The People's Republic of America: See What Congress Is Doing?

As the ongoing financial panic unfolds, no event has been more staggering—or dramatic---than the collapse of AIG.

This was once one of the world's great companies, not just in financial services, but in any industry, anywhere. At its peak, the company had a market cap of $190 billion and assets of $1 trillion.

Now AIG has become the poster child for Wall Street’s excesses. Cost to taxpayers so far: over $150 billion, with no end in sight.

But the latest controversy surrounding AIG—those $165 million in retention bonuses that seemed to have gotten everyone in Washington up in arms last week—actually reveals the absurdity of what happens when government tries to play an active role in managing a for-profit enterprise.

Let’s review what happened. Soon after its bailout, AIG decided, sensibly, to shutter the source of its problems, its Financial Products unit. In order to retain key people who suddenly knew they’d soon be out of a job, AIG offered retention bonuses to traders and others, as an incentive for them to wind down their positions as efficiently as possible. The CDS traders, who were the ones the caused all the company’s problems in the first place, were already long gone and not included in the deal.

So all that sputtering in Washington aside, the deal made perfect economic and commercial sense. Which is one reason, presumably, there was no uproar when the retention plans were first announced last November, and why key members of the government signed off on them.

But once word emerged last week that the bonuses have actually been paid, every politician in Washington suddenly got a convenient case of amnesia, and started hollering. Politicians from the President on down vowed to move heaven and earth to get the money back—money, recall, that was paid according to a contract freely entered into by both sides, and publicly disclosed.

But to the politicians, such legalities don’t matter. They want blood, from individuals who haven’t done a single thing wrong. Congress’s latest tactic is to retrospectively tax the bonuses at 90%.

And so the destruction of free markets accelerates.

This is outrageous. If the government can tax these legal payments at 90%, after the fact, they can arbitrarily tax any of your income, regardless of when you earned it, at whatever rate it chooses.

If it can take back these AIG bonuses, it can do anything it wants, whenever it wants. In the process, our free market system would collapse, and be replaced by a system where the government, in all its arbitrary majesty, would essentially be in control of everything.

And you think the economy is having problems now. .

Comments

[punditobserver:]

What a total load of %@&@!.

The bonus tax will never be made into law, every congressman knows that. They are just putting together a straw bill to save themselves from republican screwballs who are going to exploit mob anger and run for seats in '10 on a "they let AIG walk, so lets make them walk" campaign plank.

Mar 25 07:27 AM

[Toddms:]

Yes the whole thing is political posturing. BTW 150 million is 0.1% of the bailout 150 billion. Where's the outrage over the other 99.9%??

Mar 25 08:25 AM

[Larryat36:]

When contract law can be trampled by a mob inspired Congress, what else is safe from their ignorant whims and wishes.

Mar 25 09:13 AM

[Ferdinand E...:]

Let's see now. If the government can take back bonuses from well-to-do or nearly well-to-do persons, it can do anything. Well, it can't take back bonuses from the rest of the work force, because they didn't get any. They got something else, although we don't need to go into that here.

Mar 25 09:42 AM

[NanO49:]

Oh, please. This isn't the whole story -- retention bonuses for people who took advantage of the ridiculous environment on Wall Street to make money from bogus CDS. Sorry -- no sale here! The bonuses should go back, after all, it's taxpayers money and the company is now 80% owned by the government.

Mar 25 10:36 AM

[jksisco:]

As the sultry words of a committed Socialist dance so lightly upon the furrowed brows of a clueless populace, ever eager to embrace the sweetness of Fool's gold so benevolently thrust into their sweating palms, only to be taken away by the mere scribble of a pen.

Mar 25 10:40 AM

[fireball:]

how to continue to let the fungus grow.
mushroom sheeple. keep 'em in the dark with generous amounts of fresh horse manure.
the government schools-dumb 'em down, encourage mediocrity. discourage excellence.
television-news-serve political, editorial horse manure liberally, heavy use of political pundits. convince the people they live in a (socialist) democracy and the mob has the right to vote away the rights of the individual....entertai... every virtue of the independent individual at every contrived opportunity. hire useful idiots that will fall in line with the agenda. tell the lies loud enough, for long enough, often enough so the sheeple come to believe them.
encourage by stipend-the lazy, the ignorant, the destruction of the family, bastard births, irresponsibility, non-production.
punish the successful (tax), reward failure (stipend).
make straight talk, calling a spade a spade, unacceptale as insensitive. (pc crapola).
make sure the people are clueless concerning their heritage. (villianize the heroic attributes of the founders)
promote the green theory as fact.
convince the sheeple that eveything they want is a right.
this could go on but s.a. readers know how to fill in their own lists.

Mar 25 10:46 AM

[fireball:]

sorry sometimes words get mangled a bit- entertainment- belittle every virtue at every contrived opportunity.

Mar 25 10:49 AM

[beautyseer:]

The "destruction of free markets continues"?!? What a laugh. ALL markets are constructs of law and regulation, in recent years significantly rigged by the big money folks who could buy the necessary legislation. The time now has come to rig those markets for the average citizen instead. Because government is based upon the consent of the governed. And people who get so little from a system rigged for the rich that they must turn to credit and impossible mortgage loans to maintain a reasonable lifestyle may give up on America unless it begins to serve them again. The bonus hog pirate capitalists were the first to declare class war. But a consumer economy can only be built again if the average family has sufficient income to resume consuming.

Mar 25 12:39 PM

[ain't no fo...:]

Good comments beautyseer... you are so correct:

"Because government is based upon the consent of the governed. And people who get so little from a system rigged for the rich that they must turn to credit and impossible mortgage loans to maintain a reasonable lifestyle may give up on America unless it begins to serve them again. The bonus hog pirate capitalists were the first to declare class war. "

Mar 25 01:36 PM

[momomiester:]

Are you people on meth? Let them keep their bonus? Bonus for what? Destroying capitalism? Let me ask you...how much of a bonus they would get if they didn't get saved? That is your bonus.
Bottom line if you take a loan out to save your rear from the mafia, they own you and that is the reality here. They can do what they want when they pay it back.

Mar 25 02:14 PM

[henarl:]

CDS contracts were written far in excess of insurable interest and those contracts should be nullified as illegal bets and the premiums returned. This would cost AIG far less than paying off those excessive bets. If a bookie takes bets overextending his ability to cover losses, the counterparty might break the bookie's knees but does not get to collect those bets. Perhaps AIG's knees need to be broken (bankruptcy) but counterparties should not profit from placing bets in excess of their insurable interest and a third party (taxpayers) should not be expected to cover those excessive bets. A few million in employee bonuses is an inconsequential issue compared to the billions of these illegal bets.

Mar 25 04:31 PM