Anger at AIG is boiling over

Populist anger has reached a boiling point in the US with the announcement that American International Group, one of the first companies to get a bailout from the government, paid $220 million in “retention” bonuses to its employees—often the same ones who caused the company to crash in the first place.

AIG has received $170 billion—yes, with a B—in federal taxpayer bailout dollars since the first payment from then-Treasury Secretary Hank Paulson, while George W. Bush was still in the White House. Its current CEO, Edward Liddy, was put in place by Paulson after the government took a stake in the company. The company is now nearly 80% owned by the federal government—in essence, the taxpayers. You know, us.

Anger over the bonuses is a nonpartisan sentiment—Republican Senator Chuck Grassley of Iowa implied that the AIG executives should make a public apology and then either quit or commit seppuku, and Democratic Representative Barney Frank said, “We can’t keep them from getting bonuses but we can keep them from having their jobs. … In high school, they wouldn’t have gotten retention (bonuses), they would have gotten detention.”

Even Liddy claimed that the bonuses were “distasteful” but that he was contractually obligated to pay them. While this may be true, former labor secretary (under Bill Clinton) Robert Reich noted that it’s a ridiculous statement to make at a time like this.

“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,” Reich said.

In addition, we should remember that contracts are considered negotiable when it’s members of the United Auto Workers union whose contracts are under discussion. The UAW had to take benefit cuts in order to lower the auto companies’ “labor costs” (econ jargon for real people’s wages, the money they have to live on). The average veteran auto worker at a General Motors plant makes $28.12 an hour according to CNN Money. The cost of “benefits, including pension and future retiree health care costs,” is what brings the number to that $78 figure that Congress liked to trumpet when demanding autoworkers take a pay cut.

But that cost per worker to GM doesn’t mean that the workers see that kind of payout. And in any case, assuming that one worked 40 hours a week all 52 weeks of the year and actually took home $78 per hour, the pretax salary would be $162,240—far below the top tax brackets that would be seeing a tax increase with President Obama’s budget plan, let alone the AIG executive salary. By comparison, in 2007 AIG’s CEO made $14.3 million in total compensation—87 times the total average compensation of that auto worker who was offered a buyout so his company didn’t have to keep paying him.

Oh, and GM has only taken $13.4 billion from the government, far less than AIG’s intake at the public trough. The autoworkers’ renegotiated package leaves the average worker’s total cost (again, NOT their takehome pay) at $55 per hour, or about $114400 per year.

The top AIG recipient, as yet unnamed, got 55 times that—$6.4 million—as a bonus.

Obama has been slow to catch on to this particular strain of anger in the American populace. Perhaps his economic team, which might be on the left side of the usual pro-corporate financial policy, but still leans toward “free markets” as the solution, is more of the problem then he’d like to admit. Robert Reich said that Treasury Secretary Geithner “is making things worse.” Geithner’s involvement from the start of the bailout process, as the head of the New York Federal Reserve, does put him in an ideal place to absorb blame, though it should be noted that the previous administration and Congress deserve plenty of that blame as well.

In a brief statement today (Wednesday, March 18), Obama took responsibility for the situation, saying “The buck stops with me,” and stressing the need for regulations. He made sure to situate the AIG bonuses in the larger culture of Wall Street and the financial industry, calling for investments across all sectors of the economy and noting that there was a lot of “paper wealth” in the country but not a lot of real wealth created. In response to questions from reporters, he said “I don’t want to quell anger. I want to channel our anger in a constructive way.”

Yet he had few suggestions for what Americans could do with their anger other than support regulations. He did criticize false anger from those who claimed outrage at the AIG bonuses but had formerly argued that the government had no place in corporate conpensation packages, but though his comments were positive from a policy perspective, they did little to suggest what could be done about the current situation.

According to the New York Times Liddy was expected to suggest asking the recipient of the bonuses to give the money back. Reports that AIG has hired extra security and that its employees have received death threats may sway them to do so, but should the decision really rest on the goodwill of a few fat cats? The company may even be selling its New York headquarters, but will that be able to save its reputation in the eyes of the public?

Stephen Guess commented at the Guardian that the government could use its 80% ownership of the company to separate the mortgage derivatives unit—the one causing all this trouble—and force it into bankruptcy, where all contracts would be null. Dean Baker suggested at TPM that AIG shareholders should be forced to pay for the bonuses, with the 20% of the company that is still held publicly. Wonk Room called the AIG bonuses a case for nationalization. And Reich brusquely noted, even before this latest blowup, that if he were advising Obama, he’d say, “As to AIG, well, that’s a complete basketcase. Put it out of its suffering. Take it over, sell its assets, protect policy holders (you’ll need to create a big co-insurance plan with every other major insurer in the world), then get out.”

Congress, meanwhile, is working on legislation to possibly tax the bonuses—anywhere from 35% to 100% of the money given as bonuses by bailed-out companies, and New York Attorney General Andrew Cuomo is investigating the payment structure. They have to work fast to attempt to assuage public anger, though. Facebook groups and petitions from MoveOn and FireDogLake have joined the letters sent from Democratic members of Congress to AIG executives alternately begging and threatening action.

But disgraced former New York governor Eliot Spitzer noted today that the bonuses are only the tip of the iceberg, and what should be far more distressing to the public is the question: “Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?” Yet we already know the answer, right? Contracts.

Executives and government officials should take note of the public anger. No longer are huge bonuses the stuff of aspiration and dreams. They’re evoking anger. That sound you hear is the death knell of trickle-down economics.

Americans have heard for 29 years that we were going to reap the benefits of tax cuts on the rich, while seeing our own real incomes shrink and get replaced by credit. We aren’t going to accept being told that inequality is simply the proper outcome of a market economy. We know we work hard, and it’s about time we got some recognition of that fact.