Everyone is aghast at the AIG bonuses. It would be nice if the president could show a little anger about the situation too
Back in 1981, shortly after Ronald Reagan took office, America’s air-traffic controllers (the Patco union) went out on strike over their incredibly stressful working conditions and pay. Reagan, rather than negotiating with the union, just fired them. It was a legal move (there are laws prohibiting vital public employees from striking). It was tremendously controversial in the press, but since unions weren’t winning many popularity contests in those days, a solid majority of public opinion backed Reagan.
Now Barack Obama faces his Patco moment. If a fire hadn’t been lit under him before about the scandalous AIG bonuses revealed over the weekend, then it certainly was by this headline across the front page of this morning’s Washington Post: Anger over firm depletes Obama’s political capital. The first paragraph makes matters pretty clear:
President Obama’s apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda.
Lawmakers in both parties, like the public in general, are aghast at the bonuses, and at the fact that treasury secretary Tim Geithner approved them. Obama yesterday morning announced he was instructing Geithner to find a way for the government to stop the bonus payments. But why did it take a firestorm that couldn’t have been very difficult to predict for Obama to take this step?
Here’s the downside of Obama’s famous cool. Most of the time, it’s good to have a president who isn’t a captive of his emotional temperature and doesn’t say rash things. Americans got pretty tired of that over the last eight years.
But sometimes, geez, you just want the guy to let it out. Yesterday’s press conference was about as close as he came to anger, but it wasn’t close enough.
Now, the administration will have to find a way to fight these bonuses. Rest assured that someone in treasury will, later this week, miraculously locate a provision under which the government can seek to void the contract.
But here’s where this situation is different from the one Reagan faced, and it’s a very important difference and a thorny one for Obama. Reagan had the law on his side. Obama probably does not. A contract’s a contract. Depending on your mood it’s either amusing or appalling to read AIG boss Edward Liddy’s letter to Geithner from last week in which he wrote that “honoring contractual commitments is at the heart of what we do in the insurance business”.
Insurance companies screw little people all the time, but huge firms with sharp lawyers, well, that’s another matter. And so we also have today Andrew Ross Sorkin in the New York Times arguing that the government risks setting a dangerous precedent if it voids the contracts:
If government officials were to break the contracts, they would be ‘breaking a bond’, Ms Meyer says. ‘They are raising a whole new question about the trust and commitment organizations have to their employees.’ (The auto industry unions are facing a similar issue – but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)
But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: AIG built this bomb, and it may be the only outfit that really knows how to defuse it.
AIG employees concocted complex derivatives that then wormed their way through the global financial system. If they leave – the buzz on Wall Street is that some have, and more are ready to – they might simply turn around and trade against AIG’s book. Why not? They know how bad it is. They built it.
But the administration has no political choice now. How much damage did the Obama folks do to themselves over the weekend with their passivity? A fair amount I’d say. Most of it can probably be undone with a tough posture now. Results are what matter to most people. If at the end of the day the bonuses aren’t paid, most voters (and legislators) will be satisfied.
Then again, what if the administration loses in court, which seems entirely possible? I guess if I were in the press shop, I’d spin that at least we tried. We went up against a legal system that’s rigged for big corporations. And then hope for the best. Of course, a judicial outcome could take years, and the public perception of AIG fighting in court for piggy bonuses might be such that they wouldn’t even bother if the government forced their hand.
And what Obama ought to learn from this personally is that there are times when cool isn’t cool. If people are angry, he’d better get angry too.