV to say we honor business by honoring these bonuses have put themselves on the wrong side of history. The man in the street is going to say "wait a sec ..."
The Republicans now are putting themselves squarely in defense of "private profit, socialized losses."
Back to the AIG bonuses issue, Glenn Greenwald claims (based on an article by Jane Hamsher) that Treasury, not Sen. Dodd, made sure the legislation permitted the bonus payments.
Generally I consider Greenwald's endorsement strong evidence that something is false, but judge for yourselves.
How much acid must one drop to come to the conclusion that this giant speculative bubble's inflation and bursting was the result of the deregulatory policies of George W. Bush? I mean, there is plenty to dislike about the guy's Presidency, but this is like blaming the Titanic disaster on how the bosun's mate executed the evacuation plan. Hell, even the worst action by the Executive Branch with regard to this disaster during the W. Bush years, the SEC allowing the five majors to ratchet up leverage in 2004, was merely one of the final missteps by the government, and one of the few that was deregulatory in nature. It came by a unanimous vote, with all Democrats signing on, and the SEC chair at the time ended up an
Obama supporter.
Loreenzo, that may be true, but Geithner doesn't have a vote in the Senate. He needs an accomplice.
Billare: "TJIC, I agree with you. I even voted for the man and I'm really shocked to see vulgar leftism in his policies. I thought we were going for a centrism more like Summers' of the past, but even he's become a lapdog to preserve the seat of power.
what the fuck are you talking about? The problem IS Summers' "centrism". Everyone knows the financial system is totally bankrupt and the U.S. government should either let the whole thing fall or nationalize it. Of course a good "centrist" like Doctor Lawrence H. Summers the Douche or his bitch boy Tax-Cheat Timmah would demand that we instead give away trillions of dollars to prop up Goldman Sachs so that their executives can continue to pay themselves multimillion bonuses while everyday tens of thousands of people find themselves out of work because the banks won't extend credit to keep REAL, PRODUCTIVE businesses afloat.
The economic, social, and most especially political system of this country has proven to be deeply rotten and corrupt from the inside out. If we want to save ourselves we'll need a little less "centrism" and little more LEADERSHIP from the President. I hope he starts by tossing Summers and Geithner into a giant vat of acid set up in front of the New York Stock Exchange, along with the rest of the incestuous corrupt power elite.
Allen: "How much acid must one drop to come to the conclusion that this giant speculative bubble's inflation and bursting was the result of the deregulatory policies of George W. Bush?"
He is part of the incestuous corrupt power elite of which Summers, Geithner, Dodd, and the Clintons are also longtime members. Barack Obama, on the other hand, was NOT a member of said elite, at least circa early 2007. I guess he is now.
Everyone is complicit, and George Bush more than most.
Why the hell should a bunch or rich East Coast Jews get to deduct their losses from the Madoff scam when I can't deduct my losses at the MGM craps table?
"East Coast Jews." Nice.
They are phony jobs! The manager at Coldstone Creamery doesn't produce anything useful or necessary. Let him work at Wal-Mart. Yeah, people who sell eight dollar sandwiches and four dollar coffees will have to find real work. Boo freakin' Hoo.
I know a useful job somebody could do. Any killers for hire here on this forum who want to take this guy out?
I'm joking, but only by just this much. Go move your fucking gold bug ass to Somalia already. Anti-semitic fuck.
Will Allen - I don't blame Bush for causing the crash. I agree he didn't. I blame him for being asleep at the switch. When the bridge was out (debt of all forms rising to unsustainable levels) he did not exercise one shred of caution.
In fact, with Greenspan's low rates, he doubled-down.
With reduction in regulation and oversight, he doubled-down again.
So ... it is now all that much worse.
"Much like the good bank / bad bank, I think AIG needs a breakup - we (the 80% owners) sell off the traditional insurance lines, and then keep / payoff / partially payoff the obligations on the CDO swaps."
They are currently doing that, but it takes some time - and doing it too fast will just destroy more value. The core insurance business in being spun out into a new holdco, and I think they plan to IPO it once there is a market for such things. Most of the FP business is being wound down in as orderly a manner as possible. I personally have been involved in at least 20 transactions where AIG PUAs (a specialized sort of GIC/GIA) were the collateral, and have now been replaced or the whole deal has been wound up. You can only go so fast on this stuff - there are only so many folks left at FP who actually know what they are doing (to be clear, most of the FP folks up in CT were not doing the crazy CDSs, which was mostly a London office operation).
It is far from pretty but it is getting done. When it is over, AIG will again be an insurance company, not a CDS slot machine.
This is really funny. Everybody has their shorts in a knot over some large paychecks. You guys just wrote a check for how many $trillions?
Write New York City and probably the state off. Wall Street as a center of finance is gone. It was on its way out, then this stupidity killed it. Do you really want that?
The fuss and noise in this instance is fine. People are upset, and yelling helps. I'm waiting to see if any of the proposals are actually implemented. If so, we are going to learn intimately why the great depression lasted until a rather large distraction got governments attention away from mismanaging the economy.
Derek
I still think Megan and others who have lived close to or in Wall St dont really get it. The issue is not just the bonuses but the size of them compared to what most folks can ever hope for short of winning the lottery. The whole thing has thrown sharper focus on the hideous disparities in American economic life that Krugman has been (rightly) been going on about for years.
Correcting those disparites is a long, complex job and demonising individuals solves nothing. But, the overall messsage to bankers should be clear. The gravy train is over. Bank failures or not, no politician Democrat or Republican who wants to get elected in the next 2 decades will be able to do anything but move toward the dreaded R word. Redistribution.
The deep emotional dread with which the lucky are viewing the end of their priviledges, and the delusion that the result will be existential castrophe for the whole economy is the driving force behind all this and it is deeply delusional.
I understand how one can make the *corporate* tax code as wide or as narrow as one wants to.
I do not understand how one can do this for *personal* income. There are some variations in taxation rates on different revenue streams but salary, wages, tips, bonuses are all in the same basket- and taxed at whatever prevailing marginal rate (now 35 soon to be 39% iirc) I do not see how you can target a tax increase on the bonuses that wouldn't apply to all earned income at that dollar amount.
Stop referring to a bonus as a paycheck! The two words are not interchangeable! Wall Street has been using this 'bonus' nonsense for years to slide into tax loopholes, and they don't suddenly get to pivot and insist that their wages are getting garnished and food is getting taken off their table. THEY DON'T GET TO HAVE IT BOTH WAYS!!!
By the way, the hathos was flying thick on capitol hill today, as congressmen and senators who have spent the last decade mercilessly deregulating the financial industry while taking its money scrambled to lay on the vitrol the thickest. Hypocrites of the world, unite!
odograph, the number of Presidents who would overrule unanimous SEC sentiment on this sort of regulatory issue (allowing the five majors to ratchet up leverage), and this particular SEC vote really was the egregious deregulatory act by the Executive Branch in the W. Bush years, is approximately zero. If you want to critisize Bush for the guys he appointed, in that their sentiment was terribly wrong, fine.
dkite: "If so, we are going to learn intimately why the great depression lasted until a rather large distraction got governments attention away from mismanaging the economy."
yep, the government did not intervene in the economy during World War II. what?
but actually you have given me a great idea. Instead of throwing all the wall street bankers, media pundits, and washington lobbyists into a vat of acid, we should draft them and then send them to Afghanistan. Kill two birds with one stone.
For all the grief I have written here about Ms. McArdle waxing on about legal topics about which she is clueless, allow me to commend her for consulting a true expert in this situation.
On the arguments above, very interesting stuff. I would only add that the outcries over pay and perks are not surprising to anyone who has ever worked or contracted for the government. It is a sad and painful life that we demand our government officials lead. If I worked for our new national insurance company, I would either quit or begin to acclimate myself to this new purient reality.
A couple of unrelated points:
most of the FP folks up in CT were not doing the crazy CDSs, which was mostly a London office operation
And the US government can tax a Londoner how? Well if he was an American citizen working in London... but now might be a really good time to change citizenship.
But on to my main point. THIS DOESN'T HAVE TO BE CONSTITUTIONAL.
Congress passes the "Grab back cash from greedy AIG bastards Act 2009". The bankers sue on the grounds of unconstitutionality. In 18 months the courts decide that congress was wrong.
So what? Delaying this public relations disaster for 18 months is a total win for congress and the president. In 18 months the story will no longer be front page. The economy may be recovering. There will be new bad guys to distract the taxpaying masses. There may be a nuclear war in South Asia. Maybe the horse will learn to sing. If this is still the biggest story around then nothing would have helped.
I say that congress has no downside.
Lastly: Can we now start to describe AIG as a quagmire?
" Go move your fucking gold bug ass to Somalia already. Anti-semitic fuck."
Madoff's victims weren't primarily wealthy and Jewish? Is it anti-semitic to notice this or is it anti-semitic to mention it? Is the term "East Coast Jews" anti-semitic? I'm pretty sure Florida and New York are on the East Coast.
Some of my very favorite people are/were Jews. Ludwig von Mises, Murray Rothbard, Walter Block...
I'm actually have no special preference for gold but I'm keeping my commodity bug ass right here, thank you.
Like Kolohe, I wonder just how you are going to construct a tax law that targets individuals with ordinary income. In my opinion, the only way to claw back these bonuses is through civil suits alleging fraudulent transfers- there are at least standing laws against such frauds. If we start targeting individuals with ex post facto laws, then, well, liberty in this country is dead, dead, dead, and it is only a question of who is the next target.
However, it is simply hilarious watching politicians decrying these particular bonuses while ignoring the far larger transfers (some of which led to even larger bonuses at GS and others) to the counterparties of AIG. This looting of the citizens, with the full agreement of both parties in Washington, is sickening to those of us who warned against this course of action from the very beginning.
Describing this as "appropriating someone's paycheck" is simply breathtaking, given that the money for the bonuses -- not a salary patcheck -- would come from the government.
Seriously, how can you "appropriate" something by refusing to give it away in the first place, when a reasonable case can be made that you ought not be obligated to do so?
Megan is like a reverse populist, spouting all sorts of inane babble to romanticize the plight of failed Wall Street execs in their war against a government that's "appropriating" from them even though it's saved them from bankruptcy.
I think all of us can get why populists romanticize the hard-working or downtrodden little guy. It's a plausible and naturally sympathetic image, no matter the merits of populist politics. But to fellate obviously undeserving failures who've personally contributed to a massive destruction of wealth? To endorse their taxpayer-funded bonuses as a possibly "appropriated paycheck" -- which implies both money earned for services rendered (not a retention bonus) and advances the notion that the appropriating agency didn't own the money in the first place?
She's both insane and obscene. I don't think I've read a more shameless blogger, ever.
I think I get it now. It's anti-semitic to suggest that a group of people disproportionately Jewish relative to the general population should NOT be given special treatment when they make poor decisions. Thinking that group should be treated the same as the rest of us and not get special tax privileges is anti-semitic.
Corruption of society begins with corruption of language.
Back on topic:
AIG is now a political entity which means it won't be run solely to serve the shareholder's interests. It can't possibly make a real profit without more subsidies but is also too big to fail. It has effectively become a conduit to funnel government funds into the hands of the rich.
The procedure should be:
1. If it moves, tax it.
2. If it still moves, regulate it.
3. If it stops moving, subsidize it.
We seem have gotten the sequence wrong.
I suspect that it would also not do any good things for whatever future plans Treasury has. All of the plans I'm currently aware of involve substantial voluntary participation from sound financial institutions. I don't think you'll get much voluntary cooperation from banks if you declare that any acceptance of government funds will involve substantial risk that they will appropriate your paycheck.
Well, one thing is for certain - TARP is dead. The banks that did not lend their TARP money were the smart ones. They will have it around to pay it back immediately. The banks that dutifully lent the money were the suckers.
something by refusing to give it away in the first place,
The bonuses are already paid.
Nick, I cannot speak for Megan, but I know in my own case that I like to be a contrarian. Sure, it makes me take some unpopular positions sometime...but someday I may get to say that Big Brother has no clothes.
Nick, Megan is kind of a weird creature. Her instincts are solid, but she won't engage fundamentals, perhaps (not sure) out of fear of rebuke from her "mainstream" colleagues/cohorts. She's more superficial than shameless.
But I agree to an extent. Certainly with her as a spokesperson it's easy to see why libertarians are frequently confused with corporate apologists.
Megan is a cosmotarian, which is a kind of corporate apologist, at least more than it is a kind of libertarian.
"Her instincts are solid"
Huh?
Megan is a smart but naive girl thoroughly corrupted by her statist education. She actually is a pretty good writer, but unfortunately that just makes her more effective at communicating error.
"Well, one thing is for certain - TARP is dead"
We can only hope. I don't want to own 1/300,000,000th of a pile of toxic assets.
Describing this as "appropriating someone's paycheck" is simply breathtaking, given that the money for the bonuses -- not a salary patcheck -- would come from the government.
Sort of. In some industries the bonus is part of the compensation - when you stiff your waitress you really are taking food off the table. The financial industry is the same way, thought the numbers are quite a bit bigger - giving someone a small bonus is a slap and an indication you want them to leave. In this case they actually had a clause in their contracts that guaranteed a bonus at least as large as last year. Well, a guaranteed bonus is really more like salary, since most people consider bonuses to be performance related.
Since AIG didn't go into bankruptcy, they have a legal obligation to pay that money whether it came from the government or not.
"We can only hope [that TARP is dead]. I don't want to own 1/300,000,000th of a pile of toxic assets."
That may be. However, if the financial system begins crumbling again in the near future, it would not be fair to say, "See...TARP I didn't work."
You could argue that TARP was doomed to fail because it would be killed by politics. However, that is different from saying TARP was a failure.
Certainly with her as a spokesperson it's easy to see why libertarians are frequently confused with corporate apologists.
Since when is Megan a spokesperson for libertarians?
Raft: I don't think there were many complaints about rich capitalists when they were needed to build industrial capacity. Many made huge profits from the war effort, and owned very rich assets after the war.
Obama and congress are on the verge of attacking business directly and personally, using the full might of government. They all voted for and signed and put their political capital behind a bill that guaranteed the payment of these bonus'. Now they are proposing going back on their word, using punitive measures to attack someone who took them at their word.
Let them go ahead.
So what else are they going to go back on when it is politically handy? I know. They pay far too much interest on the debt. Is their word good in that case? Or if someone invests in some business in the US, can they trust the government not to screw them out of their resources if it becomes politically expedient for them to do it? Not if they go back on their word in this case.
We wonder why the depression lasted so long. We are going to find out. Personally and directly.
Derek
One point that isn't being underlined here is the possibility that AIG (FP) is scrambling to cover up fraud.
http://www.talkingpointsmemo.com/archives/2009/03/a_closer_look_please_1.php
Part of the point of wanting to yank back the bonuses is to discourage gambling/fraud in the future.
People at AIG (FP) made a lot of money delivering a product that *couldn't work* under rather easily predictable circumstances. This product had the sole purpose of being able to (wrongly) permit AAA ratings on CDO's.
I do not know what other fraud may have been in play at AIG; it seems likely there's more.
The WSJ has a great article which really traces the fall of AIG to that idiot Spitzer.
Should the Federal Government hire Bernie Madoff for many millions of $$/year to unwind his business dealings?
Why not? Surely he is the one who has the unique expertise to determine where that money went.
Even a $50 million salary for Madoff would be pretty small potatoes compared to the amount of money he might be able to recover.
"You could argue that TARP was doomed to fail because it would be killed by politics. However, that is different from saying TARP was a failure."
Define failure. The credit markets are clogged because they should be clogged. If irresponsible lending has stopped, good. If the market doesn't want to buy the toxic assets, then why should the taxpayers be forced to purchase them?
The system needs a reboot just like my crappy windows computer. It's not so complicated to see the need for bad banks, insurance companies and other business to break up and the parts get bought up by the good companies. That's the way capitalism is supposed to work.
The financial system needs to fail. It is not capitalism in any meaningful sense. AIG is making this plain to see and that's a good thing.
Is it conceivable that some of the bonus money has gone to people who have already left the firm, or soon will, and that such people have inside knowledge which will let them use their new-found money to now short AIG effectively, or at least take positions on derivatives which harm the interests of the taxpayer/AIG owner?
This just gets better every day!!!!!
Should the Federal Government hire Bernie Madoff for many millions of $$/year to unwind his business dealings?
I thought the point was that he didn't actually HAVE any. If he's merely been an incompetent investor he wouldn't be going to prison right now.
Oh Danny Boy, your crack pipe is calling. It's a rhetorical question.
What I find as the largest area of concern right now is that we have people in the Congress talking quite seriously about trying to pass a tax law change to punish specific, named individuals. Isn't this a de facto Bill of Attainder?
I'm not happy about AIG choosing to spend money on this either. But is this truly a door we wish to open?
"Correcting those disparites is a long, complex job and demonising individuals solves nothing. But, the overall messsage to bankers should be clear. The gravy train is over. Bank failures or not, no politician Democrat or Republican who wants to get elected in the next 2 decades will be able to do anything but move toward the dreaded R word. Redistribution."
Uhh.... we _are_ involved in redistribution right now. The middle gets its money sucked out to support the poor, and, in this case, the rich ... it's the Latin American kleptocratic model that our elites prefer.
Will Allen writes: "Is it conceivable that some of the bonus money has gone to people who have already left the firm, or soon will, and that such people have inside knowledge which will let them use their new-found money to now short AIG effectively, or at least take positions on derivatives which harm the interests of the taxpayer/AIG owner?"
From CNN: "Cuomo also wrote that 11 of the employees no longer work for the company. The largest bonus paid was $6.4 million; seven other people also received more than $4 million each."
I agree that the talk about the bonuses is a distraction. It's a small fraction of the money that was used to prop up AIG, a much larger fraction of which ended up being transferred to counterparties like Goldman.
For big investors, it's "heads I win, tails you lose"... although I would bet that this has been the case more often than not in history; he who has the gold writes the rules.
. I even voted for the man and I'm really shocked to see vulgar leftism in his policies.
I just love reading that.
People are "shocked" that a guy who learned about education policy from Bill Ayers, sat in the "God Damn America" church for 20 years, and believes the courts need to be involved in the redistribution of wealth (I've been working my entire adult life to help build an America where economic justice is being served,", worked with ACORN, etc, etc, etc is an unabashed leftist.
What I do wonder is what exactly Obama has ever done that would give you the idea he is a "centrist"?
How much acid must one drop to come to the conclusion that this giant speculative bubble's inflation and bursting was the result of the deregulatory policies of George W
Can you please name a single "deregulation" policy for the group?
I would love to see this.
In fact, name a single piece of legislation or regulation from the last 8 years that can directly attributed to our current state of economic affairs.
Ditto what Alan Gunn said above. It absolutely would be possible to write a bill that taxes pretty much only AIG bonuses, or at least leaves the bonuses alone at banks that didn't really need the bailout -- you just have to figure out what the right criteria is.
One proposal is based on the percentage of government ownership - we have 79.9% of AIG, less that 50% for Citi, nothing for Merrill (now gone), and so on.
The tax system is based on voluntary compliance - this sort of tinkering based on the current political fashion is an awful idea since it tells everyone who might be harmed by a shift in the political winds to be more active in hiding income.
And for starters, who would be dumb enough to stay on at a TARP bank on the basis of a 2009 employment contract, once we learn that Congress will decide in 2010 whether that contract means anything?
odograph, the record clearly shows that President Bush and the Republicans tried to rein in Fannie and Freddie in 2001, 2003, and 2005. Guess who was prepared to filibuster any attempt at doing that: Senators Dodd, Schumer, Kennedy, Obama, et al. Good Democrats all. And the largest receivers of campaign contributions from Wall Street, too. What a surprise.
The Ace, I can think of one piece of Bush-era legislation that probably helped.
http://www.freerepublic.com/focus/f-news/2094023/posts
Bush: "I set an ambitious goal...that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families."
"To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments..."
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
It certainly isn't deregulation, but it probably did contribute to the housing bubble.
The bonuses are a slight of hand exercise to divert attention from the real scandal. AIG paying off their credit default swaps, in full, on MBS's that have not in fact dropped to zero value. Contained within that is that Goldman Sachs got the second biggest amount on what was a pure speculation and not a hedge.
Let there be no confusion about all this. The AIG bailout is an embezzlement scheme run by the Goldman Sachs. The bonus payouts a means to divert attention from the real crimes.
Everything about the bailouts has to be looked at from a forensic perspective because the entire structure of Wall Street manufactured Collateralized Debt Obligations were fraudulent. Well almost entirely. At any rate crime came to dominate it and the ultimate end was always going to be the Treasury paying off the perps.
If and when all the transaction and every communication from Paulsons Treasury and then his boys running TARP are made public the criminal nature of the enterprise will be obvious.
The stakes are huge which is why the NY Times stayed out of this story till they no longer could. Then trumpeted the bonuses and now is harping on how those damn foreign banks took our money. The name Paulson never mentioned once.
If you want to get the bonuses back, all you have to do is force AIG into bankruptcy. Depending on the state fraudulent transfer statute, you'll be able to claw back payments made within the previous 18 or so months.
Now, there's the little problem that we've converted our loan into equity, so if AIG goes bust the taxpayers are at the back of the line of creditors. Thanks, guys.
The bonuses are mostly a drop in the bucket for what we are potentially on the hook for with AIG. Can we sue them to get a partial reimbursement of their CDS payouts? Because as far as I know, they are paying full value on them to foreign banks (and Citi and Goldman, of course) with taxpayer funds, and will continue to do so. And how about the plan to sell off AIG's "profitable divisions" to "reimburse the taxpayer"? Looks like that's not happening...at all. AIG's total liability in CDS's is $527 Billion, we've paid them $160 Billion...we are about 1/3 of the way there! Yeah, America!!
Of course, if AIG were in Chapter 11, a judge could limit those payouts, and break up the company in an orderly fashion, but we are never going to let that happen, are we?
These bonuses are just another form of stimulus right? Have any of you actually shopped in New York City? Think of all the good the stimulus will do for upscale shops where they sell imported hand crafted children clothing for $300?
/end sarcasm.
Out in the suburbs we call this place Walmart and it's not so expensive, but still!
I'm joking, but only by just this much. Go move your fucking gold bug ass to Somalia already. Anti-semitic fuck.
What's the definition of an Anti-Semite? Someone who disagrees with a Jew.
Contrary to MM's post title , there are several quite legal ways to get the money back
http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus-contracts-can-be-broken/#baker
My way- sue the people for non-performance and fraud. Given AIG's situation, I suspect that discovery will produce plenty of evidence for both. The good thing about discovery in such a case is that it will throw the public spotlight on just what it is these so called Masters of the Universe do to earn their outrageous salaries.
I also believe that we should fire them all immediately. They've stolen enough of the taxpayer's money.
(1) This bill may be known by the short title "Taxpayer Justice Act of 2009."
(2) It is the finding of Congress that it is against public policy to spend taxpayer money on bonuses for AIG executives. Therefore, 26 USC 1 is amended to state:
(a) There is hereby imposed a 100% tax on all income earned by Culpable Individuals in the last 24 months;
(b) For the purposes of this section, "Culpable Individuals" shall be defined as
(i) Elected officials who voted for, sponsored, drafted, or publicly endorsed the TARP law.
(ii) Political appointees who participated in drafting the TARP law.
(iii) Political appointees who implemented the TARP law.
The thought of the government deciding ex post facto to take away contractually agreed-upon bonuses through taxation should send shivers down everyone's back. I'm reminded of Pastor Martin Niemoller's poem:
"In Germany, they came first for the Communists, And I didn’t speak up because I wasn’t a Communist;
And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;
And then they came for the Jews, And I didn’t speak up because I wasn’t a Jew;
And then . . . they came for me . . . And by that time there was no one left to speak up."
Be careful what you ask for.
In any case, that misses the point, since the bonuses were already paid; getting them back is much harder than not giving them in the first place.
Yeah, not only is this ex post facto, but isn't this also a bill of attainder?
Look, the US government should have made the bailout money conditional on no bonuses. Perhaps there might be some wiggle room to say the bailout required that---don't have the exact terms or legal argument in front of me.
But Obama is freaking out now, and is messing with some serious constitutional problems to avoid his dropping poll numbers. AIG is scum, but NotMyPresident is trying to openly (again) screw with the constitution. I guess he figures since he's been getting away with lying through his teeth so far, this shouldn't be so hard.
Or he might not understand the constitution. Remember, people, he was an Affirmative Action lecturer only; not even a scholar. And his job involved "community organizing" not trying cases or writing legal articles. He might be too dumb to know that this is illegal.
People at AIG (FP) made a lot of money delivering a product that *couldn't work* under rather easily predictable circumstances.
Present market circumstances were OBVIOUSLY easy to predict. We can tell by the way SO MANY investors, traders and government officials prepared for them, all over the world.
@Nieporent
There actually are such strategies in the article:
Payment of bonuses to employees who have wrought so much destruction and havoc on us all is simply ipso facto unconscionable, and a court should reform or invalidate the contracts. Every contract has certain implied provisions and terms that are not specifically spelled out but presumed to be part of the agreement because such terms are so fundamental to a reasonable agreement between two parties. So with a payment of a bonus, it must be presumed that an implied term is the employee won’t destroy the company and shareholders for whom the employee supposedly works. If the employees’ acts have been so contrary to the interests of the shareholders, as is the case with A.I.G., then payment of the bonuses is unconscionable and the obligation can be voided.
The doctrines of rescission and reformation can also be used to challenge the bonus contracts. Under rescission, a contract can be voided because of misrepresentation or mistake, and under contract reformation, a court may equitably modify a contract where there are mistakes of fact or law. The bonus contracts that A.I.G. said were made last year must have been premised at least on maintaining A.I.G. as a shareholder-owned company. Thus they were premised on a mistaken fact and now can be revised.
That's from Tutthill. From Greenwald:
There are almost certainly viable claims that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contractual obligations. Separately, there must be substantial counterclaims that A.I.G. could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses. The only reason for a company like A.I.G. to throw up its hands from the start and announce that there is simply nothing to be done is that it is eager to make these payments.
Frankly, we would have to see the contracts themselves to get a full picture of the legal and business strategies available. I have to agree with Greenwald. Those who counsel despair without even SEEING the contracts are people who WANT to conclude that it's hopeless.
@ben
"Legally speaking they would be able to sue, and win their money back. The Income Tax amendment does not allow unequal taxation by the federal Government."
With that argument in hand, you should have no trouble getting the entire Internal Revenue Code abolished.
I'm pretty sure that to attaint someone you have to mention them by name. Of course when you attaint someone (convict and sentence them by passing a law saying that they're convicted of such-and-such and sentenced to such-and-such), you can claim their property for the Crown which it sounds like some of youall want.
And for what it's worth, not every law that identifies or affeact a named person is a bill of attainder. Attainting someone is a specific bypass of the criminal justice system and due process of law and is rightly constitutional.
Rightly UNCONSTITUTIONAL is what I meant. Typo.
Oy vey!
Ok, here are some problems with what people are saying here:
Claim: "If the people at AIG really were that good that they should be kept there, they would have already jumped ship and found jobs elsewhere."
Reality: Why would you if you had a guaranteed contract that you expected to be honored not reneged on by the government in its populist hizzy? If you had 1.5 million guaranteed why would you go elsewhere?
Claim: "The real scandal here is that Goldman was a vast beneficiary of the bailout of AIG."
Reality: How is this a surprise to you? At the time of the bailout, the explicit argument made for why bailing out AIG was necessary is to make sure that AIG's many counterparties don't fail as well with AIG's failure. Isn't this the specific reason WHY we bailed out AIG? So that the counterparties don't take a bath that would lead a world-wide panic? I'm not saying that the bailout is good or bad. I'm just saying, this is the exact result that everyone expected and indeed hoped for. Citi also got bailed out by the feds. I'm sure in the last two months, Citi has made billions of dollars of payments to say, Deutsche Bank, as part of its normal operations of trading, posting collateral, paying out on defaults of corporations on which they sold CDS protection, etc. So by this logic, is a bailout of Citi, really a sneaky bailout of Deutsche Bank? Paulson, that sounds like a Germanic name! Let's expell the Germans! By your argument, we also bailed out Staples, Microsoft, Dell, UPS, FedEx, Research In Motion, Verizon, etc. because AIG was able to pay them for their office supplies, computers, blackberries, etc.
Claim: "The guys getting bonuses at AIG were the ones that blew AIG up."
Reality: Umm... no. The guys who blew up AIG were, as far as I know, the guys in the RMBS and CMBS desks. I would venture to guess, though I don't know for sure, that most of those guys are gone. The CDS traders, for example, didn't actually blow AIG up. What happened was that AIG, like lots of entities including St. Warren's Berkshire Hathaway, was a massive net seller of CDS protection. This is fine as long as you're a AAA entity and don't need to post collateral and aren't a bank so don't have to Mark to Market (you can just put it in the accrual book and don't have to take any losses until actual defaults... and it _is_ highly unlikely that GE, Johnson&Johnson, Microsoft, etc. will all default). But after Lehman collapsed, and everyone saw how impaired their RMBS and CMBS portfolios were, the ratings agencies realized that AIG's portfolios in *those* products would be impaired as well and downgraded them as a result. This automatically triggered collateral calls on ALL derivative transactions with counterparties, not just CDS (though those were, I think, the largest part of the AIG portfolio). For all we know, the people getting bonuses might (as hinted by Liddy in the press release AIG made on the bonuses) might be interest rate derivatives traders, who actually, probably made money last year.
Claim: "The government owns 79.9% of AIG, so they should be able to determine comp there."
Reality: Fidelity is the largest shareholder in many corporations through its mutual funds. Fidelity, as shareholder, does not actually get to determine the comp of employees. And in particular, they don't get to tear up contracts made with employees before they bought a single share of stock. Perhaps we should be able to claw back the salary Barney Frank and Chris Dodd earned while in Congress for the awful jobs they did in those roles, when they encouraged Fannie and Freddie to take on excessive risk, thereby facilitating a taxpayer bailout? Dodd and Frank make more money as Congressmen than the vast majority of Americans!
Perhaps as someone has suggested, we should start clawing back the commissions of real estate agents who helped people flip properties or were engaged in flipping themselves?
Put your pitchforks down people.
"I'm pretty sure that to attaint someone you have to mention them by name."
---Not so sure about that, Joy. If Congress passed a law stating "any person who received a bonus at certain companies that received a government bailout in the last 8 months and who are in the insurance business now have a 100% tax on that bonus" I think it would suffice as a bill of attainder.
1) That's not what "unconscionable" means; an unconscionable contract is one that on its face is so one-sided, generally based on unequal bargaining power, as to be unjust. The mere fact that one doesn't like the effects of the contract on others does not make it "unconscionable."
2) One can certainly refuse to pay on a contract by arguing that the other side breached the contract. AIG -- but not Congress -- could have made that argument about its employees, before the payments were made. The problem is that it's a bad faith argument; there is no implied provision that they'll do a good job and AIG will make money. The fact that an employee makes bad decisions is grounds for firing him, not for failing to pay him wages already earned. Moreover, it's an argument that would have to be made specifically about each employee individually; you'd have to show that this particular employee breached his contract. There's no valid "the company did badly, so everyone must have done a bad job" approach.
Again, a bad faith argument. No, the contracts were not premised on any such thing -- why on earth would they have been? -- nor is a bad prediction the same thing as a "mistaken fact." (The classic "mistake" case in contracts law is the Peerless case; the parties contracted to buy/sell goods coming on a ship called the Peerless. The problem was that there were two different ships with the same name, and one party meant one ship and the other party meant the other. We have nothing like that here.) Also, these are generally grounds for voiding a contract, not for failing to pay AFTER the other side has performed. Now those, unlike the ones claimed above, present valid legal arguments; the problem is that there's no factual basis to support them. There's a reason Greenwald is now a lefty blogger rather than a commercial litigator. It's a tendentious argument. Of course you have to see the contracts; in theory, there could be a hidden, "Your bonus is contingent on the government not giving us money" provision. But none of the arguments made above -- mistake, unconscionability, fraud, etc. -- are premised on any contractual provision which one might discover by "seeing" the contracts. And I note that Greenwald doesn't apply that argument to all these people who insist that there just must be a way to get out of them. (AIG, which actually paid them, has seen the contracts.)Why is it that Congresscritters can fail to manage the entire nation's economy, and get off without even a reprimand, while AIG exec's get flailed for mismanaging a single company. Hypocrisy, thy name is politician.
You know this is really going to be a lot more work for the Democrats. When you had a monoSatanism, really 'Bush is EVIL' pretty well rapped it up. Now we have to have the witch of the day, week or month and really it's a lot more difficult to keep up. Not to mention the railroad is still supposed to run.
The blame to Spitzer goes like this. He had a prosecution of AIG and it's principal, Hank Greenburg. AIG had to separate itself from Greenburg or face an Arthur Anderson type lawsuit which would have been a 'bet the company' type case which thus created the usual Spitzer, state AG blackmail kind of situation. So Greenburg was gotten rid of and AIGs AAA credit rating was a bit impaired. In a bid to improve their capital structure, AIG bet on the continuity of the housing market through CDSs, with regulatory oversight per WSJ. This was something never done under Greenburg. Well, then the housing market goes, well darn, South; not so good for CDS values. Well, consider letting AIG go under, bankruptcy liquidation and that good stuff. AIG has a lot of bonds which are used in insurance and reinsurance of other insurers which is regulatory necessity for them. Well, sell the bonds; but as I understand it, the CDS counterparties have priority so Goldman Sachs and DeutscheBank are at the head of the line to get the money. Meanwhile, isn't chaos in the insurance and annuity market a glorious new day or not?
---Not so sure about that, Joy. If Congress passed a law stating "any person who received a bonus at certain companies that received a government bailout in the last 8 months and who are in the insurance business now have a 100% tax on that bonus" I think it would suffice as a bill of attainder.
No, it wouldn't. You're not convicting them of anything. Bills of attainder are used to convict (usually of treason) and sentence (usually to DEATH) a person or group of people without doing anything but passing a law.
(and private acts, which do mention individuals, are perfectly legal, too, and have occurred frequently. They aren't used to convict; usually the opposite).
Creating a law like you say is the tax-law equivalent of those wanted ads that display exactly the qualifications of the person you want when you are required to advertise for other candidates. Disingenuous, but not as far as I understand it illegal, and definitely not a bill of attainder.
Michael,
Your overall point is pretty good, but you are confused about some things. A CDS has as underlying entity, a corporate bond, not a mortgage bond. A mortgage version of this is an MBS, and it has very different structural features. What blew AIG up is ACTUAL losses (or very high chance of ACTUAL losses) on MBS, which led to a declining credit rating. Their being a net seller of CDS protection is something that is true of nearly EVERY insurance company, mostly because the accounting requirements are different and so they don'thave to mark widening corporate spreads to market. Since it's highly unlikely that many high grade firms will default, they gain premium and pay out very rarely. The issue was that they also did this with MBS, where everything went south all at once, leading to a belief (properly) by the ratings agencies that their MBS portfolio will face actual impairment and thereby massive bleeding of cash. Once they got downgraded, their counterparties demanded more collateral on their CDS book. The CDS never had default events (well, a few like Lehman, Tribune, Lyondell, etc did), but they all of a sudden had to come up with billions of cash to post to counterparties because their credit rating got slashed. It's like getting a margin call even though you never realized any losses.
Berkshire Hathaway, does the same exact thing AIG did with CDS. But, it's not a problem for them because 1) they are sitting on a huge pile of cash and 2) they didn't do much in terms of MBS, and therefore despite the recent downgrades to AA, they are still considered a very highly-rated counterparty and don't have to (yet) post additional collateral. Losses on CDS is a red herring in the whole AIG debate.
Joy, fair enough.
But what about the Takings Clause? I find it hard to believe there wouldn't be some sort of legitimate constitutional argument here that could be brought in court.
Basically, I'm thinking that if this method were true, then why didn't the US government simply ad hoc create taxes on only certain wealthy Americans during the Great Depression (or heck any economic crisis)?
Hear me out. If the Dems controlled Cong. & White house in the Depression, and needed money, why not simply whole hog enact a tax statute against Wealthy Republicans & Republican Donors? By your argument I perceive that there would be no bar to this, Dems could "attack the rich" while sparing their own rich, and de-power the opposition party?
Heck, why not? I could definitely see this being done by a partisan government in the midst of an ecnomic crisis. Not saying just this one; saying any.
Why is it that Congresscritters can fail to manage the entire nation's economy, and get off without even a reprimand, while AIG exec's get flailed for mismanaging a single company.
The same reason that people who expect the compensation contracts they negotiated to be honored are "evil", and the tens of thousands of home owners defaulting on their mortgage contracts and looking for government assistance are "victims". It's purely a function of the votes you bring to the table.
"Congress passes the "Grab back cash from greedy AIG bastards Act 2009". The bankers sue on the grounds of unconstitutionality. In 18 months the courts decide that congress was wrong."
And the bonuses would double.
I so like forward to living in a country where a contract means something, as long as I'm popular, or it's convenient for the other party to hold up their end.
I too think it very unlikely that there is any valid legal basis for failing to honor these contracts, but I'm not naive enough to think that contracts aren't violated or abused with some regularity when the violater thinks he can get away with it. Of course, that shouldn't be misinterpreted as me being supportive of violating these contracts, as unearned as many of these bonuses may be, and as much as I think these contracts should have been voided in a bankruptcy proceeding.
I know of a certain near-billionaire who makes a habit of violating contracts he has with people who are far less wealthy; trying to outlitigate someone who has a net worth that is nearly an order of magnitude larger is not a happy prospect. This reputation is widespread enough that one would think this wealthy person would find it difficult to do business with people, but there are a lot of small businesspeople who get stars in their eyes regarding having a megawealthy person as a customer. They often receive a harsh education.
I have no solution for this, although a less ornerous discovery process may help. It just seems to be a situation where once again life ain't fair.
This is not where I expected to end up when I googled "barely legal." Disappointed!
"What's the definition of an Anti-Semite? Someone who disagrees with a Jew."
I actually was agreeing with a Jew, just apparently the wrong Jew. According to my accuser, advocating equal treatment under law is apparently wrong because it shows a lack of cultural sensitivity toward the Jewish value of themselves as the Chosen People.
FWIW, I don't think that the Madoff victims should be taxed at all because I don't think that income and capital gains taxes are ever morally justified. Taxes are bad but tax favoritism is a special kind of bad. If that confuses those who want to dismiss me as a racist crank, I couldn't care less.
Immoralist puts the "nazi" in ashkenazi.
Well, not naming names, but making a bill just as specific for the express purpose of confiscation... that's why I was asking if it was a Bill of Attainder de facto instead of de jure.
Bills of Attainder were, of course, not always attached to death sentences. They often were in England, of course. But not always. The provision in the US Constitution was after a period in which many states passed Bills of Attainder targeting suspected Tories. These people were stripped of all property.
My question... if one can pass a bill that targets me specifically, but does not name me, and confiscates my income by raising my taxes to 100%, but does not convict me of anything, how exactly is that any different from a Bill of Attainder? In both cases I am stripped of my possessions without any recourse.
Many of us are angry about the AIG situation. Do we really, really want to hand this procedure over to the Congress to use whenever they want to?
Ain't it somethin', JohnR, how one crappy decision just lays the foundation for the next crappy decision?
I don't think the government should steal people's paychecks. The clawback.
But, since we are now the shareholders and owners of this crappy firm, let's do a FOIA request and publish the names and amounts of bonuses for all to see.
Let the chips fall where they may.
That's why AIG bonus recipients are so suddenly interested in donating back all or part of the bonuses.
Peasants with pitchforks!
This is totally free market and voluntary action. The perfect solution.
...since we are now the shareholders and owners of this crappy firm, let's do a FOIA request and publish the names and amounts of bonuses for all to see...This is totally free market and voluntary action. The perfect solution.
"Voluntary"? Where in your scenario did AIG employees volunteer to have their compensation information published? Your view has nothing to do with volunteerism or free-markets; your view is that bail-out equals nationalization, and thus AIG employees, as the government employees they now are, have no right to consider their compensation information private.
kentuckyliz CliffsNotes version: I volunteer to publish a private citizen's financial information, and then threaten him until he gives me money. Voluntary and free-market!
Is an AIG employee still a private citizen? Who knows? This is part of the reason why bail-outs were a mistake from the outset.