Monday, March 23, 2009

I Adore Cheap Populism

It's depressing when a Republican makes sense, but Steve Latourette (R-Ohio) managed to do it for a couple of minutes. Of course this is something pols usually manage to do when they're out of power, but Latourette also voted against the original Bush-Paulson-Obama-McCain heist last fall -- you know, the one that Obama defended as "not a plan to just hand over $700 billion of your money to a few banks on Wall Street" -- while Bush was still in the White House. And pushing massive, complex legislation through Congress without permitting time to study it is a time-honored Republican strategy as well, though as with Obama's stimulus plan, the Patriot Act's partisans probably weren't interested in knowing what was in it anyway.

Last weekend Alexander Cockburn told the story at Counterpunch:

As Obama’s stimulus bill worked its way through the Congress, Oregon senator Ron Wyden, a Democrat, joined with Republican Olympia Snowe of Maine to attach an amendment to the bill capping executive bonuses for companies taking bailout money at $100,000. This provision sent off alarm bells across Wall Street and inside the Treasury Department and it was mysteriously killed in the conference committee in order to protect the AIG executives. Wyden jokes, “it didn’t die by osmosis.”

So who killed the ban on AIG bonuses? This week all the major players swore, hand on heart, they never, ever knew that $165 million in bonuses had been assigned to AIG personnel. Out in Los Angeles President Obama told Jay Leno as much. Treasury Secretary Geithner claims he only found out last week. Senator Chris Dodd, chairman of the Senate Banking Committee, swore day after day that he too never knew.

The bonuses were not secret. These so-called “retention payments” for 130 people at AIG were approved two days after the September 16 bailout, disclosed in a September 26 federal filing. They soon became a focus of extreme interest to politicians like New York attorney general Andrew Cuomo, well aware of the smoldering public mood. On December 15 Bloomberg News quoted Representative Elijah Cummings of the House Committee on Oversight and Government Reform, as writing that “Liddy [AIG’s CEO] should testify under oath on why retention payments are going to thousands more people than first disclosed." Cummings cited an earlier Bloomberg News report disclosing that AIG was scheduled to give as much as a year’s pay to about 10 percent of the staff at units that are being sold. Recipients were told to keep the awards secret.

On Wednesday Dodd came clean—sort of. Yes, he had accepted language in the recent stimulus bill which okayed bonuses consequent upon bailout money already released by the US government. Facing a tight reelection race next year and well aware that this admission would not play well with Connecticut voters, Dodd emphasized that he’d been pressured to okay the language by the Treasury Department, suggesting that Bush-era holdovers from Hank Paulson’s team warned that unless the AIG bonus contracts were protected the entire stimulus package could be vulnerable to a constitutional challenge. Dodd thus passed the poisoned chalice to Treasury Secretary Geithner, White House economic czar Larry Summers and… Obama.

At first the White House put up Summers to argue that America is a nation of laws, among them the law of contract, as applied to AIG employees. Only a man who had to resign the presidency of Harvard after claiming that woman are in some ways stupider than men would be capable of such idiocy. Obama is in the process of asking millions of Americans -- autoworkers, pensioners, veterans to accept annulment of contractual obligations to them by the US government. Suddenly they’re asked to respect retention contracts to AIG losers, many of whom have quit the company anyway.

Tossed on the third rail by Dodd, scorched by Republican jeers for hypocrisy and double dealing, the White House rushed into damage control. Invective against the executives of AIG poured from Obama’s lips, although not so fierce as the suggestion by the Republican senator from Iowa, Chuck Grassley, that the AIG top brass “follow the Japanese example and resign or go commit suicide.” After reading their constituent email, taking phone calls and watching the talk shows, on Thursday after about 30 minutes of debate 243 Democrats and 85 Republicans joined in voting "Aye" to a House bill that would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at AIG and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses issued since December 31. It was opposed by six Democrats and 87 Republicans. The senate is considering a slightly more restrained version.

House leader Nancy Pelosi was no doubt close to bursting from schadenfreude as she mousetrapped the House Republicans on that one. It’s a measure of just how terrified they are of the popular mood that no less than 85 Republicans voted for an individually targeted, retrospective tax levy on individuals which is probably the largest marginal rate ever imposed and certainly unconstitutional.

Rough though the week has been, there is a silver lining for the White House. It stems from the very word that has landed Obama and his team in such trouble - “bonus”. A bonus is something people can relate to. You hope to get it at Christmas. It’s a reward for working hard. You don’t give bonuses to thieves and deadbeats. Yet at the same time as the uproar over $165 milion in bonuses is in full spate, Obama has approved bailout of AIG to the tune of about $200 billion, much of it passed on to the infamous “counterparties” like Goldman Sachs and foreign banks.

In other words, Obama has been using the bonuses to divert attention from the vastly larger amounts of money he's throwing at AIG. (See also Glenn Greenwald's Salon article on the White House's scapegoating of Dodd.) So, for that matter, has Congress. Already the punditocracy and the blogosphere are urging Obama to fire Geithner and Summer, but of course they are merely members of his Team of Rivals, doing his will. But I shouldn't be sarcastic -- that's nothing more than the truth. No doubt they'll fall on their swords if it becomes necessary to safeguard the bailout, but ultimately it's the President's responsibility, not theirs.

As Whatever It Is I'm Against It pointed out, "In the larger scheme of things, it’s the need to prop up this criminally-run company with $170 billion of taxpayer money that’s the real scandal. Compared to that, $165 million in bonuses is kind of a sideshow, the insult to injury ratio here being 1:1,000."

No doubt, like Jon Stewart, Obama finds cheap populism oddly arousing; but Stewart was being satirical. (Like the title of this post, as I hope I needn't point out; it's a Boys in the Band allusion.) What worries me is that the best I can say for Obama's leadership (to be charitable) in this mess is that he's using such creepy diversionary tactics; the worst I can say is that I smell panic in his tactics, all the way from Washington DC to Indiana. Passing a blatantly unconstitutional law like the retroactive tax on the AIG bonuses is also a familiar tactic of the right: you not only get to pass the law, knowing that it will be overturned, but then you can denounce the courts that overturn it as elitist activist judges interfering with the will of the people. (Previously it was announced that the amount of the bonuses would be deducted from the next bailout payment to AIG. I'm sure that had the big boys shaking in their shoes! Any accountant who can't figure out how to get around that move doesn't deserve his, erm, "retention payment.")

I'm sure I'm not the only person who worries about the crossfire of arguments about the best way to deal with the economic crisis we're in, and the historical precedents that inform them. For example: Did the New Deal end the Depression, or not? I've seen arguments by economists taking either side, and it seems that their politics determine their answers. Which to me suggests that no one knows. I certainly wouldn't trust the Right, but since I can't trust the Center-Right either, I'm worried. In a system as complex as the US economy, it's very difficult -- maybe impossible -- to tease out cause and effect. I have to take it on faith that Obama appointed people who were competent to produce a plan that would work, and though I never had much faith in him, which decreased even more when he appointed hacks like Geithner and Summers, it's becoming increasingly clear to me that Obama has no idea what to do either, so he'll settle for saving Wall Street at any cost. Since most of the people who voted for him, I think, see Wall Street as part of the problem, he has to pretend to be boldly independent, and the pretense is becoming less plausible every day.