AIG Bonuses- A Drop in a Leaky Bucket
Unconstitutional Legislation Won’t Spur Private Investors
Why would any private investor want to get into bed with the Federal Government? This is the sort of question that businesses have to ask themselves on a daily basis- why would a consumer want to do business with our company?
With the government bailouts of companies like AIG, it is a question that the Federal Government needs to ask itself. Why would private investors want to accept bailout funds, or participate in the "toxic" asset relief plan proposed Monday by Treasury Secretary Timothy Geithner? Faced with the prospect of being brought before the kangaroo court that Congress has become, and the prospect of being grilled, then chastised, then demonized by the likes of Barney Frank and Chris Dodd, why would any private investor want to join hands with the government to purchase "toxic" assets?
The AIG bonuses have become the flashpoint of the economic crisis. This despite the fact that they represent 1/18,500 of the $3.1 trillion federal budget, and less than one-tenth of one percent of the total amount of money given to AIG as part of the TARP program. The feigned anger of Congressional hacks like Frank, Dodd, and Waters, is disgusting- considering that Dodd amended the original AIG bailout bill to allow for executive bonuses. The passing of a bill last Thursday to tax these bonuses at 90% at the federal level (not including state and local taxes) was an attention grab by Congress, and is almost universally recognized as being unconstitutional. Congress simply cannot, in an ex-post facto (after the fact) ruling, decide to tax a tiny fraction of American taxpayers at an exorbitant rate. The Constitution specifically prohibits bills of attainder and ex post facto law, as these pieces of legislation impair the obligation of contracts. Perhaps more importantly, bills of attainder inflict punishment without due process of law- and in the case of AIG even Democrats acknowledge that no laws were broken. But still they lit their torches and cried out for the heads of the AIG executives.
The result of this legislation, now expected to be allowed to die a slow death, is a lack of confidence in compacts entered into with the federal government. At a time when the federal government is asking private investors to put up funds to purchase the "toxic assets" of banking institutions drowning in bad debt, confidence in the word and intent of the government has never been more important. What happens if many of these assets turn out to be less toxic than originally assumed? What happens if some of these private investors who risked their capital to help breathe life back into the American financial system (and by extension the global financial system) actually make money by taking part in Geithner's bank bailout plan? Will Barney Frank scream that it was unfair, and that by risking their capital and making a profit they have betrayed the American taxpayer? Some investors, having watched the AIG bonus charade being played out on CNN, are undoubtedly wondering if investing in Geithner's plan is worth that risk.
It seems that Congress, at every turn, is attempting to dull the market's reaction to the plans that are being proposed to help…the market. Please, Mr. Frank- put down your torch, clean off your stage makeup and roll up your sleeves. Your Dr. Frankenstein is none other than your friend and colleague Chris Dodd. Don't punish institutions, and the people at these institutions who are best suited to clean up their own messes, when they take the bailout funds that you are hawking. And don't start rewriting contracts- the contract is the sacred cornerstone of the Republic- weaken it, and the structure will crumble.