Bonus babies

It's hard to wake up and turn one's head without hearing the cacophony of indignation about bonuses taken by AIG executives.

After all, how could a company on taxpayer-funded life support be paying million-dollar bonuses to its leaders?

Is it logical? No.
Is it ethical? No.

But neither is the indignation -- MoveOn.org organizing rallies and protests at executives' houses, attorneys general promising to publish the names and addresses of any and all bonus-takers, President Obama doing his usual populist public grandstanding so the huddled masses know that he's yearning to make them free.

Ugh.

There are three issues going on here that are problematic -- one that started it, one that's made it worse and the eventual end.

The first issue is what started it -- the fact that AIG had, through poor investing and running of its company, become upside-down. There's a remedy for companies like that -- bankruptcy. Reorganize, sell off the assets that are viable (such as the investment accounts and insurance policies that have some value) and let the rest of the company go to the graveyard of poorly-run companies.

That is capitalism's way of weeding out bad assets and bad investments so the economy can reset itself on sound footing. It's also obvious that businesses that engage in poor stewardship -- e.g. through risky investing and unsound practices -- are likely to be the first to not be able to weather the storm. Businesses that try to be good stewards -- keeping debt to a minimum, investing wisely and not taking unnecessary risks -- tend to be the ones that survive the storms/

Instead, through President Bush and now President Obama, we have bailoutapalooza -- any floundering institution awash in its own self-created red ink can become a ward of the taxpayers, stay afloat, and keep on trucking.

But there's a nasty flip side to that. With taxpayer money comes government control. And a lot of taxpayers -- including a lot who don't actually pay taxes and a few who do -- have an issue with "executive compensation."

That takes us to the second part of the problem. Without bankruptcy, AIG is legally bound to honor existing contracts, which require the company to pay contractually-agreed bonuses. If I had an agreement with you to pay $10,000 on April 1, and I came to you and said "I don't have the money, and besides, you don't deserve it. After all, we're in a recession," we'd be having that discussion in front of a judge, because I owe you the money. I made a promise to pay, and therefore, I must pay.

But there is an ethical issue with a private company being capitalized by the taxpayers paying large sums of money to the people who ran it down the drains, and there has been a natural amount of uproar. Not surprisingly, the president and key Democratic leaders in Congress have been sharpening the pitchforks for the mob once the reality of the bonuses became noticed. '

However, the hypocrisy of those same Democrats has not been taken to the same task. Did Barack Obama return the $100K+ campaign donations he received from AIG? Did Chris Dodd return his substantial donations? Absolutely not. They happily took the money and ran, and one of them -- who knows which (they keep passing the sword to each other, trying to decide who gets to push Tim Geithner onto it) -- authored a small clause in the porkulus bill (the same bill that was supposed to be online for public viewing for 48 hours, but was voted on less than a day after all 1,100 pages hit the presses so Congresspeople couldn't see what was in it) that protected said bonuses.

Where is the outrage at the people who are spending trillions of dollars on wasteful programs? Shouldn't members of Congress be required to give back their salaries until the country runs a surplus again (after all, they have to be bailed out by China or the Fed's printing machines)? Shouldn't they be held to task for voting for trillions of dollars in pork that nobody even had time to read?

The outrage has been swift, and it's been wrongly cast. Dodd and Obama are getting off with few bruises, while the AIG execs who were simply taking a contractually-agreed-upon payment are being compared to kamikazes by Chuck Grassley, terrorists by the president himself and threatened by attorneys general.

The House voted to tax 90% of the bonuses. The Senate is seeking its pound of flesh, and an ignorant public leads the cheers.

Never mind the obvious constitutional issues. Bills of attainder -- bills that treat one group of people differently than the rest of the population -- are unconstitutional. So are ex post facto laws -- and a retroactive tax certainly qualifies. Then again, government bailouts of foundering private industries to keep them afloat are constitutionally questionable at best (other than having the power to write bankruptcy laws, there is nothing in the enumerated powers that can be expressly or implicity granted to Congress to bail out private businesses).

But the root issue isn't bonuses for AIG executives.

President Obama has tried to declare war on "excessive executive pay" often, both during his campaign and as president. Supposedly, this would make the rest of us feel better in that the bigwigs running our companies aren't making as much. The solution to those who complain about executive pay is simple -- we can get the training and expertise necessary to be a CEO or a COO or a CFO and make the big bucks. Or we can sleep through school, barely get a diploma and cry "unfair" because the people who were applying themselves now have higher-paying jobs.

AIG is a convenient opportunity for the far left -- one they've been yearning for since Eugene Debs helped lead the rise of the socialist movement in America a hundred years ago. By creating outrage over bonuses given to bankers and executives that have participated in the bailoutapalooza, they put most of the focus on the "bonuses," and create outrage over the concept of ALL corporate executives getting big bonuses, golden parachutes, et al.

This is going on at the same time Obama and Congress plan to reduce the amount of money those with higher incomes can deduct from charitable contributions and home mortgages, presumably in the name of "fairness." (after all, who needs to give to charity when we have the government to do it for us?)

The idea of a 90% tax of bonus money is nothing new -- we once had a 91% marginal rate in this country. That dovetails very nicely with the idea of a maximum salary -- one that is called for in at least one party platform in the United States. That party would be the Socialist Party, which has been calling for a national "salary cap" and nationalization of banking and industry for years.

This is step one -- create a public mood that will engender outrage at bonuses. '

Step two is to then spread that outrage to *all* executive bonuses, extend the 90% bill of attainder/retroactive tax to *all* corporate executive bonuses and make the grunts at the bottom feel better because their bosses are making less. After all, harming others in the name of "justice" and "fairness" makes us feel better.

Step three is to then re-create a high marginal tax rate for high wage-earners (the president's magic number has always been $250,000 a year) and use that to fund the wealth-redistribution and social-engineering schemes that are already in place.

The fallout will be swift -- small businesses will be scorched, economic productivity will then decrease, unemployment will increase and another deep depression will hit. Charities and churches will also feel the pinch of substantially fewer contributions, as the government completes the gradual takeover of social services delivery.

AIG outrage isn't just about AIG. It's about using a good crisis to invoke statist fantasies and manipulating the public mood so they can be enacted into law.

Don't fall for it.