The debate over the A.I.G. bonuses is class war in its full naked glory. On the surface, everyone agreed that paying multi-million bonuses to the folks who bankrupted their company and handed the taxpayers a bill for $170 billion ($2,300 for a family of four) was outrageous. The difference is between the angry masses, who actually want to take back the bonuses, and the elites who insist that there is nothing that can be done.
In spite of the superior education of the elites, the masses have the much better argument. As a result, the elites have been desperately cooking up excuse after excuse as to why their well-heeled friends at A.I.G. and the bankrupt banks shouldn’t lose their bonuses.
The first line of defense against measures to retake the bonuses, such as the tax passed by the House, was that retroactive taxes that apply to income already "earned," are unfair. This one carries little weight to those who can remember back to 1993 when President Clinton signed a tax bill in August 1993 that increased taxes on income earned since January: Masses 1, Elites 0.
The second line was a moral plea that the A.I.G. crew and other Wall Street bonus babies had worked for their money. While most did show up at the office, the value of their "work" is questionable. More substantively, the elites have been perfectly happy in other circumstances to take away money that people have worked for. For example, Congress changed the rules on Social Security so that beneficiaries cannot get the benefits they paid for while they are in prison: Masses 2, Elites 0.
But, the third line of defense was the best: The elites claimed that the bonus tax and other similar measures would disrupt compensation patterns on Wall Street. Banks receiving TARP money will lose good people to hedge funds and others who are not similarly restricted.
This is the line that sends tens of millions of ordinary people rushing to get their baseball bats. The reason the banks are bankrupt, the reason we have more than 12 million people unemployed, the reason we are facing the worst downturn since the Great Depression is that the banks don’t have "good" people: Masses 3, Elites 0.
The people running these banks were unable to see an $8 trillion housing bubble, the largest financial bubble in the history of the world. They sold bonds and complex derivative instruments that only had value if this bubble would continue to inflate. Now, as we sit in the wreckage, with millions of people having lost their jobs in construction, manufacturing, real estate, and other areas, we are supposed to use taxpayer dollars to pay these bankers multi-million dollar bonuses?
It was bad enough when they got their multi-million dollar paychecks when the money at least belonged to the companies. Of course, that was illusory – the too big crowd was always playing with the taxpayers’ dollars, we just didn’t know it back then. But now, we know it is our money. We are taxing schoolteachers, firefighters and bus drivers to pay multi-million dollar bonuses to incompetent bank executives and traders. Yes, people are angry.
This is what really has the elites appalled more than anything. It’s one thing for banks, drug companies or insurance companies to use their money to influence legislation. The elites all know and understand that. This is their game. However, when angry people try to affect Congress, then the elites get concerned. And, clearly, that is what is going on with the bonus tax.
The last time that angry people tried to influence Congress like this was with the original passage of TARP last fall. At that time, popular pressure led the House to vote down the bailout the first time.
At that point, the elites rallied. They turned over most of the country’s newspapers, and radio and television stations to the PR effort to pass the TARP. They abandoned any pretense of objectivity, essentially branding members of Congress who were opposed to the TARP as "know-nothings" and making it clear that they would be blamed for everything that went wrong in the economy if the TARP was defeated.
Members of Congress folded under this pressure. In effect, the media created a one-sided bet for members of Congress in which voting against the TARP meant that you would be held responsible for everything bad that happened, while voting for the TARP made you immune from responsibility. (No major news outlet has run a story blaming the horrible economic news over the last six months on the passage of the TARP. By contrast, there were numerous stories blaming the stock market plunge on the initial defeat of the TARP. The market has fallen much lower in subsequent months.)
Of course, the bonus money is relatively small change in the scheme of things. The same people who think it’s fine to give incompetent financial company executives multi-million dollar bonuses are busy crafting plans to hand several thousand times this amount to the same crew in their latest bailout scheme. They are saying that if this plan doesn’t go through, the economy will be wrecked.
Just to be clear (because the media won’t tell you), the people who designed this plan are the same people who wrecked the economy. Before anyone even thinks of supporting this plan, they should get a clear answer from Bernanke, Geithner, and the rest of the crowd to the question: "When did you stop being wrong about the economy?"
Dean Baker is the Co-director of the Center for Economic and Policy Research. CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report.