Washington must be clear about what taxpayers deserve in return for their investments to the finance industry

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From: Taxpayers for Common Sense

Congress Strikes Out

Volume XIV No. 12 - March 20, 2009


The recent contortions Congress and the Administration are going through over lucrative bonuses to executives at American International Group (AIG) are a predictable result of the failure of Congress and the Department of Treasury to be clear about what taxpayers deserve in return for their investments. And unless lawmakers and the Administration step up to the plate it won’t be the last of the outrages.

If there is any recipient of bailout funds with whom Treasury should have laid down clear, unambiguous standards, it’s AIG. After a $182.5 billion investment taxpayers own roughly eighty percent of the company. Further, AIG just reported a $61 billion loss for its most recent financial quarter.

For the last week we have heard a litany about how the $165 million in bonus payouts were contractually obligated. But contracts can be renegotiated, revised and rewritten, particularly when there is a major change in circumstances. Say … for example … the federal government provides a significant cash injection into a company. Hmm, sounds kinda like AIG. But Treasury did not suggest AIG alter bonus contracts as a condition of their receiving a massive public investment. Strike one.

Not only did Treasury fail to demand the renegotiation of these contracts, but Congress may have added an extra hurdle to making changes. A last-minute addition to the stimulus bill purported to limit future bonus payments but may have actually added legal protection to those already paid. Strike two.

Now there are efforts to create a special tax scheme to claw back some of the bonus payments. Politically seductive as that may be, micro-targeting the tax code to punish specific contracts is the wrong way to make tax policy. Strike three.

Congress and the Administration screwed up and they need to take their lumps and learn from their mistakes. The “Good Cop” routine has failed.

Instead of pleading with executives to do what is in the national interest, those executives need to be given a dose of tough medicine. If you want our money, you’ll have to become a good citizen. Otherwise, you are not going have a job. Every step of the way, Congress and the administration have given the financial industries flexibility to respond to this crisis. The failure to set clear, tough standards has left us with little ability to hold banks accountable.

As Bob Dylan sings, “steal a little and they throw you in jail, steal a lot and they make you king.” The kings of AIG and other Wall Street titans are working hard to abscond with as much taxpayer money as possible, while refusing to take any responsibility for the financial mess that is bringing the U.S. and world economy to its knees. AIG is the most glaring and stupefying example of questionable spending. But hundreds of other financial institutions and a couple of major car companies have also received billions from taxpayers. The outrage of AIG bonuses – small potatoes in dollar terms – should reinvigorate Congress and the Administration to do their constitutionally appointed duties and hold recipients of taxpayer dollars accountable.

Let us know what you think.

[Original TCS article accepts comments]


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