AIG Bonus Scandal Spotlights the Bankruptcy of Wall Street's "Greed is Good" Values

When reports spread that insurance giant AIG would give top executives huge bonuses after a $170 billion taxpayer bailout, you could feel the anger rumbling in Middle America like boiling magma before the eruption of a volcano.

Many top officials of the Obama administration were beside themselves with outrage.

And just imagine how protestations from AIG's CEO about its "contractual obligations" sounded to UAW workers who are being asked once again to modify their contractual agreements to keep the auto industry in business. But the titans of the financial sector seem to have very different standards for themselves and the rest of the American economy.

Recall that these bonuses are going to executives at AIG's financial products division -- the very unit that wrote trillions of dollars of "credit-default-swaps" that insured investors against defaults on bonds backed by sub-prime mortgages. The problem was that AIG used a loophole in the law to argue that the "credit-default-swaps" were not really insurance, so they weren't required to abide by insurance laws which would have assured that they had the capital on hand to pay claims when defaults actually occurred. That caused AIG to collapse and helped precipitate the global financial crisis. Seven of these executives get from $3 to $6.5 million. So much for responsibility.

Now the CEO of AIG has the audacity to argue that it has to pay bonuses because, if AIG loses it best employees, it would be harder for the company to recover and help the government recoup its investment. These are the best and the brightest? Could the gang in the financial products division of AIG done any worse? They helped precipitate the worst economic collapse in more than half a century.

But the really important thing about the AIG bonus scandal is that it is emblematic of the need to fundamentally change the culture of Wall Street and the American economic elite in general.

In 1987 Michael Douglas starred in a film called Wall Street where he famously intoned: "Greed is good."

That has been the motto of the American financial sector for the last thirty years -- and it became the accepted moral frame for much of American economic and political dialogue -- culminating in the "markets uber alles" philosophy of the Bush years.

The "Greed is good era" is over. It died on September 15, 2008 with the collapse of Lehman Brothers and the right wing myth that if everyone looks out for his own self interest the "invisible hand" would assure that the public interest would take care of itself. More than Lehman Brothers went bankrupt that day. So did Wall Street's entire system of "greed is good" values.

In fact, of course, "greed" was never "good". The ethical and religious teachings that have evolved over thousands of years of human development don't hold up "greed" as a value. The minister, priest, imam or rabbi doesn't get up on the Sabbath and encourage his congregates to go be "greedy".

Commitment to others -- commitment to our country -- selflessness -- that's what is good. Most everyday Americans understand that to their core. They get chills when they hear about the soldier who sacrifices his life for his buddies. They are inspired by the doctor who devotes himself to heal people who can't afford health care.

They know instinctively that hard work -- and sacrificing for your kid's future -- and teaching the next generation -- and inventing cures for diseases because they will help other people -- and creating something that is beautiful, or improves the lives of your fellow human beings - those are the things that are "good" and should be valued by our society.

They know that the highest calling of human beings is not to go make as much money as you possibly can, but rather to live a life of service to other people.

Normal people know that, but it has been completely lost on the Wall Street crowd and the American economic elite. They see no contradiction to paying CEO's of hedge funds $450,000,000 while day care workers make $19,000 a year. They think it made perfect sense for Martin Sullivan, the former CEO of AIG to have received a $47 million severance package when he retired from the firm as the financial tsunami swamped his company last summer. They are the first to urge UAW employees to lower their middle class pay, but don't hesitate to dole out $6.5 million to people whose actions lead AIG to disintegrate.

Last week an analyst for government-bailed-out Citicorp had the gall to argue that the Employee Free Choice Act would be bad for the economy because it would allow more everyday people to join unions and raise their wages -- this from a company that gave its retiring CEO a $29 million retirement package just last year.

The sense of entitlement is awe-inspiring. But the failure to understand the values and economic circumstances of average Americas is even more breathtaking.

In fact, of course, the notion that "greed is good" is just so much self-serving drivel. It has nothing to do with the traditional progressive values that have always defined what is best in America. It has nothing to do with "good" -- only "greed".

Future generations will look back on "greed is good" values the same way that we now view the ethical systems that once legitimated the view that "slavery is good" or that it is right for a king or emperor to conquer and dominate others through military force.

The good news is that out of the ashes of the "greed is good" world view, a new ethic of service, sacrifice, responsibility, patriotism and hope have swept America. It is up to all of us to reestablish those traditional progressive values as the bed rock for political decision making at this critical time in the history of our country and our planet.

Robert Creamer is a long time political organizer and strategist and author of the recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.

Comments

[MCarey0608]

"But the titans of the financial sector seem to have very different standards for themselves and the rest of the American economy." This is because they use other people's money and not their own.

[Downing]

Let them lose it all.
I'm 60. I work hard and save. 32% of my retirement fund just vaporized in 9 months; I haven't even gotten the first quarter report yet. No telling how many end tables I bought; probably only two or three.
Cut them off now; no more income. they can sell what they have already and live off that. I would rather see them living in a $500 rental house, driving a broken down Subaru and working at Taco Bell. Maybe that would rehabilitate their souls.

[Drgon66]

If I as a citizen had distroyed the economy of this nation, I would be tried for treason, not given several million in bonuses, my assets would be seized. as they should be....Publicly held corporations are just that, they become the proprety of the stock holders, not the personal piggy bank of managers and their friends on the board of directors.­...profits belong to the stock holder and are suppossed to be distributed to them as a return on their investment.....This is not a free market system for the stock holders, most were not paid fair dividends on there investment, any profit not paid to the investors is suppossed to go into corp. coffers to weather rainy days, not to line the pockets of a few so called good men.

[DiogenesOfAlaska]

'Future generations will look back on "greed is good" values the same way that we now view the ethical systems that once legitimated the view that "slavery is good" or that it is right for a king or emperor to conquer and dominate others through military force.'

It could happen even sooner. Just think about what kinds of people nowadays arrive at the conclusion that chasing short-term shareholder value (at the expense of long-term value or the overall prosperity of the firm's network of products and workers and clients) is actually... well: dumb. Among these are some quite unexpected ones. Such as those who invented the value-destruction ritual in the first place.

On the other hand, even if it happened yesterday (and maybe it did), it wouldn't be a moment too soon.

[CanuckII]

"Greed is good" is not the only relevent saying. How about "There is no free lunch" or "If it seems too good to be true it probably is".
Along with "greed" we need to look at "risk". Up to about 20 years ago there were equities know as "widows and orphans stocks". They paid regular dividends (often for decades without fail) but only grew in stock value slowly. Low risk -- low , but sure, reward. These were in many industries including banking. At some point, banks decided that they had to compete with "high risk" stocks. When companies start earning significantly higher returns the only way it can be done is with higher "risk". There is no such thing as higher return for the same risk. Lower returns may mean bad management but it also can mean better management.

[Nofuzzydreams]

Where is the outrage about French and German banks quietly getting our money?? Aren't the wonderful Europeans the model of socialism we should follow here?? Turns out they are worse!! They are sinking in bad loans made to east Europeans. They financed subprime countries while we financed subprime individuals!!

[CaptainFailmore]

I'd parrot back something I've heard about today's relationship between governments and the economy existing to privatize profits and socialize risks, but not only is it a now obvious thing to say and therefore grossly redundant, it's playing out right in front of our eyes.

Also, after reading a few other comments here, I have to say this: Do not confuse moderated and perfectly healthy self interest with greed. Greed is a destructive excess of self interest, plain and simple. It is not a desirable or defensible quality of any person's character or beliefs. Yes, it is natural to want the best for ourselves, and in the end, we are our only motivation. However, knowing that we aren't alone, that society as we know it and the comforts it provides simply can not be the product of one person's work, and that it's to our benefit for all of us to maintain a strong degree of comfort, one can't defend the notion that it's in anyone's best interest to deprive others of comfort for the sake of their own. 9Depending on how one accomplish this, they might be called a thief, a swindler, or in a bygone era, 'master'.) It's a simple concept to understand; that when the needs of society are better met, its members have more time, effort, and resources to commit to productive efforts beyond survival and the pursuit of their own fulfillment.

Societies thrive when people help each other help themselves.

[CaptainFailmore]

Ugh, formatting and proofreading fail.

* (Depending on how one accomplishes this...

[joanno]

AIG and other institutions deemed 'too big to fail' should be broken up as part of the financial recovery efforts. If we value free markets, no company should ever be allowed to get so big that their demise is untenable. That assures that they will never have to bear the brunt of poor decisions and make no mistake, they will continue to be bone heads even when on the public dole as this situation proves again.

[privategirl]

You are right. AIG, Citigroup and their peers wanted to get themselves to the point where they could do whatever they wanted and got away with it. They felt that would always be able to use "we to big to fail" attitude as a way to keep their power.

It's time to cut our loses and take our chances...It time to take on a "David" attitude and cut down our GOLIATHS.

[bayside]

They republicans and center dems have managed to place almost all the tax burden on us and still are even thou republicans are in the minority.. They could not do this if not for blue dogs helping them..

[Deparis]

Where's the outrage?

[claylandg]

What's the big deal?? Aig has said this is something that was old business that has to be done and there are contracts that have to be taken care of .We are a nation of laws!! To me this sounds just like the President and the dems when they were talking about the Ominious bill all of them were saying this is last yrs business that has to be taken care of then we will get back to being a nation of responsibality but first we need to get this last years earmarks threw!!!! Sounds the same to me
Aig was last yrs business, Omininous bill last yrs business I personely think both are wrong but this is business as usual for both Aig and President so who can through stones???What is good for one is good for the other, the government is to lead by example and they sure did with this it was last years crap!!!

[mrfreeze]

Boy, the idea of "last year's business" really struck a cord with you, didn't it? Is this because you're still trying to rationalize the righteousness of the last administration? Let's be clear: the Omnibus bill was "criticized" as flawed by the President. He signed it with some reasonable warnings to Congress. Why would you be surprised at a populist backlash regarding AIG? So what if it's last year's business (AIG was failing last year and knew it couldn't justify bonuses, so why then did it go ahead and leave them in?.......­...corrupt­ion..plain and simple)? We can complain all we want!

[BluestateGuyInTX]

"Omininous bill"? Do you mean "omnibus"? You might be taken more seriously if you knew what you were talking about.

[juggernaut1729]

There is nothing wrong about greed.People are hardwired to be greedy i.e to act in their self interest. It is impossible to build a society on the foundation of selflessness. The belief that greed can be ended is naive.

As Adam Smith said:
“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”

Excessive greed is punished by the free market. We do not need Government to do that.

All these excessively greedy wall street guys were on the verge of going down in flames. All the excessively greedy people who coveted homes they could never afford were going to be punished by losing their homes. All the greedy unions which were mooching off once great automobile companies were going to face the full consequences of their greed.

Then big Government stepped in and used taxpayer funds to prevent the free market from punishing excessive greed. It enabled these greedy irresponsible people to get away without losing their jobs, their homes, their pensions and their severance packages.

It ended up creating perverse incentives where it pays to be excessively greedy, irresponsible and incompetent. So, don't be surprised when you see excessive greed and incompetence.

[LeftRight]

If excessive greed is punished by the market, then explain why every time greed takes total control the economy FAILS!!!

The fact of the matter is that excessive greed without outside regulation (such as that performed by government....) will ALWAYS result in boom/bust cycles until such time as you are left with a caste society like Europe "enjoyed" throughout the whole dark ages, with a landed gentry owning almost everything, and a permanent underclass of serfs!

[CaptainFailmore]

The common belief is that market failure is punishment, and that those responsible for it do sustain losses - losses of their assets, careers, and reputations - as a result of that failure. In raw dollar terms, they lose the most. The business is theirs, and now it's gone.

Only, in reality - where colorful characters such as Ayn Rand, Karl Marx, and yes, even Adam Smith (though he was very, very bright) only lived part of the time - it doesn't work that way. Often in the process of running these companies into the ground, as we've seen, these individuals are able reap the lion's share in terms of rewards. Those rewards go into their bank accounts. (Duh.) The business? What about the business? It can burn to the ground, figuratively and literally, and the individuals responsible for its destruction don't lose anything because the business isn't an object of wealth, it's just an instrument of wealth. The belief that these greedy people are being punished is the same as saying that if you drop your fork after dinner you'll suddenly be hungry again.

Who really gets punished? The business, the employees, the clients, the shareholders, and by proxy anyone who relies on them for their bread and butter. The plane crashes while the pilot parachutes, and I don't think I need to tell you what color the 'chute is.

[juggernaut1729]

How do boom/bust cycles lead to a society like medieval Europe ?

If you regulate the market so much that booms and busts don't happen, you get stagnation.

[jsarets]

Henry Paulson, certainly one of the staunchest proponents of deregulated capital markets, took one look at the systemic risk unleashed by the Lehman bankruptcy and threw his ideology (and yours) out of the window.

The market would have punished the excessively greedy. However, it also would have punished everybody else. The market is punishing the developing world for the excesses of Wall Street. How does that mesh with the notion of personal responsibility?

We may attempt to think of private enterprise as a competitive structure, but when we take a closer look, we see a lot more cooperation than competition. We see sprawling webs of interdependence, more like parts of an engine than like cars in a race.

We've let our private sector evolve such that creative destruction has unreasonably disruptive implications. We shouldn't have to demolish and rebuild the global economy every time a multinational conglomerate bites off more than it can chew.

We're all in this together. One bad apple can ruin it for everybody, triggering ripple effects that spread devastation far and wide to those who had nothing to do with the mistakes. The undeniable existence of systemic risk is a comprehensive rebuttal of individualist ideologies.

[juggernaut1729]

Henry Paulson's ideology is socialism (for the rich). Of course, he threw off his free market mask and stood up for his cronies when it mattered.

I agree that the failure of major banks would have been bad for everybody. In the short run, we would have suffered a lot more pain than we now are.

But what is happening now is going to make it worse in the long run. We will feel the affect in the form of slower growth rates in the long run.

Also, we are rewarding the biggest culprits which is going to create a moral hazard.

Our shortsightedness as a nation is a huge problem.

[RedneckDem]

What a load!!! BTW, this time the greed was so pervasive that it was threatening to bring down everything and to allow for the excessively greedy to be excised and go back to normal the next day was, and is, impossible. The greed was at a level unheard of and, while most of us realize that there is an inherent amount of greed in everyone, this time it crossed the line. To sit back and allow for the market to "take care" of the excessively greedy while americans were losing jobs, homes and freedom is vastly naive and unempathetic.

Greedy unions? Didn't they get all of their concessions when the Big Three were highly profitable? And now you blame them for the Big 3's lack of vision? Then you fully expect them to take much of the brunt of the financial hit cause by their management? Yes, the unions are making concessions and will continue to do so. They realize that in order to survive they must do this in a downturn such as this, but to blame them or call them greedy is just another attack on the working man or woman...

All of us have the capacity to kill, yet very few of us act out on it. Laws and regulations will keep the next round of the excessively greed in check.

[maribelle1963]

>>There is nothing wrong about greed.

There is nothing wrong with enlightened self-interest. But greed is corrosive, self-interest turned rancid and destructive.

EX: it is normal to be hungry, and to eat to satisfy that hunger. But to stuff oneself full of food everyday leads to ill health, obesity and death.

An appropriate fable for our times is the Tragedy of the Commons, how a community will destroy its own livelihood by greed:
http://en.wikipedia.org/wiki/Tragedy_of_the_commons

>>Excessive greed is punished by the free market.

Not anymore it's not--it's rewarded by federal bailouts.

What you conservatives don't seem to realize is that all the rules have changed--caused by Republican mismanagement and proven their only ideas will doom the entire country--and almost did.

[mrfreeze]

Whenever anyone begins a sentence with, "As Adam Smith said" you know that person probably has a shrine to Ayn Rand in his/her bedroom, and a collection of little bobble-head dolls which include Milton Friedman, Ronald Reagan and Rush Limbaugh.

juggernnaut1792, you seem thoughtful enough; however, the notion that the market punishes excessive greed is simply balderdash. Excessive greed is alive and well in America and those who embrace it have basically fleeced the middle-class. This incredible imbalance of wealth has allowed the uber-wealthy to enrich themselves lavishly while at the same time vilifying working people for their "lack of forethought."

So please, quit reading Any Rand and stop listening to economists who've never worked an honest day in their lives. Go out and work a "real" job on a construction site or slinging hash for a few weeks. Then you'll have a better perspective of economics.

[jsarets]

Greed is a grossly inadequate proxy for AMBITION.

Ambition is what we want in a free enterprise economy.

We want people to look upon the world and find the greatest way in which they can contribute to the bounty and glory of human civilization. We want people to reach for the stars. We want people to harness the potential of their energy and intellect.

Wealth should be a reward for ambition, but instead it is a reward for greed.

Greed is a degenerate case of ambition where the ambition is to accumulate wealth. Greed is the subordination of contribution to compensation. Greed is the idea that the only accomplishment that really matters is being rich.

The fundamental basis for greed in capitalist economies is private investment, wherein individuals make money from money. Investing involves no ambition beyond accumulating wealth, and we don't just invest our wealth -- we also invest with borrowed money.

If we pull our wealth out of investment funds and commercial banks and deposit it with credit unions, and if we adopt a debt-free national fiat monetary system based on Benjamin Franklin's model, I believe a free market economy would actually work.

[mrfreeze]

Thanks for your thoughtful post! Too bad this distinction has been lost in a mountain of "money!"

[wrrock]

AIG = Allowing Irreversible Greed.
AIG = All in Greed.
AIG = Arn't I Greedy.
AIG = A$#holes, in general.

This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the "average joes" taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:

http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/

Not to make excuses for these people, but the bailouts are making crooks out of everyone that touches the money.

[gharlane]

"The minister, priest, imam or rabbi doesn't get up on the Sabbath and encourage his congregates to go be 'greedy'."

Aside from the fact that you meant "congregants" rather than "congregates", Robert, you obviously haven't been paying attention to the message emanating from the right-wing fundamentalist megachurches over the last few decades, have you? You're dead wrong about what these fundie megaministers have been preaching.

[Christian]

"sacrifice, responsibility, patriotism and hope have swept America"

The problem is that it has not swept those it needs to sweep! What makes them feel their knowledge, the schooling and experience required for their job, the decisions they make, worth so much money in exchange for? I remember when CEO's argued they were worth more then a big name sports figure and today they are making such. They produce nothing but paper profits, ways to make packages of so called "value" so to create more steps in the chain from which to take commissions. So where is their title giving them the right to value their contribution to society to be worth so much in exchange for the work they put into their profession? Are they more deserving that a scientist, engineer, doctors? There is a moral issue and a fairness issue involved and it comes down to our "get mine" mentality of most all of us in this society. So the best way to go from here is for public discourse to get very loud so that a new "shame" becomes planted in society for those that display greed and corruption, for those that show a disregard for fairness to their fellow man. Laws won't fit into our capitalistic free system so it must be accomplished through a desire in our society.

[RavingRavenRavings]

I agree here. I think the prompt for the Wall Street CEO's was a sense of jealousy over the sports stars. They felt that they should make more than a Michael Jordan, Alex Rodriguez--although their rationale for their belief was never clear. Their efforts did not seem to benefit millions--as the efforts of entertainers and sports stars--nor could any benefit be traced to them exclusively.. So, envy, greed--and self delusion.

[LeftRight]

This reminds me of an email I saw a few years ago. It showed how much money MJ was making, how he hit the tax limit at around 8 am on January 1st, how he would pay 50 bucks to play a round of golf at his country club, but would make around a grand while he played, etc..... It then said that if he made that much money every year for the next 100 years, he would STILL not have as much money as Bill Gates had NOW.......