If your bosses wanted to give you a bonus that made you a millionaire, would you take it? How about if your company had received government bailouts? How about if the US Congress had passed a bill to specifically allow your bonus from the company that received government bailouts? That’s really what happened in the case of AIG, the huge, international insurance conglomerate failure.
The economic stimulus cargo (it’s too big to be a package) that was rammed through congress without anyone reading it did contain an amendment that allowed bonuses in companies that received stimuli as long as the bonuses were contracted prior to February 11th. When I say NOBODY read it, Senator Chris Dodd of Connecticut was responsible for that amendment that allowed the bonuses and he apparently didn’t know it was in there so maybe he didn’t read the bill or write it. It certainly looks that way. Maybe the conservative talk show hosts who ranted and raved that nobody read the bill were right that someone should have before it came to a vote.
I have rarely driven or even walked on Wall Street and have no money in any of these markets. So to me, the idea of performance bonuses for executives whose companies didn’t perform is alien and the idea of retention bonuses for people who leave your company is insane in the clinical sense. I’m willing to make a concession for executives who achieved spectacularly well in a company that did badly, but only if the bonuses don’t jeopardize the company itself. I think stock options, not cash, would be appropriate bonuses for a handful of executives who performed well when their companies didn’t.
What troubles me is the public officials who issued figurative calls for blood that could very easily have turned literal. Several self-righteous office holders wanted the names and addresses of the bonus recipients to be made public. A demonstration brought bus riders to the homes of AIG executives in Fairfield County CT last Saturday. AIG issued security tips to its employees and executives. We’re getting dangerously close to a real witch hunt, complete with pitch forks and flaming torches. I’m glad none of these executives were lynched. That of course, would have been more wrong than the bonuses themselves.
New York Attorney General Andrew Cuomo’s witch hunt resulted in many of those AIG bonuses being returned. The overseas ones and the ones outside New York State jurisdiction, not so much.
An ex post facto law is one that makes something illegal after it happens. If traffic cops issued tickets today to everyone with a drivers license because the government passed a law today making it illegal to go through a green light and made the law effective last week, that would be an ex post facto law. Those are unconstitutional and have been since the constitution was written. In fact the founding fathers thought it was so important to ban ex post facto laws that they are illegal according to Article I of the constitution. So the US Congress rushing to punish the people who got those huge bonuses by taxing them after the fact at 90 percent seems unconstitutional to me. But I’m not a constitutional lawyer or a justice of the US Supreme Court. Enough money is involved here that the issue could very well come before the Supreme Court before things are done.
Over the weekend, the Obama administration floated a trial balloon about limiting executive compensation in private companies that haven’t received bailout funds. We’ve already driven most US manufacturing jobs overseas. If we tax executive compensation in the financial industry too much, there’s nothing to prevent Wall Street from being translated into Wand Strasse or some other phrase that means Wall Street in some other language and some other country. In fact, it would be a lot easier to export most of the jobs in finance than it was to export the manufacturing. We could use the Internet to export most of them at very low cost. Someone in a policy-making position ought to think about that before they dispose of both the baby and the bath water.
