Senator Grassley of Iowa is unhappy. I have made some modest changes to this article on his happiness. My additions are in italics:
In a comment aired this afternoon on WMT, an Iowa radio station,
Grassley (R-Iowa) said: “The first thing that would make me feel a
little bit better towards them if they’d follow the Japanese model and
come before the American people and take that deep bow and say I’m
sorry, and then either do one of two things — resign, or go commit
suicide.”
The radio clip was also aired on WTOP, a news radio station in Washington.
In response to a POLITICO inquiry, Grassley spokeswoman Jill Gerber
clarified Grassley’s comments, saying “clearly he was speaking
rhetorically – he meant there’s no culture of shame and acceptance of
responsibility for driving a company country into the dirt in this country. If
you asked him whether he really wants AIG executives Senators to commit suicide,
he’d say of course not.”
“Point being, U.S. corporate executives politicians are unapologetic about running
their companies the country adrift, accepting giving away billions of tax dollars to supposedly help, and
then spending being surprised when those tax dollars get spent on travel, huge bonuses, etc,” Gerber
said.
Grassley’s statement was the most over the top among the many
expressions of outrage Monday, as the White House and Congress struggle
to figure out how to recoup $165 million in bonuses from AIG, which has
received more than $170 billion in federal bailout funds.
“With millions of Americans out of work, staying up nights trying to
figure out how to make this week’s paycheck last until the next,
wondering how they’ll make the next mortgage payment or pay the overdue
tuition bill, these executive bonuses are that Senators continue to collect ridiculously large salaries and pensions they haven't earned is beyond outrageous,” Senate
Majority Leader Harry Reid said Monday.
Senate Minority Leader Mitch McConnell joined the chorus, saying the bonuses lack of accountability of politicians and their total lack of remorse for doing such a poor job with other people's money were is “appalling.”
Trashing AIG the Senate (and the House) has become should be a no brainer for campaigners. Jim Tedisco, a
candidate in the special election for New York’s 20th congressional
district, says AIG is a “poster child for Wall Street greed political incompetence” and wants a
state investigation.
Rep. Phil Hare (D-Ill.) went for a play on words, saying: “Clearly, the
‘G’ in AIG Grassley stands for greed. It is outrageous that taxpayers are
subsidizing bonuses as much as $6.5 million Senatorial salaries of almost $200,000 with an absurdly generous retirement plan at a time when working
families are struggling to make ends meet.”
Nobody else has suggested hara kiri for AIG executives Senators, and Grassley’s
spokeswoman tried to make clear the senator didn’t really mean it.
Podcast RSS Feed
Full EconTalk Text
{ 23 comments }
Agree with Grassley, both of them.
Honestly these guys at AIG deserve their bonuses. They were brilliant in being able to get Congress and the government to give them tons of money…
If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?
Qoute from Charlie: "If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?"
Which is exactly the problem. These decisions are no longer driven by business cases, stock holders, economics, or even law. They've all become political and subject to the whims of the political elites and the mob.
Now, try to model that.
Thanks for that, Russ.
perfect
Charlie makes an excellent point.
Like that wasn't true a year ago and two, ten and fifty years ago.
So, when can we expect everyone in congress to kill themselves or resign.
I don't understand why they should be held to a different standard of performance.
No, Martin, Charlie makes a scary point. Bonuses would not be reviewed by a judge because every compensation package is hammered out in the contract. People who received less than they were contractually obligated to receive have successfully sued companies in the past. The order of payment in bankruptcy puts employee compensation ABOVE all other payouts, including taxes. Creditors are actually third in line after employees and Uncle Sam. Judges will not change employment contracts and if an employee were promised variable compensation based on his personal performance, that contract would not be abrogated by a bankruptcy judge.
Furthermore, while it may be a bankruptcy judge's duty to review contracts, it is not the job of congress. That's part of that whole "separation of powers" thing we're supposed have going for us in this soon to be Banana Republic.
Grassley is one of those people that has a single talent-bloviating. Unfortunately, bloviating is the principal skill of a Senator.
I don't think that's true. In fact, I think employee compensation comes last. The only reason that I say this is that I worked for a company that went bankrupt. I lost salary as a result. And during the bankruptcy proceedings, it was made very clear that the order of priority was:
1. Secured creditors
2. Unsecured creditors
3. Employees
I didn't find anything fruitful searching the internet. Anyone able to find references that confirm or contradict this?
Being an elected official means never having to say you're sorry…unless you are caught in a sexual or financial dalliance.
Venal corruption is not allowed, systemic corruption is the order of the day.
Mjh, I admit that I'm a little out of my element as I'm not a bankruptcy lawyer. I only know what I know because I was forced to take law classes for my job and the order of priority in bankruptcy has a bearing on valuation of assets.
My understanding: most secured credit is secured with specific assets. So, any proceeds from the sale of the asset belongs to the creditor. I don't know why the bankruptcy judge put employees below unsecured creditors. Typically, working without pay is considered slavery and I think there may be some labour laws that deal with that. Most employees don't contract for conditional pay. Like you, I would be interested in finding out more. I suspect the answer is that it's conditional on circumstances.
The complicating factor here is that AIG didn't go bankrupt. It was nationalized. In effect, it got a brand new investor. No brand new investor would be allowed to override the board and executives to abrogate existing contracts. If the government can choose to impose itself on companies and then rearrange things to its liking, we don't have a free country and we don't have rule of law. We definitely have a banana republic.
Apparently, running a prostitution ring out of your home is not considered a "sexual dalliance" and is a-okay. If you're a non-politician running a prostitution ring out of your house, you obviously deserve to rot in jail. Banana Republic.
I'm not terribly exercised over the bonuses. This is like when you were a kid and your crazy aunt gave you $20. You spent it on candy and your crazy aunt got all upset that you didn't give it to the food kitchen.
When people warned of "moral hazard" as these bailouts began, they may not have known it, but this is exactly what they were warning about. Senator Grassley (his name makes me laugh) knows absolutely nothing about what AIG does, how its incentive structure works, whether the bonuses go to profit centers of the company that need to perform well to pull the company out of its hole, etc. Yet, he opines that they should all put on matching sneakers and go Heaven's Gate on us. Senator, it's an accountant, not a choice!
Is there anything we can do stop the spam?
MnM, you are such a Bayesian. All we can do is ignore it and delete it. Notice that the omniscient President Obama has tried or plans to try to solve the economy, health care, global warming, education, and agriculture. But even a man as powerful and knowledgeable as he knows that there is no way to stop spam.
If I'm the sole owner of a corporation and the corporation borrows a million bucks from you, out which it pays me a contractual annual salary of one million bucks, and the corporation then declares bankruptcy, you can bet that a judge will review this contract. CEOs and other top executive are not just any employees. Their bonuses are not simply comparable to the janitor's wage.
The job of Congress is what Congress says it is, because Congress can incinerate entire cities. Congress decided that bailing out AIG was its job, and AIG went along with it. When you take the King's shilling, you march to his drummer.
I don't take seriously any pretense of moral outrage under the circumstances. If the CEO of AIG doesn't like Congressional meddling with his bonus, let him find some honest work.
CEOs and other top executive are not just any employees.
Right. However, the broohaha is not about executive and CEO pay. It's about the variable portion of the pay and retention bonuses for traders. The company wants to keep its profitable traders. I assure you it's busy screwing the unprofitable traders on their bonuses and they aren't actively being retained either.
As a business decision, this is a good one. If the company is not going to be allowed to go bankrupt, it should hold on to its most valuable employees because that's its only hope of returning to profitability, obviating the need for future bailouts. Their profitable traders actually do have plenty of demand and they'll leave. The marginal traders will remain at AIG because there's no bid for them.
BTW, I don't think AIG had a choice. They did try to find outside capital but couldn't. The government inserted itself with the excuse of "crisis" and "systemic risk". I don't much care what happens to the CEO, but he's not getting a bonus last I checked.
The job of Congress is what Congress says it is
That's an unrestrained view. The constitution is meant to restrain that view. If congress can do whatever it wants, there is no point to any of the laws in this country because we have a kingdom.
If the king shoves the shilling down your throat, then what?
Charlie was terribly naive here:
"If AIG were in bankruptcy, wouldn't these bonuses be reviewed by some judge anyway? Is it really so much worse to have congress review it than a judge?
Posted by: Charlie | Mar 17, 2009 9:58:56 AM"
Charlie, with an individual judge reviewing the cases there is a slight remote distant tenuous possibility that the review would done with honesty. Congress? No chance from that nest of cesspool whores.
If congress can do whatever it wants, there is no point to any of the laws in this country because we have a kingdom.
No kidding. The protestations of readers of the Constitution notwithstanding, the guys with the guns make the rules, and that's all there is to it.
If the king shoves the shilling down your throat, then what?
You say, "Thank you sir may I have another?"
You say, "Thank you sir may I have another?"
Or you leave. While you still can.