A Crime to Make Money
The obtuseness of the government and the financial industry on the subject of executive compensation is best summed up by one of the bonus defenders, who complains: "It's suddenly a crime to make money, it seems." Leaving aside the telling stupidity of assuming that the mere act of "making money" obliterates any attached misdeed, there is little doubt in many people's minds that AIG's behavior, and Bank of America's, and Merrill Lynch's, and Goldman Sachs's, and countless others should, in fact, be a crime.
That bonuses for executives of bailed-out companies are wrong and possibly criminal is clearly illustrated by the many explanations we have been given for why bailed out financial industry executives should be compensated despite their performance. Bonuses help retain the best and the brightest (ha!), they are a contractual obligation, they are a "risk consideration" (ie blackmail), New York City would disappear without them, etc. These laughable variations are a sure sign that, in fact, there is no good reason for the oversized salaries and bonuses at rescued companies: the real motive is that the money should continue to flow to executives because it always has and, actually, the primary purpose of the bailout, from the executives' perspective, is to keep them profitably employed, or happily retired. Bankers in New York and London would not be able to believe their luck if they were not so arrogant as to think it was their shrewdness (the best and the brightest!) that is being rewarded, not their luck.
This fortune, though, may finally be turning, as financiers watch in terror as governments everywhere are pushing for publicizing the list of bonus recipients at bailed out companies. Predictably, the executives' advocates, along with Rush Limbaugh, express outrage that they are "private sector workers [who] do not expect that their salaries and bonuses are going to be in the newspaper." Where have these people been for the past six months, besides counting their ill-gotten coins? They are most definitely no longer "private sector workers." They are, for all intents and purposes, federal government employees, and should be subject to the same limitations and disclosures as their new colleagues in government. A choice they do have, of course, is to walk away and get an actual private-sector job, bonus and all. Shocked by the level of our anger, however, they are cowering in anonymity, supposedly fearing for their families. That may well be the case and, if so, they have nobody to blame but themselves. In any event, there is an easy solution to their predicament: they can return the money, and no one will ever need to know that they were on The List to begin with. Or they can join Bernie Madoff where they most likely belong: in a high security jail for mobsters, safe, sound, and away from public scrutiny.
Financial industry executives are hardly the only culprits here, although they are the greediest ones. From the beginning Tim Geithner, supported by the president-elect and backed by Congressional leaders, pussyfooted around the issue of executive compensation in bailed out companies. This is not surprising, considering his incestuously close ties to the financial industry. It is also not shocking that Sen. Chris Dodd, Chairman of the Senate Banking Committee and top recipient of AIG funds, and Sen. Chuck Schumer, for instance, were remarkably late in figuring out that bonuses at bailed out companies were wrong. Bankers have financed these people for decades and it surely cannot be easy to turn on your masters on a dime, even if that would be the right thing to do (the truly right thing to do, of course, would be not to have taken money from them, but it's too late for that now). Barack Obama, in the meanwhile, has had a months-long tin-ear moment, as late as this week calling the popular anger a "tizzy," probably because he too is in debt to and in awe of these cardboard Masters of the Universe. This is a crisis that has been openly brewing for so long, it is unfathomable that Obama is now literally resting a big chunk of his political capital on it. Clearly he, and Geithner, and many members of Congress, not to say the financial industry recipients of the government largesse, surely all hoped the anger would simply boil over. They did not count on the fact that the greed and superciliousness of banking and insurance executives that resulted in the need for bailouts would push them to overreach for an ever-bigger piece of the bailout pie. That is how these people are wired and unless they are smacked down with all the people's strength, they will try, and try, and try again to find a way to get one over us.
Now, Congress and the White House are in a panic, as they should be. Where was the outrage six months ago, three months ago, two weeks ago? It is hard to take any of the government actors in this farce seriously, and not only because they haven't seemed to much care what happens to taxpayers' investments in these shells of companies, but because many of them lack credibility to begin with. Obama's pick of Geithner despite the latter's "tax problem" (ie he knowingly evaded taxes) was one of the ugliest moments of his presidency so far. Besides this and possibly more to the point, Geithner has been completely unable to distance himself from the very industry he is supposed to police. Not surprisingly, Ben Bernanke, Chairman of the Fed, has a share in this too: how is it possible that the AIG CEO does not know the three Fed officials supposed to keep a watch on his sinking ship (should they not be camped in his office? should they not be reporting back to the Treasury?). Sen. Dodd's career could well be coming to an end next year, so sick are his Connecticut constituents of his sweetheart mortgages and his lack of bailout leadership. Democrats better hope that they can find an appropriate replacement in time for 2010, even if it means a bitter primary battle. If we are lucky, Schumer too will face a credible primary opponent next year, preferably one who can eloquently highlight the New York Senator's dreadful ties to the securities industry and to AIG. Not coincidentally, Schumer has been all but invisible in the compensation debacle, too busy sabotaging the nomination of the head of the National Intelligence Council, whom he deemed not sufficiently friendly to Israel. Talk of misplaced priorities. And how can we expect repeat tax-dodger Rep. Charlie Rangel to make any sense on the issue, despite being in charge of taxation for the House (really). The best he could muster on the issue this week was to reassure AIG bonus recipients that the tax code would not be used as "a political weapon." Of course that was just a day before the lopsided vote on applying punitive taxes to AIG bonus recipients. As for Republicans, they are so profoundly guilty in this banking catastrophe that try as they may to stand up and be relevant, they just keep falling back into the mud that spawned them. In truth, they have been serving a purpose, providing welcome comic relief as they battle one another for leadership of their party, an entity that is about as substantial as Citibank would be without government money.
That does not leave many people on our side, including the president. His complaint that Geithner has been too busy rescuing the economy to focus on executive compensation rings uncharacteristically hollow. Making sure public funds which are, believe it or not, limited, are used appropriately is not a small part of Geithner's mission, it is an essential one. More broadly, the abuse of bonuses is a piece of the culture of misplaced greed and corruption in the financial industry that has resulted in the current economic havoc. It is not a peripheral issue, it is the issue. It may be that politicians are so deeply unfamiliar with the banking culture that they can't fathom the insatiable depths of greedy depravity that rule the industry and have lead us to the brink of economic destruction. It may be that all they know about financial types is that they are the ones who write the biggest checks at election time, do so most often, and require the least amount of time and attention: all in all a good return on a politician's investment, at least until now. It seems to have finally dawned on government leaders that bonus recipients are not the only ones who should be afraid, and that there is enough of this brutal and eminently rational anger to go around both houses of Congress and the White House, after we are done with the bankers.
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We must make a distinction between the Henry Fords, Bill Gates, Steve Jobs of this world versus these greedy bastards, Ponsi schemers (Modoffs, Lewises) people who have made their fortunes not by developing useful things for humanity but by taking, crushing, stealing from the futures of America. Not all rich people are bad. Some rich people serve society by being role models for our capitalist system, examples of how hard work and following your dream brings success. They never ask for bailouts or government subsidies to make or do anything. These people have character, guts honor, integrity and a drive to act on their dream. The bad rich people have none of these attributes; they are dishonest, cowards, liars, low to no moral character and they tarnish the names of successful hard working Americans. They place our American Capitalist System in a bad light. They have dishonored us throughout the world. Bonuses - NO, Golden Parachutes - NO, Public hanging on Wall Street or lifetime prison sentences - ABSOLUTELY!
Excellent , excellent article.
Thank you for writing it.
It is not the amount of money in the bonuses that is the problem- it is the rewarding of unethical criminal behavior . even if no laws were officially broken. At best it can only be seen as rewarding utter incompetency
This meltdown has revealed the stark contrast between the wealthy and the the rest of us. American operates for the rich and the rest of us are just fields to be mined for their enrichment - as they imprison us for profit, take our retirement that we spend decades to accumulate and use our children's lives to stock their war investments and fund their latest entrepeneur craze.
The fact that their are only a handful of politicians of either party who have not assisted these people is heartbreak
And after the last eight years of learned helplessness , under a seemingy deaf president , most of assume we are helpless. How to awake the populace to their own power is the ONLY question , even more important than which financial gangster is going to be put in place to "save" this corrupt system.
REAL CRIME of Goldman and the other Big Banks:
1. Sell a defective product: Manufacture/Sell a “Sure Fail” Mortgage or buy from a broker!
2. Make a “SURE FAIL” Derivative out of parts of a bunch of “SURE FAIL” Mortgages!
3. Buy insurance: Bet repeatedly that the defective product will fail!
4. Wait and Collect the Insurance on the Failure!
Not only is this a form of “Generated Insider Trading” but it violates the Laws governing Defective Products.
DEFECTIVE PRODUCT - A product is unreasonably dangerous to the user, when it has a propensity for causing harm beyond that which would be contemplated by the ordinary user having knowledge of the product's use.
Product liability law governs the manufacturers and sellers for damages caused by dangerous products. The goal of laws are to help protect consumers from dangerous products, while holding manufacturers and sellers responsible for putting into the marketplace products that they knew or should have known were dangerous. Product liability extends defects in real estate loans.
GROUNDS for Prosecution:
Product is dangerous when used as intended.
Manufacturer: required to make a product which is free from dangerous conditions.
Marketing Defects: A marketing defect involves such issues as inadequate warning labels or instructions, which, for example, prevent a user from recognizing a defect in the product, or from being aware of how to safely use or apply the product.
11. The entire idea of ownership of that which you cannot take along at death is utterly ridiculous. Just imagine – I go into the forest and take something – a tree – which is not mine to take and then have the audacity to demand gold or silver in return. That gold or silver was found on the ground or extracted from ore, also found by others. It belongs to the earth, yet we take it and declare privilege over the land where it was found and use force to keep others of ‘our property’.
12. Revolution is anarchy taking power. Most revolutionaries were anarchists. Lenin, Stalin and Trotski were communist in name only – especially Stalin. His idea was to coerce the population and by using force, he ceased to be an anarchist. This is the problem all anarchists face, for it is a seemingly unsolvable riddle – a paradox. Once anarchy has power, it ceases to be anarchy, because it enforces an idea. Anarchy’s goal is to do away with coercion. It seeks to do this by political means and these ideas require majority vote. Anarchism is opposed to rule by majority, yet for that to happen, the majority must agree to do it that way. Anarchism is really a self-defeating exercise, for the conundrum of selfrule cannot come about without all seeing the need for its general acceptance.
8. Democracy is that form of State organisation, that adheres in name to free elections, but coerces the voter, by making voting compulsory, or by adding the votes of the non-voters to those of the largest parties. Elections are the dummy by which the subjects are lulled into the sleep of promises. The time of rule is the rude awakening to the reality of coercion, taxes, landlordism, usury, and the fraud of electoral promises.
9. Anarchism is that organisation of society in which the Free Market operates freely, without taxation, usury, landlordism, tariff, or other form of coercion or pivilege. The Right Anarchists predict that in the Free Market people would voluntarily choose to compete with each other, while the Left Anarchists predict they would voluntarily cooperate more often than to compete.
10. We are being hoodwinked into this World Trade Organisation, which is the biggest threat to the Free Market and the largest Organisation of society that uses taxation, coercion, usury and landlordism, to keep us all enslaved to their idea of business.
6. There are conservatives, liberals, socialists, communists, Marxists, Leninists, etc. Conservatism is that school of capitalist philosophy, which claims allegiance to the Free Market, while actually supporting usury, landlordism, tariff and sometimes taxation. It is a form of Capitalism, like all the ones we named.
Liberals follow that school of Capitalist philosophy, which attempts to correct the injustices of capitalism, by adding new laws to the existing ones. When the Conservatives pass a law, which creates privilege, the Liberals pass another law, which is supposed to modify privilege, leading the Conservatives to pass another, more subtly worded law, recreating privilege. This goes on till everything not forbidden is compulsory and anything not compulsory is forbidden.
7. Socialism is the attempted abolition of all privilege, by restoring power entirely to the coercive agent - the State - which is behind the granting and maintenance of privilege. This converts Capitalist Oligarchy into State Monopoly. That amounts to white-washing a wall by painting it black. Communism, of whatever persuasion, is a form of State monopoly and thus Socialism in another form – mutton dressed as lamb.
4. Usury is that form of privilege or interference with the Free Market in which one State-supported group monopolises the coinage and thereby takes tribute in the form of interest, direct or indirect, on all or most economic transactions. Which brings us to Landlordism, which is that form of privilege or interference with the Free Market in which one State-supported group ‘owns’ the land and thereby takes tribute in the form of rent from those who live, work, or produce on the land. All of course backed up by coercion and force, so it is unavoidable.
5. Tariffs are that form of privilege or interference with the Free Market in which commodities produced outside the State are not allowed to compete equally with those produced inside the State.
Capitalism is that organisation of society, incorporating elements of tax, usury, landlordism and tariff, which thus denies the Free Market, while pretending to exemplify it.
2. The Constitution is that declaration of the rights of free men, which opposes that freedom by granting the State the right to tax them; to coerce them into accepting privilege and/or draft them into an armed force, to exert coercion, war and other adventures as marked above.
3. The Judiciary is that institution of society, which interferes with free individuals through the form of direct coercion and force. It is hidden in the form of privilege, granted in the interests of corporations, as opposed to the interests of the subjects of the State, which the judiciary is supposed to protect.
Privilege comes from the Latin privi, private, and lege, law. It is an advantage, granted by the State to an individual or a corporation and protected by its powers of coercion. It amounts to a law for private benefit.
This entire idea and all its consequences is determined and dictated by Big Business – first of all the banks, oil, media, pharmaceuticals, technology – to create a so-called Free Market, in which they are the only ones to sell their goods to everyone in all Countries and States. The true meaning of a Free Market is the availability of the best and cheapest products for all people. Each individual is supposed to have freedom, which is anchored in the Constitution. However, there are some obstacles to this goal. We shall enumerate them one by one.
1. The State is that institution of society, which interferes with the Free Market through the direct exercise of coercion or the granting of privileges, backed by coercion. They do this in the form of tax, which is that form of coercion or interference with the Free Market in which the State collects tribute - the tax - allowing it to hire armed forces to practice coercion in defence of privilege and also to engage in such wars, adventures, experiments, ‘reforms,’ etc., as it pleases and sees fit, not at its own cost, but at the cost of its subjects.
(continued)
The problem here is that bonuses, retention awards, the sheer amount of money these folks made - not based on performance - was "normal", business as usual for both they and the politicians who have dealt with them. No one asks if it is right, with this mindset, it just is. It's the way things have been done. The rest of us became outraged because we don't live in this world with its set of rules.
The CEO of Toyota makes 1 million a year. In this country, CEOs have come to expect a lot more than that - it's what they consider "normal" compensation. All of this must change and it will.
Excellent comprehensive commentary Paul! Thank You!
“The Market” has failed us, failed our Democracy. Democracy & Capitalism are not synonymous. We have been sold a very expensive bag of lies by the crooks (& their bosses) that ran AIG & so much more into the ground, still expected their bonuses & low taxes. We allowed the greedy-rich to convince us that “The Market” would, if only de-regulated, control itself; so much for human nature & unrepentant avarice. How do we still allow the super-rich and greedy to take so much from our Society & return so little, while all the rest of us pay for their excesses? How long will we continue to allow any who dare use the "S" word-----S
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It's hard to imagine how this situation unfurled with nobody really anticipating public reaction. It's as though all public complaints about how these companies have ripped off people via various insurance schemes, incredibly complex contracts that guarantee long-term usury rates, and so on fell into a pot called, "Public Whines....
The same corporate culture that actually devises marketing plans to attract customers only to never pay out benefits IS, of course, the one that would actually have the chutzpah to pass out grossly unearned bonus plans on their way out the door to play bridge with one another.
Excellent article Paul. I am going to send it to US Senator Bob Casey. Senator Casey sent a letter to Mr. Liddy, at AIG, insisting that the retention bonuses be given back to AIG.
I thanked Senator Casey for his efforts and told him to also tax all the greedy corporate executives who are responsible for our economic troubles. The tax on bonuses should be 100%, on salaries..
The working poor...and middle class ( like truck drivers, cashiers at Walmart, farm workers, carpenters, cooks, etc) did not cause these problems ( unless they bought a bigger house than they could afford and/or lied on their mortgage applications).
We all need to complain about the wrongdoing and elect responsible people to Congress.
We did this in PA. by tossing former US Senator Rick Santorum, a republican, out of office and electing Senator Bob Casey , a democrat.
We need to elect more Democrats to the US Senate.
The cat is out of the bag. Finally, Americans realize they are being systematically robbed. They see that the transfer of wealth from the many to the few is not the natural and just order of things. It is theft.
This latest is merely the tip of the cat’s tail, one of the many cats. In fact, the public has never seen one of these cats in broad daylight and were we to ever get a good grip and truly pull it out in plain view we would regret the sight.
I’m afraid Obama’s working hard to stuff that beast back in the bag so we can all return to our happy little slumbers, er, slums.
The United States was born as a result of the battle against bankers. Alexander Hamilton wanted a central bank to assume the debts of the colonies who were broke after the Revolutionary War.
Many presidents have battled the bankers cult of usury inherited and spread from Europe and Babylon before that. From the dawn of man, some men have made debt-slaves out of others.
Your post reminds us the Obama took almost 15 million dollars from these same people and is under an obligation to them. Fiat money with fractional reserve banking in an unregulated global market spells disaster.
The danger to America was sitting in Washington and Wall Street the entire time.
As the US lost its agriculture and manufacturingt base, more and more of the economy iis based on financial services. But working people are getting poorer and poorer. Our country has gone to the dogs by setting up the Fed in 1913. Worse, the lost of the modified gold standard in 1971 has allowed the use of derivatives to hedge against currency fluctuations. Ultimately, we have cooked our own gooses by producing less per person and playing the Wall Street casino.
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