Wednesday, March 18, 2009

Informed Outrage


Let's say there's a prison in your community, and it's full of awful criminals - perhaps murderers. And let's say some investigative journalist from your local paper did some digging and learned that last year, the prison spent $10,000 on birthday cakes and party balloons. Would you be outraged immediately at the idea that vicious killers were getting cake for free, paid for from your taxes? Or would you wonder if there might be an alternative explanation - perhaps the cakes are for the guards, or perhaps there's a program where prisoners' kids can come visit on their birthday and have a party with their jailed dad, reducing recidivism and improving behavior?

I ask this in the context of the AIG bonus scandal. It seems like there are many people, including President Obama and pretty much everyone in congress, who have immediately concluded that these bonuses are going to the same people at AIG who almost destroyed the global financial system. Maybe that's true, but do we know that? 

All I know for sure is that us taxpayers own 80% of a company that was running a bunch of different investment operations. Some of those operations are in great shape, and some of them were disastrous. I'd like to keep the good operations running as smoothly and successfully as possible, and I'm OK with the idea that a bonus might be necessary to do that. Maybe these bonuses are birthday cakes for the guards. As far as I can tell, we don't know the details. Edward Liddy, the guy the government brought out of retirement to run the company when the government took over, had nothing to do with the company during its out-of-control phase. He's supervising things now and he says these bonuses are necessary. He's not saying exactly who got them - he says because he doesn't want current employees to be targeted by angry citizens - but he says they're necessary. Are we sure he's wrong? If he is, maybe we shouldn't have hired him to run things.

My only real point here is that there's a lot more outrage floating around right now than there is information. It generally feels good to lynch now and ask questions later, but I think this is a case where the President, Congress, and other responsible parties should ask a few more questions before they reach for the rope. Informed outrage is much healthier than blind venom.


Phutatorius said...

Here's how I look at it, Redneck:

I don't disagree with you that we could be a little more precise and directed (and informed) in our outrage. There are folks at AIG, at Merrill, and everywhere else who work hard and do right by their companies and the larger economy. It doesn't seem right to begrudge a financial consultant at Merrill Lynch his rightful compensation because folks on the banking side -- and to be fair, probably only a subset of the folks on the banking side -- butchered the horse.

I'm with you to this point.

What I can't fathom is why these companies are paying bonuses at all. I work at a major research university. It's hurting right now on all fronts -- gifts are drying up, sponsored research has slowed to a trickle, the endowment investments have taken a nosedive, and it doesn't seem very fair to expect struggling families to kick in higher tuition fees. As a result, I won't get a bonus this year. No one in my office will get a bonus this year. This has nothing to do with our performance. The university is hurting: therefore, no bonuses. That's just how it works.

Now as alien and as isolated from "the real world" as the "ivory towers" of university life supposedly are, my situation seems a whole heck of a lot more familiar and relatable to "Main Street" than Wall Street's. When the organization that employs you get thwacked, everybody takes part of the hit. There are layoffs, pay freezes, fewer trash pickups in the offices (seriously: they're trying that here). The New Austerity is pervasive, and everyone feels it. This isn't the case in the financial industry, apparently -- and that's what we struggle with.

I've heard that bonuses in the banking business mean something different from bonuses everywhere else. It's a guaranteed and important component of compensation -- not a "hey, we/you did good this year -- go buy yourself something nice" kind of thing, like it is elsewhere. And there's talk here about how these bonuses were contractually guaranteed.

Well, again -- shit happens. When it happens to other institutions, people earn less money, whether it's delivered in salary or in bonuses. And contracts get renegotiated: anything to stay afloat, right? If contract renegotiation is good enough for the auto workers, it ought to be good enough for high-level banking executives who (I expect) are in a position to feed their families even without this year's bonus.

I think there really is a great yawning gulf in understanding between Wall Street and Main Street -- on both sides. And I think it goes to the broader culture: how we live, what our expectations are. I can't speak for all the folks out there with torches and pitchforks, but I'm trying to be as understanding as I can be. At a certain point, though, I just hit a wall and I need some help.

Mithridates said...

I saw Edward Liddy on TV yesterday while doing a much needed laundry (7 double-loaders and a triple-loader, is that a record?). He seemed like a decent and thoughtful guy. More comforting to me than most of the other wall street CEOs, cabinet members, and Congressional dipshits who have been parading on TV recently. So yeah, I say let the guy do his job. It wasn't his policy and he's trying to clean up a big mess.

That said, I think the level of outrage may finally be sinking in with some of these guys, so at least there's something good to come out of all the bashing.

Of course, the really dangerous and counter-productive stuff needs to stop. Namely, Senator Grassley's rhetorical statement that AIG executives should commit suicide and Connie Mack calling for Geithner to resign over the AIG bonuses.

But sure, the buck stops with the President and if these guys are getting death threats, well let's step back from the ledge shall we?

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