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Bonus outrage:  cui bono?

Another fine guest post by George F. Will

Hello again American Airspace!  I see Michael’s still recovering from his travels last week, so I thought I’d just drop by on my own to have a word with you.  Because I believe our country has reached a tipping point, and I strongly suspect we’re going to tip in the wrong direction.

There’s a lot of media-driven outrage being directed at the American International Group lately, and I’m sure I’m not the only person in Washington who’s more outraged by the outrage than by the alleged transgressions of AIG.  But Edward Liddy has it exactly right: those bonuses were part of a legal and binding contract, and we can change that contract today no more than we can reverse the tides.  In overlooking this simple fact, liberals seem to be indulging once again in the moral lassitude that led to the Constitutional crisis of the previous decade: forgetting that we are a nation of laws, and that the rule of law is our secular faith.  Where AIG is concerned, one might say, there is most certainly a “controlling legal authority.” Employment contracts are the very foundation of a civilized society, and cannot be altered or set aside except when the employees in question are unionized auto workers.

It is also true, as Mr. Liddy points out, that if AIG cannot honor its contracts and award its bonuses, it will fail to recruit and retain the finest minds in the business world; that is why such firms need to pay retention bonuses regardless of whether the recipients of those bonuses actually remain at their jobs.

But the bonuses themselves are only half the story.  Even more insidious that the sudden bout of populist fever infecting our national discourse is the redistributionist tax agenda that would permit AIG’s most successful and productive executives to keep a mere sixty percent of those bonuses.  Caught up in the staged outcry over the bonuses, we have forgotten last week’s true outrage—the Soviet-style social engineering to which an overreaching and inexperienced President plans to subject us.  Clearly, Obama needs to be reminded that the tea party is far from over.

A confiscatory tax rate is more than a social injustice.  It is a recipe for social disaster.  What executive in his right mind would continue to work for his $10 million bonus, if he knew that he would be compelled to return nearly four million of those dollars to the federal government?  In his zeal to “spread the wealth around,” Barack Obama, like all redistributionists, fails to understand how wealth is created in the first place—by hard work and ingenuity.  Penalize that hard work, discourage that ingenuity, and before long our financial system will be in ruins.

In “Cui Bono,” Thomas Carlyle wrote, “What is Hope? A smiling rainbow/ Children follow.” Children follow rainbows, as so many young people have followed Obama, expecting a pot of gold as their reward.  But hope is not a financial plan, and rewards come only to those who work for them.  It is time for the Democrats to grow up, learn the lessons of adulthood, and begin dismantling a tax system which creates so many disincentives to wealth creation.  Justice demands that bonuses must be paid, yes.  But true justice demands that bonuses be tax-free.

Posted by on 03/17 at 01:58 PM
  1. There is only one thing to be done:
    The Executive Bonus Marchers will see justice or die!

    Posted by Hattie  on  03/17  at  04:35 PM
  2. Now, now Georgie, some of us on the radical left are merely suggesting that paying huge bonuses to those that have already left AIG might be seen as a conflict of contractual obligation, especially realizing that these same employees are the ones that perpetrated the credit default swap processes.  It seems that the AG of NY feels that such a promised contract, knowingly provided when AIG was essentially free from holding any actual assets whatsoever, might just be a tad like fraud. 

    As for contractual legalities, it appears that we, the citizens of the US, who own 79.89% of AIG might have some real responsibility in, like you know, running the company??? But i keep forgetting about that elites only provision of the right.

    Posted by  on  03/17  at  05:04 PM
  3. My goodness, Hattie, I had no idea they paid $10 million to soldiers back then.  That’s even more money than Babe Ruth made!

    a tad like fraud

    You say that like it’s a bad thing, spyder.  You must be a . . .

    Captcha:  red.

    Posted by George F. Will  on  03/17  at  05:13 PM
  4. The Executive Bonus Marchers will see justice or die!

    Reminds one of the Republican Riots of 2000.

    Posted by Pedro  on  03/17  at  05:41 PM
  5. That’s even more money than Babe Ruth made!

    But they had a better year than he did.

    Posted by  on  03/17  at  06:25 PM
  6. The retention bonuses worked just fine. Unfortunately, much as the bonees wanted to stay on, the planned confiscatory tax rate caused all of them to “go Galt.”

    Posted by  on  03/17  at  06:58 PM
  7. Yo George! Did you examine the fine print of your American Airspace contract? I suggest you look at the “bow tie claw back” provision, especially the part where it says the claw back is to take place in situ and is to be executed by 3Tops of the WAAGNFNP.

    Posted by  on  03/17  at  07:44 PM
  8. I say pay them their deserved contractual bonuses.... in credit default swaps.

    Posted by  on  03/17  at  08:54 PM
  9. Great Ideas in Bonus Delivery Systems #7.

    Posted by  on  03/17  at  09:24 PM
  10. It seems that Dana Perino, former President Bush’s press secretary, has a different view.

    And the people who are working there that are middle-class people, are expecting to get this bonus. If they do not get it, maybe they won’t be motivated enough to try to help the company turn around and getting the company to turn around and be more profitable is important for all of us.

    Wow, the lower half of the wealthiest one/half of one percent of the US population are now officially the only middle class we have.  Damn.  I must be completely destitute and impoverished.  But according to the captcha, i do have a some “cent” (s).

    Posted by  on  03/18  at  02:09 AM
  11. I say pay them their deserved contractual bonuses.... in credit default swaps.

    But you’d have to use the Geithner / Summers full face value approach, or there wouldn’t be enough paper in the world.

    Wow, the lower half of the wealthiest one/half of one percent of the US population are now officially the only middle class we have.

    Yeah, that’s the bright side to all of this.  Geithner and Summers are avidly enabling the bankers and flushing away more taxpayer dollars for nothing, which provides an opportunity for Republicans to seize the populist banner for their own advantage, as they’ve been doing this week.  The aforementioned bright side is that they’re not very good at it.  Perino certainly isn’t helping, and it’s actually sorta hard to take the side of the little guy while also shrieking about “confiscatory” taxes on the rich and trying to keep the little guy out of a union.  Hard, but not impossible, since in a sense that’s the Reagan revolution.

    Posted by  on  03/18  at  08:56 AM
  12. Mr. Liddy and Mr. Will both say that these bonuses, amounting in tens of millions of dollars, are essential if AIG (as well as other corporations) hopes to retain the “best and the brightest” minds in business and finance.  I cannot believe that it has never occured to these gentlemen that the “best and the brightest” just lost us, among other things, 8 trillion dollars in the stock market, have caused AIG and many other companies to be rescued by the federal government, and so on and so forth.  Not only are these people still considered the “best and the brightest”, but now they should be rewarded in bonsues for the destruction that they have wrought by their incompetence?

    Posted by Jeff  on  03/18  at  09:30 AM
  13. First they came for the AIG executives ...

    Posted by John Protevi  on  03/18  at  10:01 AM
  14. now they should be rewarded in bonsues for the destruction that they have wrought by their incompetence?

    No.  They should be rewarded in bonuses so that they can now make the critical decisions that will restore us to financial health—decisions only they can make, even if they’re not with AIG any longer.

    Posted by George F. Will  on  03/18  at  11:39 AM
  15. David Leonhardt in the NYTimes:

    Finally, there is the question of how hard replacing those A.I.G. employees would be. Certainly, some of them must have particular insight into unwinding the toxic portfolio they built. But I doubt that anywhere near all 418 financial products employees — who have received bonuses worth $395,000 on average — are indispensable.

    Simon Johnson, a former chief economist at the International Monetary Fund, has pointed out that in financial crises, bankers often exaggerate the difficulty of cleaning up their mess. They do so partly to justify their own continued importance and also to fight off calls for a government takeover of banks. In reality, Mr. Johnson says, the mechanics of cleaning up hobbled banks turned out to be fairly straightforward during other recent crises, like the Asian one in the ’90s.

    It’s entirely understandable, then, that the Obama administration, the Federal Reserve and Congress are looking for creative, legal ways to claw back some of the bonuses. That bonus money is really taxpayer money: absent a bailout, no A.I.G. would exist to pay bonuses.

    Posted by  on  03/18  at  12:24 PM
  16. Penalize that hard work, discourage that ingenuity, and before long our financial system will be in ruins.

    Hear hear, George. Financiers do not lack for ingenuity, as with those clever Credit Default Swap schemes (Gramm-GOP arranged, yet signed into effect by Billy Bob Clinton).  Rothschilds-like ingenuity.

    At the same time, Kid Obama hisself helped to usher in the Paulson/bipartisan bailout, did he not? And the bonuses were part of the package deal, I believe.  BO seems to be renegin’ on his GOP/exec pals.

    Posted by Ezra Hound  on  03/18  at  12:57 PM
  17. I would be willing to pay somebody upwards of 20 bucks to make an animated George Will gif that does the following:

    His face turns bright(er) red…
    Steam shoots out of his ears....
    His bowtie spins around like a propeller…

    Sorry, I know that had nothing to do with the very serious matters at hand, but it needed to be said.

    Posted by  on  03/18  at  03:51 PM
  18. I bet George will be hard to find right after opening day. So we should be grateful for his contributions before that first pitch is thrown.

    Posted by  on  03/18  at  06:00 PM
  19. What executive would work hard for a $10 million bonus knowing he would have to pay 40% or even 70% in taxes?  Any executive in his right mind.  Marginal tax rates were very high in the 1950s, a time of great American prosperity--with plenty of hard-working execs.

    Posted by  on  03/18  at  07:59 PM
  20. a time of great American prosperity--with plenty of hard-working execs.

    They had been rendered temporarily insane by the shocks of the Great Depression, WWII and Frank Capra movies. They’re all better now.

    Posted by  on  03/18  at  10:17 PM
  21. What executive would work hard for a $10 million bonus knowing he would have to pay 40% or even 70% in taxes?  Any executive in his right mind.  Marginal tax rates were very high in the 1950s, a time of great American prosperity--with plenty of hard-working execs.

    Yes, but back in the 1950s there were Jim Crow laws.  So if you’re going to go back to confiscatory tax rates, aren’t you saying that you’re in favor of segregation?  After all, they’re both associated with a stronger state, and where do you think that the money is going, except to strengthen the state.

    Personally, I think we’re lucky that racism died in 1968, right before the Mexico City Olympics, as a very perceptive anonymous email from a reader The Editors points out.  Which only strengthens my point.

    Posted by  on  03/19  at  03:06 AM
  22. Also, is it just me, or do Obama speeches all sound like they came straight from Triumph of the Will?

    UPDATE: If any readers have any knowledge of American history, and wouldn’t mind doing some unpaid research and light ghostwriting, feel free to email .  Thanks in advance.

    Posted by  on  03/19  at  03:09 AM
  23. George Will continues promote an idea that seems ridiculous to me.  It’s the “John Galt Fallacy”, that all progress originates with a few extremely talented and utterly irreplaceable individuals.  According to this position, if Bill Gates hadn’t been available, we’d all be using typewriters today.  The alternate view is that Mr. Gates won the lottery.  If he hadn’t gotten the IBM contract, some other software developer would have, and we’d have as good (or even better) computers today. 

    Furthermore, he claims that you can identify these Galts by following the money - high income is a sure indicator of uniquely high productivity.  So Cayne, Fuld, and Sullivan could only have such extraordinary compensation because they were “creating wealth” at an extraordinary pace.  The fact that their companies ended up with negative net worths can be ignored because it doesn’t fit the theory. 

    According to the theory, you can’t tax these people.  Anybody who can earn $10 million or $100 million in market compensation will retire if he/she can take home a “mere” $6 million or $60 million. Since the theory says they are irreplaceable, we will utterly lose their contributions.  The fact that ordinary Americans find $40 thousand a year adequate reason to go to work, so $6 million ought to be and extremely strong incentive, is again ignored. Apparantly these very bright people aren’t rational enough to make decisons based on after tax compensation.

    I see the utter failure of the “best and the brightest” in the [housing/leverage/CDS insurance scam] debacle as proof that the Galt Fallacy is, in fact, a fallacy.  Will doesn’t.  He wants to pay these people huge amounts of tax-free money.  I want them to go home and be replaced by an equally bright group that can start without all the “I’m the Master of the Universe” baggage.

    Posted by  on  03/19  at  11:27 AM
  24. The current stock market cause many companies to go bankrupt. I think they should have used Stock market trading software to get more secure situation. Oh well, it’s late anyway.

    Posted by Milka Giordano  on  11/18  at  06:02 PM
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