“It’s about our fundamental values”

Posted by Marc Hodak on March 16, 2009 under Revealed preference | 2 Comments to Read

“How do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama asked. “This isn’t just a matter of dollars and cents. It’s about our fundamental values.”

That’s President Obama on his increasingly hysterical strident attempt to force AIG to renege on its contract to it managers.

For me, this the most telling moment in Mr. Obama’s presidency.  Here is where he gets to show us his fundamental stripes.  This is his teaching moment to the nation.  His choice is as simple as it is inescapable: A or Not A:

A:  The AIG executives whose irresponsible, short-sighted behavior pushed their firm to the brink of insolvency, and who forced our nation to bail them out at an unconscionable cost, are now in a position to reap the rewards of a contract that was put into place long before anyone suspected that their mistakes would lead to disaster.  The media has been calling the payments from this contract a “bonus.”  It is not a bonus.  A bonus is something you earn for performing.  It is, in theory, forfeitable if you fail to earn it.  This contract guarantees payment.  This is like salary that has been deferred, to be paid in installments.  Calling it a bonus twists the word beyond recognition, and serves to needlessly inflame passions.

As distasteful as it to see these people receive this payment, whatever it’s called, this nation is built on people honoring their agreements.  Children learn about the basic requirements of civilization on the playground when they are rebuked for reneging on their promises, or welching on a deal.  Americans don’t welch.  Americans don’t look for excuses to welch.  We know how easy it is to find them.  Americans don’t encourage welching.

Besides, we don’t need to encourage the abrogation of a legitimate contract, no matter how ill-conceived or inopportune, in order to restore a sense of fairness in this particular situation.  The CEO of AIG, a man appointed after its collapse to help bring things under control, has determined that the people in this group, the group that destroyed the company, have many non-contractual elements to their pay.  The non-contractual elements do not have to be paid.  For the 25 top executives, their salaries, ranging from $270 thousand to $500 thousand, will be reduced to $1, largely counteracting the value of their bonuses.  Every other manager in the group will have their bonuses largely counteracted by a 10 percent reduction in their salaries.  These managers are free to leave, whereby they will forfeit their remaining bonuses.  Or they may stay on, to try to apply their talents to remedy the destruction their unit has wrought, and be paid a fair wage for doing so.

Not A:  We don’t want the company to pay these people, regardless of any agreements.  We’re angry.  We can’t let individuals who have harmed us hide behind a contract.  Paying these people would offend our sensibilities.  We will use all our power to prevent it.

A is the rule of law.  Not A is the rule of men.  This, Mr. President, is where you clarify for the young people who supported you what kind of country you want them to inherit.  Which is it?

UPDATE:  This morning I added a little to his “A” speech.  He won’t mind.  We just feed it into the teleprompter…

One of the more unfortunate slurs heaped upon our Native Americans is the term “Indian giver,” which is opprobrium for someone who takes back what they give or promise to another.  It is particularly ironic that we apply it to a group to whom we have violently broken so many promises, using their rebellion and occasional crimes as an excuse, and taking shameful advantage of their political vulnerability.