When news broke over the weekend that AIG would issue $165 million in bonuses to executives who work in the very divisions that produced the single biggest chunk of the company’s $99 billion in losses last year, the White House initially threw its hands up. “The government cannot just abrogate contracts,” Larry Summers said yesterday. Amid rumblings of a populist revolt, President Barack Obama quickly called for an about-face, ordering Treasury Secretary Timothy Geithner today “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.” Obama did not articulate what exactly those avenues will be, but, given Summers’ original reserve, it seems likely that they will be convoluted.
But maybe there’s a simpler path: President Obama should just ask the executives in question—including seven who are apparently slated for more than $3 million each—to voluntarily forgo these bonuses, or to defer them until they are linked to some material improvement in the bottomless AIG pit that has now devoured more taxpayer cash than a year in Iraq.
President Obama should just ask the executives in question—including seven who are apparently slated for more than $3 million each—to voluntarily forgo these bonuses.
Obama’s argument would run thus: In war, we ask citizens to make all manner of sacrifices (though, to be sure, only a tiny fraction of the citizenry is asked to bear such burdens nowadays). The financial-sector meltdown is the biggest domestic emergency in decades, the economic equivalent of war. Popular disgust with greedy financiers threatens to make it hard or even impossible for Obama to get the support he’ll need for the ugly but necessary work of propping up the system with more taxpayer money. The AIG bonuses are fuel on the fire of this outrage. Not taking these bonuses would therefore be a patriotic act that sends a signal to the country that at least some folks on Wall Street “get it” and are willing to do their part to get us through this mess.
Obama can make his public appeal sound prettier than this, but you get the idea. His advisers may say the president shouldn’t risk his prestige in this way unless he knows some AIGers will heed the call. But that’s got it backward. If the AIGers say no, who looks like a horse’s ass: the president who summoned them to a greater good, or the greedy bankers who told their president to hell with that?
Obama could also combine his appeal with a little incentive: the pledge that, on behalf of the taxpayer owners of AIG, he will publish the names and bonus amounts of all who choose to take this loot, so that the public, and these executives’ peers and neighbors, will know the choice they made.
The logic of patriotism has a broader application in our current mess. This past weekend, I spoke with one lavishly paid senior banker who was not himself a subprime villain, but who felt trapped as his firm tanked and the government stepped in. Seething with contempt for everything from Andrew Cuomo’s investigations to the “incompetence” of the feds, this man said he’d soon be gone because of the compensation caps he now faces. His mantra? Through shortsighted, populist policies on pay, the government would lose the best people still remaining at these firms—folks who weren’t the cause of the meltdown (they’re long gone) but folks Uncle Sam should have wanted to hold on to in order to get these giant institutions through this crisis.
I’m sure there’s a kernel of truth in this—and it's hard to begrudge anyone who wasn't part of the problem wanting to seek greener pastures to do as well as they can for themselves and their families. But all I could think was: Can’t any of these people who made out like bandits for years find it in their character to use their special skills to see the country through what they agree is an epic crisis by helping run these firms for, say, two years, and viewing it as a public service? My friends who’ve served as senior officers in Iraq had their salaries capped at about one-fiftieth of what this man views as an intolerable pittance. Yes, I know we have a volunteer army, and these bankers didn’t sign up for this duty, but sometimes you find yourself in a foxhole by accident—that is, in a situation where your country needs you. Are Wall Street’s values so removed from those of everyday Americans that only lavish taxpayer bribes can stop them from saying, “I’m outta here!” To ask that question may be to answer it, but I’d like to see the president call the question directly.
I know a few folks—like Vikram Pandit at Citigroup and even Edward Liddy at AIG—have jumped in to serve as dollar-a-year CEOs. But it will take hundreds of leaders to right these sinking ships, not just a few. As Obama could explain, answering the call of country to help restore the functioning and credibility of America’s financial sector would be honorable service for which the nation would be grateful—and in which bankers’ families could take pride. Given the Dick Grasso-Stan O’Neal-Chuck Prince style of business ethics in which Wall Street’s “leaders” have been schooled, I’m not holding my breath for any takers. In which case Obama can always instruct America’s taxpayer-owned banks to withhold the bonuses anyway, doing what turns out to be more common in business than people think: making executives sue for what they say they’re owed.
Matt Miller, a senior fellow at the Center for American Progress, is the author of The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity. He hosts “Left, Right & Center,” public radio’s popular weekly political roundtable, and blogs at mattmilleronline.com.