We're collectively taking our country's future in our hands, spending vast sums of money to keep these companies from suffering the consequences of their own folly and (in many cases) criminality. And in return we're receiving cavalier dictates about pay-outs and bonuses from executives who by any reasonable measure work for us -- dictates we promptly accede to. There's a beggars can't be choosers problem there. And the disconnect is so mighty that it fuels the impression that the whole enterprise is not what it seems, not what we've been told, that in addition to picking up the tab we're being played for fools.
The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG's chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But it turns out that most will be paid anyway, because, according to AIG, the firm is legally obligated to pay them. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needs to be able to retain talent.
AIG's arguments are absurd on their face. Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid (they would have had a lower priority under bankruptcy law that AIG's debts to other creditors); indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if laughing weren't already so expensive.
This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. To whom should they be accountable? As long as taxpayers effectively own a large portion of them, they should be accountable to the government.
But if our very own Secretary of the Treasury doesn't even learn of the bonuses until months after AIG has decided to pay them, and cannot make stick his decision that they should not be paid, AIG is not even accountable to the government. That means AIG's executives -- using $170 billion of our money, so far -- are accountable to no one.
Josh Marshall (again):
Whatever else you can say about AIG CEO Edward Libby, he ain't much for irony. In his letter to Secretary Geithner he said that AIG "cannot attract and retain the best and brightest talent ... if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."
As noted yesterday, the bonuses are overwhelmingly weighted toward AIG's Financial Products division (AIGFP), the relatively small division responsible for the company's de facto bankruptcy and no little part of the world financial crisis.
With respect to AIGFP, there's no little snarking to be had about whether these folks are really the "best and the brightest." But it actually goes beyond that. It's not just the people. The whole division is toxic and should be shut down, probably the building should be razed and the ground salted.
the scale and nature of a lot of the losses at AIGFP go well beyond reckless and folly. A lot of it looks like fraud. And go-go operations like AIGFP don't tend to fare too well in general when subjected to searching legal scrutiny. The government should be making it clear that criminal investigators are reviewing the entire matter. Contracts don't easily withstand credible allegations of illegal behavior. And the executives in question need to have their attention focused on the calculus of levels of cooperation and legal vulnerability rather than compensation packages.
Time Mag piles on CNBC:
To watch CNBC today is to enter an alternative universe, where élites are populists, Wall Street is Main Street and bank executives are the oppressed. It's not surprising that a voice of opposition to the new Administration would emerge. But who would have thought it would be on a channel not owned by Rupert Murdoch?
In a way, CNBC has no choice but to become political, since the economy itself has. And CNBC faces the same dilemma as the rest of the media: If psychology drives the economy, when does reporting bad news become creating bad news? How do you walk the line between desperate cheerleading and reckless ranting?
CNBC's answer has been to dive off both sides of the line at once.
CNBC's reaction is colored by its stressed-out day trader's focus on the short term. When ordinary people think about the economy, they think about jobs, college, retirement. Sure, the stock market affects them in the long run — but so do job security and the threat of getting wiped out by health-care bills. When CNBC considers the economy, it means Wall Street's numbers that day, that hour, that minute. CNBC may pay lip service to the long term, but it has the time horizon of a fruit fly.
This means that CNBC looks at everything, particularly politics, in terms of how it will affect "the Market." The commentators on CNBC murmur about the Market as if it were the Island on Lost: a mystic force that must be placated, lest it become angry and punish us. "The Market doesn't like ..." "What the Market wants to see is ..."
And, oooh, is the Market cranky at Obama! The Market doesn't like raising taxes on the wealthy (even if Buffett does). The Market doesn't like government health-care reform or cap-and-trade environmental policy or big budgets or limiting bonuses at bailed-out banks. And don't get the Market started on bank nationalization. That ticks the Market off!
The NYT has an article about the party scene for Wall Street types that is thriving even amidst the failing economy:
Spend $500 on two magnums of Veuve Clicquot Champagne at Bagatelle on West 13th Street in the meatpacking district, and the bottles are delivered to your table with lighted sparklers stuck in their corks.
Spend $2,500 on a jeroboam of Veuve Clicquot and some magnums of Dom Pérignon, and the lights dim, the D.J. cues up the theme from “Superman,” and a waiter is hoisted onto the shoulders of his fellow servers. With a tablecloth knotted around his neck as a makeshift cape and his arms outstretched, he carries one of the blazing bottles of bubbly to your table.
As the waiter soars through the air, he does so against a backdrop of patrons fist-pumping Champagne flutes, flashing cameras capturing pictures ripe forFacebook and a dozen young women clad in sequins, stilettos and Chanel bags climbing onto chairs, banquettes, even tables — any elevated surface that is sturdy enough to dance on.
Christie Larkin, a 28-year-old who lives in Gramercy Park and works for a TriBeCa advertising agency, was brunching at Bagatelle for the first time. “It’s like Friday night in here!” she said upon walking in.
But it is not Friday night. It is 3:30 Saturday afternoon.
Champagne corks are always popping somewhere, of course, and the high life never disappears entirely, especially in New York. But these days, a $750 magnum of Perrier-Jouët stands in striking contrast to the scene outside Bagatelle’s glass-paneled door, where the Dow has lost half its value since the fall of 2007, the recession has claimed a net total of 4.4 million jobs since it began, more than 850,000 families lost their homes to foreclosure last year, and the word “depression” is being heard in the land.
Whatever diversion these afternoons bring, some acknowledged that the sight of the young well-to-do partying hard when many financial firms are being castigated for profligate spending could appear embarrassing.
A man who works in finance and was standing near the bar of Merkato 55 the following Saturday started to talk about this issue, but then he had second thoughts, saying he could be fired for drawing attention to the subject in the news media. Any overt display of conspicuous spending, he added, even if not a dime was expensed to a corporate account, would not sit well with his employer. “Excess,” he said, “is frowned upon heavily.”
As for how he and his fellow Wall Streeters could still afford such afternoons, he said: “We all made so much money in the past five years, it doesn’t matter.”
A 29-year-old man who works for a large investment management firm and was at Bagatelle’s brunch one recent Saturday and at Merkato 55’s the next, put it another way: “If you’d asked me in October, I’d say it’d be a different situation, and I don’t think I’d be here. Then the government gave us $10 billion.”
Someone leaked a copy of a secret Red Cross report on detainee treatment to journalist Mark Danner, who has written two articles about it: a longer account of the contents for the New York Review of Books, and a shorter version for the NYT. The latter ends by saying:
buhdydharma argues that this evidence obligates the Obama Adm to investigate and prosecute crimes.
Abu Zubaydah, Walid bin Attash, Khalid Shaikh Mohammed — these men almost certainly have blood on their hands. There is strong reason to believe that they had critical parts in planning and organizing terrorist operations that caused the deaths of thousands of people. So in all likelihood did the other “high-value detainees” whose treatment while secretly confined by the United States is described in the Red Cross report.
From everything we know, many or all of these men deserve to be tried and punished — to be “brought to justice,” as President Bush vowed they would be. The fact that judges, military or civilian, throw out cases of prisoners who have been tortured — and have already done so at Guantánamo — means it is highly unlikely that they will be brought to justice anytime soon.
For the men who have committed great crimes, this seems to mark perhaps the most important and consequential sense in which “torture doesn’t work.” The use of torture deprives the society whose laws have been so egregiously violated of the possibility of rendering justice. Torture destroys justice. Torture in effect relinquishes this sacred right in exchange for speculative benefits whose value is, at the least, much disputed.
As I write, it is impossible to know definitively what benefits — in intelligence, in national security, in disrupting Al Qaeda — the president’s approval of use of an “alternative set of procedures” might have brought to the United States. Only a thorough investigation, which we are now promised, much belatedly, by the Senate Intelligence Committee, can determine that.
What we can say with certainty, in the wake of the Red Cross report, is that the United States tortured prisoners and that the Bush administration, including the president himself, explicitly and aggressively denied that fact. We can also say that the decision to torture, in a political war with militant Islam, harmed American interests by destroying the democratic and Constitutional reputation of the United States, undermining its liberal sympathizers in the Muslim world and helping materially in the recruitment of young Muslims to the extremist cause. By deciding to torture, we freely chose to embrace the caricature they had made of us. The consequences of this choice, legal, political and moral, now confront us. Time and elections are not enough to make them go away.
Fareed Zakaria on Obama's foreign policy and its critics:
though consumed by the economic crisis in its first 50 days, the Obama administration has nevertheless made some striking moves in foreign policy. Obama announced the closure of Guantánamo and the end of any official sanction for torture. He gave his first interview as president to an Arab network and spoke of the importance of respect when dealing with the Muslim world—a gesture that won him rave reviews from normally hostile Arab journalists and politicians.
Hillary Clinton has racked up more miles in a few weeks than many of her predecessors as secretary of state did in months, mixing symbolic gestures of outreach with substantive talks. The administration has signaled a willingness to start engaging with troublesome regimes like Syria and Iran. Clinton publicly affirmed that the United States would work with China on the economic crisis and energy and environmental issues despite differences on human rights. She has also offered the prospect of a more constructive relationship with Russia. Obama said he was open to the prospect of talking to some elements of the Taliban in an effort to isolate its hard-core jihadis.
These are initial, small steps but all in the right direction— deserving of praise, one might think. But no, the Washington establishment is mostly fretting, dismayed in one way or another by most of these moves.
The problem with American foreign policy goes beyond George Bush. It includes a Washington establishment that has gotten comfortable with the exercise of American hegemony and treats compromise as treason and negotiations as appeasement. Other countries can have no legitimate interests of their own—Russian demands are by definition unacceptable. The only way to deal with countries is by issuing a series of maximalist demands. This is not foreign policy; it's imperial policy. And it isn't likely to work in today's world.
There are now two significant drags on Obama's approval. One is the economy: even though most people mostly blame Bush for the economic crisis (or more apolitical forces like the banks themselves), with each day that passes during the contraction, more people are going to get frustrated and begin to blame Obama, in whole or in part. My impression is that Obama's approval ratings are likely to follow one of the following three general paths, depending on how quickly the economy recovers:
Now, if the White House is thinking about these things the same way that I am, they'll figure that there's no time to lose in rolling out their agenda: this is the very probably the best policymaking window they'll have until the economy recovers, and if the recovery is slow in coming, it might be the best policymaking window they'll have at any point in the term.
Indeed, the White House does seem to be thinking along these lines, as they've started the ball rolling on health care, cap-and-trade, the budget, stem cell research, Iraq, and virtually every other significant piece of their agenda.
And this brings us to the second significant drag on Barack Obama's approval ratings: the public isn't universally enamored of his agenda, which he's now put front and center. On this point, I'm in superficial agreement with Goldfarb, Schoen and Rasmussen. Obama's approval rating would be higher if he hadn't tried to do anything substantive. Most of the public agrees with most of the agenda, but certainly not a 65 or 70 percent supermajority.
But a president's goal is not to maximize his approval rating; it's to maximize the amount of policy that he's able to push forward over the balance of his term. Obama is using a lot of his political capital now in order to try and push forward a lot of agenda -- but this, I would argue, is wise, because otherwise some of that political capital will evaporate anyway owing to the economy.
It's a risky play to be sure, and it will be fascinating to watch. But with the White House having made that choice, the fact that Obama's approval rating has responded in the way that it has is utterly unsurprising, especially given the underlying drip-drip-drip of the economy.
Frank Rich sees history repeating itself in more ways than one:
Someday we’ll learn the whole story of why George W. Bush brushed off that intelligence briefing of Aug. 6, 2001, “Bin Laden Determined to Strike in U.S.” But surely a big distraction was the major speech he was readying for delivery on Aug. 9, his first prime-time address to the nation. The subject — which Bush hyped as “one of the most profound of our time” — was stem cells. For a presidency in thrall to a thriving religious right (and a presidency incapable of multi-tasking), nothing, not even terrorism, could be more urgent.
When Barack Obama ended the Bush stem-cell policy last week, there were no such overheated theatrics. No oversold prime-time address. No hysteria from politicians, the news media or the public. The family-values dinosaurs that once stalked the earth — Falwell, Robertson, Dobson and Reed — are now either dead, retired or disgraced. Their less-famous successors pumped out their pro forma e-mail blasts, but to little avail. The Republican National Committee said nothing whatsoever about Obama’s reversal of Bush stem-cell policy. That’s quite a contrast to 2006, when the party’s wild and crazy (and perhaps transitory) new chairman, Michael Steele, likened embryonic stem-cell research to Nazi medical experiments during his failed Senate campaign.
What has happened between 2001 and 2009 to so radically change the cultural climate? Here, at last, is one piece of good news in our global economic meltdown: Americans have less and less patience for the intrusive and divisive moral scolds who thrived in the bubbles of the Clinton and Bush years. Culture wars are a luxury the country — the G.O.P. included — can no longer afford.
Not only was Obama’s stem-cell decree an anticlimactic blip in the news, but so was his earlier reversal of Bush restrictions on the use of federal money by organizations offering abortions overseas. When the administration tardily ends “don’t ask, don’t tell,” you can bet that this action, too, will be greeted by more yawns than howls.
Once again, both the president and the country are following New Deal-era precedent. In the 1920s boom, the reigning moral crusade was Prohibition, and it packed so much political muscle that F.D.R. didn’t oppose it. The Anti-Saloon League was the Moral Majority of its day, the vanguard of a powerful fundamentalist movement that pushed anti-evolution legislation as vehemently as it did its war on booze. (The Scopes “monkey trial” was in 1925.) But the political standing of this crowd crashed along with the stock market. Roosevelt shrewdly came down on the side of “the wets” in his presidential campaign, leaving Hoover to drown with “the dries.”
Much as Obama repealed the Bush restrictions on abortion and stem-cell research shortly after pushing through his stimulus package, so F.D.R. jump-started the repeal of Prohibition by asking Congress to legalize beer and wine just days after his March 1933 inauguration and declaration of a bank holiday. As Michael A. Lerner writes in his fascinating 2007 book “Dry Manhattan,” Roosevelt’s stance reassured many Americans that they would have a president “who not only cared about their economic well-being” but who also understood their desire to be liberated from “the intrusion of the state into their private lives.” Having lost plenty in the Depression, the public did not want to surrender any more freedoms to the noisy minority that had shut down the nation’s saloons.