AIG bonuses

Topics: Stimulus
18 Mar 2009

From: Ervan Darnell




SEN. CHUCK SCHUMER, D-N.Y.: We will take this money back by taxing virtually all of it. So let the recipients of these large and unseemly bonuses be warned: If you don't return it on your own, we'll do it for you.
JUDY WOODRUFF: On the House side, several Democrats called for taxing 100 percent of any bonuses over $100,000 at companies getting government help. New York Congresswoman Carolyn McCarthy.
REP. CAROLYN MCCARTHY, D-N.Y.: A hundred percent, as far as I'm concerned, is not even enough. If I could tax them 1,000 percent, I would tax them 1,000 percent. [1]

How crazy are the Democrats? This is a dreadful sort of micro-management of an economic arrangement they don't understand. It has all kinds of negatives:
It says that no contract is secure. If the government is going to express its political ire by imposing taxes to take money from whomever it dislikes without regard to contract or due process, business will have to become a lot more defensive in everything it does, just the opposite of what we want (not to mention having to expend more money on bribes).
For the moment, they are limiting this to companies that have received a bailout, but nothing in their politics or legal reasoning so restricts it. Many companies are now wary of bailout money because of this (I guess that's actually a good thing, but clearly the opposite of the intended effect).
Wasn't in the Democrats I was told would restore respect for the constitution? Here they are proposing a blatantly ex post facto law. This is not like executive compensation where Congress is proposing wage controls into the future, this is reaching back into the past to confiscate already paid income!
Even if you forget the big picture, and the legal picture, it doesn't make sense in the small either. These "bonuses" are for (apparently) most of the employees part of their ordinary compensation, simply paid at the end of the year (a very common arrangement, and one I have had before as well). Congress is denying people the incomes they already were contracted for and did the work for. As the AIG head said today, if you don't pay brokers their salaries, they'll quit (and sue), and then you'll have even bigger problems. What does Congress think companies spend money on anyway except their operating expenses? 'You can have this bailout, but only if you don't pay salaries with it or keep it as a reserve fund [as they told the banks]'. What kind of sense does that make? What are they supposed to do with operating income except operate? I guess AIG could pay off an insurance policy somewhere to (oh say) Pimco so th
at Pimco could use the money to pay its salaries. That's better somehow?
I can't help but note the CEO of AIG just earned the company $170G by a simple act of begging, without doing hardly any real work. That's one damn effective CEO. I'd give him a bonus too!
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[1] http://www.pbs.org/newshour/bb/business/jan-june09/aigfallout_03-17.html

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Subject: AIG bonuses are price controls that hurt the wrong people (NYT op
ed)
From: Ervan Darnell
To: ragnar ragnar
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I'm reduced to quoting here as it underscores one of the points I made previously, price controls in the form of bonus taxes hit the wrong people and deny ordinary compensation:


The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of [AIG]

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. [...] I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

[....] A.I.G. reassured us many times we would be rewarded in March 2009 [...] I was asked to work for an annual salary of $1, and I agreed [....]
The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.


http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=1




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