Over the last few days the public anger over the bonuses received by executives at American International Group (A.I.G.) has resembled the villagers storming Frankenstein’s castle with torches ablaze. The outcry over the nonsensical compensation paid to the very executives whose ineptitude and deceit led to the firm having to seek government assistance is understandable given the pain many people are experiencing in this recession. If there is a poster child for corporate excess, A.I.G. certainly has first dibs on a photo shoot.
Still, some of what is now occurring seems almost as extreme as the bonuses. The anger on Capitol Hill is growing over what lawmakers sense is the company’s cavalier attitude toward the nation’s current economic crisis. While President Obama has rightly instructed his administration to use whatever legal means necessary to recover the bonuses, the House of Representatives took another route. Partly driven by their constituent’s ire and by their options constitutionally, the House vote to impose a 90 percent tax on the A.I.G. bonuses. The move certainly sends a strong political message. However, as comedian Jay Leno pointed out on The Tonight Show during his set with President Obama; the special tax also sends a chilling message to the American public about the use of public policy to punish.
Now, Leno may have been thinking about his own multi-million dollar earnings when he made his point but it is a valid point nonetheless. The I.R.S. has always been viewed as the Gestapo of federal agencies. For the House to unleash the I.R.S. on these executives, who, despite the stench it produced, received their bonuses legally, should unnerve all of us. No doubt the bonus payments is a rotten deal given the fact that the company is now propped up by taxpayer dollars. Yet, there is some evidence emerging that the government may have been asleep at the switch. To use a special tax to recoup the bonus payments treads dangerous waters. Is there a better way? We do not claim to have the answer. The company’s CEO testified before Congress and announced he is asking the bonus recipients to return half their checks. As President Obama indicated on The Tonight Show, we have to stop the horses after they get out of the barn.
The hard, cold truth is that our government, pre-Obama, let private industry, and in particular the financial sector, have its way. Wall Street was celebrated and its excess was the envy of the talking heads on cable television business shows as Daily Show host Jon Stewart correctly pointed out when he skewered CNBC’s Jim Cramer recently. Largely the public also brought into the hype, partly because we do not have full information but also because Americans have always been enamored with wealth. It is part of our genetic code. It is why shows like “The Apprentice,” “Deal or No Deal,” and “Who Wants to be a Millionaire” are wildly popular. While we publicly detest the wealthy, many of us secretly envy their advantage.
Whether we ever recover the A.I.G. bonuses is less important than whether we have learned our lesson. We should know by now that the more exotic and complex the deal seems the higher likelihood that it is suspect. The wizards of finance that were once put on a pedestal have been revealed to be, like the Wizard of Oz, small in stature and limited in ability. The Obama administration must put in place the financial controls to make certain that there are ground rules in place that will not retard economic growth but restore a sense of balance and equity to our society. People should be rewarded for their work and worth, and some people will be rewarded much more generously based upon a number of factors, including their investment in education or skill development, years of experience and relative contribution to the success of their employer. That is just the truth. Some people will be paid a great deal more than other people will. That is also the truth. What we cannot and should not allow is for people to swindle us to the point that they drag the entire nation down.
In many ways the best remedy may be to impose criminal penalties for white-collar infractions that carry significant jail time. The conviction of con artist Bernie Madoff may be where our country is heading in how it deals with outright fraud and deception. The bigger challenge will be to impose controls that deter otherwise law-abiding employees to make decisions that are flawed morally and ethically. In many ways the public shaming of A.I.G. may be sufficient to change behavior in the executive suite.