Why Obama Was Smart to Come Out Strongly Against the AIG Bonuses
Earlier this month, New York Times op-ed columnist Thomas L. Friedman took some heat for writing that he feared the Obama presidency would be "eaten" by the problem of dealing with the banking system.
Less than two weeks later, the White House has had to move quickly to keep Friedman's prophecy from coming true. And the president was smart to do it.
When news broke over the weekend that AIG was getting ready to pay out approximately $165 million in bonuses, it immediately dominated the news, even spilling over into today's coverage. While we can all agree that it is distasteful to pay millions of dollars to these people, in the bigger picture, with all the problems facing the country, there are bigger fish to fry. Unfortunately, for political reasons, it was vitally important for the president to get out in front on the bonus issue.
On This Week yesterday, Lawrence Summers, the director of the National Economic Council, was asked about the AIG bonuses, and he played down the possibility of the Obama administration moving to stop them (even while expressing how "outrageous" AIG's conduct was). He said:
"The government cannot just abrogate contracts."
But a day later, President Obama came out strongly against the AIG bonuses, declaring:
"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay, ... How do they justify this outrage to the taxpayers who are keeping the company afloat."
As a result, Obama said he has asked Treasury Secretary Timothy Geithner to
"pursue every legal avenue to block these bonuses and make the American taxpayers whole."
I was very happy to see the president forcefully step in and oppose the bonuses, and not just because of how disgusting the idea is that the company that nearly brought down the financial system was rewarding those responsible for causing the near collapse. The political angle was even more important.
There was a danger that the Republicans were going to grab onto the populist anti-bank feelings in the country to position themselves as the party of the people, with the Democrats being cast as the party of the bankers. Factually, of course, we know that this notion is not true. Over the last eight years, a Republican administration and the Republican Congress (for the first six years) treated "regulation" like it was a curse word, allowing the greedy to run amok and bring down the economy in a heap of risky derivatives. Now in control of the White House and both houses of Congress, the Democrats are left to clean up the mess. And it is a mess that has to be cleaned up for the economy to rebound.
But cleaning up the mess will inevitably lead to money being spent to shore up the financial system, and therein lies the danger. Republicans, who are fighting Obama more than they're trying to solve any problems, would certainly point to such aid as proof that the Democrats were looking out for the bankers at the expense of the American people. After all, as the minority party, Republicans can express outrage, but with no obligation to clean up the mess the party left on the president's doorstep.
This is a point Ben Bernanke alluded to in his interview on 60 Minutes yesterday. The Fed chairman said:
"The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis."
He goes on to note that:
"I think the biggest risk is that, you know, we don't have the political will. We don't have the commitment to solve this problem, and that we let it just continue. In which case, you know, we can't count on recovery."
The "political will" he is talking about is the ability of the U.S. government to sign off on spending millions to rescue the financial system at a time when people are outraged over the conduct of the banks (as they should be).
The point, though, as Bernanke explained in the interview, is that the banks' problems are our problems. He made this analogy:
"If you have a neighbor, who smokes in bed. And he's a risk to everybody. If suppose he sets fire to his house, and you might say to yourself, you know, 'I'm not gonna call the fire department. Let his house burn down. It's fine with me.' But then, of course, but what if your house is made of wood? And it's right next door to his house? What if the whole town is made of wood? Well, I think we'd all agree that the right thing to do is put out that fire first, and then say, 'What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn't happen in the future? How can we fire proof our houses?' That's where we are now. We have a fire going on."
The idea that Obama has been hamstrung by a lack of political will to fix the financial system if it means helping the banks that caused the debacle in the first place is not new. In his first seven-plus weeks in office, the president has boldly laid out an ambitious and impressive agenda, trying to address major problems facing the nation, including the economy, energy policy, health care, global warming and education. But when it comes to the rescue of the financial system, the administration's proposals have seemed uncharacteristically more timid. Obama and Geithner have avoided coming out with bolder actions, like temporary nationalization of failing banks or mortgage principal reductions, seemingly due to fears of how those actions would play politically.
But with Obama's strong statements on the AIG bonuses today, he is showing that he understands the politics of the issue, that Americans are livid at what the bankers did to the economy. And he is showing that he is siding with the public, not the bankers.
The question remains how Obama can do what he needs to do to clean up the financial system while not losing the support of the average American. Where Bernanke's "political will" will come from. But today was a good first step in that direction. Polls show that Obama enjoys great trust with the electorate, and if he acts boldly to fix the system, I think Americans will support him, even if it requires money, so long as they feel like he's on their side (and his solution works, of course).
In a profile of the groundbreaking comedian Dick Gregory in the New York Times on Saturday, Gregory is quoted as saying:
"This economy can't be fixed in two years. And the last guy with the gun gets blamed for the crime."
He's right. But I'm more concerned that Obama will be viewed as the last guy with the gun on the banks. That is why he has to move boldly to fix the problem. If he does, the American people will support him. And the Republicans, who are already rudderless and solely the Party of No, will be pushed even further into irrelevance.
And going after the AIG bonuses will help him build some of the political will he needs.
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Hey Mitchell:
Nice post, but you completely fail to mention that it was at the White House's insistence (pushed by Geitner and Summers) that the provision limiting executive compensation was removed from the February bill. While you are showering the President with praise perhaps you could bother to mention that fun fact.
I vote for Obama believing that he was a different kind of politician, but insisting that an action be taken and then three weeks later expressing outrage at the people who followed your advice seems to be the same Orwellian tactics used by the Bush administration.
Everyone is right, this is an outrage. But it is ridiculous to paint the White House as a victim of it.
President Obama signed an omnibus spending bill with $12.8 billion in self-serving earmarks for legislators during the economic crisis. How can the president and Congress lecture AIG? Don't the earmarking hogs look like hypocrites? Liberals dismiss complaints about their drunken spending habits as just a conservative distraction.
Since the employees were under contract to receive the bonus, AIG should have filed chapter11 bankruptcy.
There is a lot of blame to go around in both parties, but Obama appointed Wall St. insiders for his team and just this morning defended Geithner again. Either Obama isn't so smart after all, or he thinks it is just fine for Wall St to steal from the American public. If he doesn't fire Geithner, Summers, and Bernake very soon he will have ruined his presidency. He inherited a mess but so far has acted too much like Bush in favoring Wall St. With all the outrage you would think he'd get the message but apparently is just another politician who thinks that we the people are a bunch of wimps who won't really do anything. Perhaps we are, but I suspect that we might just surprise them.
what i do not understand ..is why the news does not go after Alabamas Senator Shelby... they should ask him why as the repubican senior in banking .. houseing .transportation.and many other .. that he has allowd the country to get into such as mess...why he stood behind the Tarp act ..then attacked the auto dealers and unions and the news portrays him as the
Republican hero .... they really need to look in to the guy .. first a dem .. then republicans looked better... he ran as Rep ...he has been in for some 30 years ..but he acts like he knew nothing about all of this...check out his web site ... some of his bills are realy scary... why do they not go after him..weird
Oh Please yes, Barney Frank did ask to have that put in the bill, and it was taken out, and just a few
weeks ago the Rethugs were complaining about putting caps on these big corporations.
So you are right they- Hank Paulsen, Ben Berneke and George W Bush did know about this that is why Bush again didn't want us to tell these banks not to pay these bonuses.
Look, the problem began with Obama (who should admit that he is no economist) hiring wall street shills.
I am NOT impressed.
I feel sorry for the President. He had the whole thing thrown into his lap. If you are going to blame anyway, please blame your friends - the Republicans.
I didn't know Rush Limbaugh was on this blog
You might want to stay silent. Since when is pointing out the obvious a trademark of Rush Limbaugh? Ad hominem attacks (like mine, too, I admit) are more Rush's style.
Geithner and Summers ARE Wall Street shills. Obama's toothless admonition is meant to fool people into thinking he might do something that would offend the captains of industry. His cautious approach is wearing thin with me, and believe me, I am not now, nor have I ever been, a Rush Limbaugh supporter.
Is it really that long ago that Barney Franks wanted controls against using TARP money being used for bonuses and the Bush Administration refused ?
Oh, Please...
Just reported on cable news that THEY KNEW ABOUT THIS all along. They KNEW ABOUT THIS LAST YEAR.
Obama best cut the DLC cronies out of this administration and start working with the REAL citizens of this country.
"Leadership" Council.....REALly?
Obama has to fix this problem and he knows it. I believe that if it is humanly possible, he will do it. As he said himself, if he doesn't, "You'll have a new President in just a few years."
Hiring wall street shills is NOT going to fix the problem. Sorry, I am NOT as impressed with your president as you are.
You wouldn't know a shill if one was standing right next to you.
Even smarter: If Geithner turns out to have approved these bonus payouts directly and (hopefully) hidden the fact of the billions of 100 cents on the dollar CDS payments of >50 BILLION dollars going to foreign banks until after the payments with our tax dollars got paid, O gets to ask for his resignation without fear of reprisal, and the whole Wall Street stranglehold on our recovery gets tossed out the window like the bad garbage that it is.
So the unfairly rich will balk? They brought this on themselves.
.
Go to firedoglake.com. Geithner did make your wish come true. He knew of them and approved them.
I think Obama trusts the wrong financial people.
Rahm Emanuel: "Timothy Geithner's job is not in jeopardy."
Translation into English:
"Timothy Geithner's job is in jeopardy."
The fact that these Wall St players continue with their past behaviors speaks volumes.
They have been allowed to do what they wanted for years and years with no oversight. They didn't have to answer to anybody. They developed an inflated sense of self worth. They feel they are owed these bonuses. That's their due, to earn bonuses every year regardless of their productivity.
And the congress who was elected to serve the people looked the other way. Money made the world go round.
And now the person who turned his back on the big bucks and chose to serve the underpriviledged people of Chicago gets to clean up the mess while everybody else pitches fits about what he does and how fast he does it.
"And now the person who turned his back on the big bucks and chose to serve the underpriviledged people of Chicago gets to clean up the mess while everybody else pitches fits about what he does and how fast he does it."
PULLEEZE! The first step into Chicago politics is to become a community organizer! "help the underprivileged" is a lot of BS...an organizer strictly agitates and signs up voters, and educates ACORN on this art . Obama's biggest "accomplishment" in Chicago was to organize and get MotorVoter passed allowing illegals to easily get away with registering to vote.
It was Obama's Democrats who were in charge from 2006-2008 and along with Paulson, Geitner, Bernanke, a rep from Goldman Sach and ALL the leaders of Obama's party negotiated TARP (republicans, the minority, were not included). Sen. Dodd specifically put in a clause allowing bonuses. They all knew about it, but now are covering their rears while shouting with disgust?
How many more incompetants is Obama going to appoint?
AND If you expect Obama to succeed, at least demand honesty from him and his party instead of repeating their lies!
Oh, "let us pray" that for once, Barack Obama will ACT like he TALKS because so far - that's all he's doing on this issue and you are hailing him for doing it - and all for the sake of politics and the Democratic Party???? There is a bigger issue here - one that ALL of us must take part in; we MUST hold this NEW administration accountable from DAY ONE ! And at the moment, a whole lots of "commentators" are ENABLING BARACK OBAMA and instead taking to task those who Barack Obama chose to solve this problem - AS IF Barack Obama NOT IN THE MEETINGS - LEADING!?! If we do not hold him accountable NOW - and not by his words but by his ACTIONS - then exactly WHEN?
These Wall Street credit default swap gamblers... they're like the ne'er-do-well son-in-law who borrows $50,000 to start a restaurant, and then comes back and says he lost the money at the track, plus borrowed and lost $250,000 from the mob and they're gonna burn down the house with all of us in it in five minutes if we don't sign this TARP bill. So we fork over the money, and he shows up the following day in a nice new private jet he bought with the leftover money. Isn't it shiny?
I think that if Obama went in and forced AIG to give in, it wouldn't be socialism... it would be acting like a venture capitalist. If a Silicon Valley VC just injected $100 million into a failing startup, you'd better believe that he'd get the CEO and managing team to toe the line... or he'd never have lunch near Sand Hill Road ever again! So yeah, the government forked over so much money that it should put some steel in it and read AIG's management the riot act.
Obama (and Bernanke, et al.) has done nothing more than pure crisis management-style PR and messaging so far. I'm distinctly not impressed. I'll be withholding judgment until I see what actually happens to AIG bonus monies.
The previous administration did a lot of messaging of their own (i.e., Mission Accomplished anyone?). Actions always speak much louder than words...for anyone actually paying attention, that is.
You are a wise observer. I agree totally with your poste.
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