AIG outrage: bonus round

The anger over bonuses is understandable, but distracts officials from more serious problems.

On Monday, a group of protesters gathered outside of the countryâÄôs largest bank in protest of the levels of compensation given to its employees. Ironically, this bank is state-run, and the protest is state-sponsored. This is, of course, in Russia, and the bank is Sberbank. The protest is an attempt by the Kremlin to distract the public and focus on the wealthy elites it normally co-opts. The situation is not terribly different in the United States. American International Group, already 80 percent owned by the government, faces its own firestorm over its remuneration policies. Reading that there is outrage over AIG bonuses is now as remarkable as noting people are still breathing. Popular television, wary of becoming Jon StewartâÄôs next target, has been engaged in a struggle of one-upmanship over who can be the most self-righteous in the name of the taxpayer. Sen. Chuck Grassley, R-Iowa, remarked that executives should apologize and resign, or take a page out of Japanese tradition and commit suicide. As of Tuesday roughly $50 million has been turned over to the government. But the uprising over the bonuses was a distraction from what continues to ail the economy (the money in question was itself worth 0.1 percent of the total given to AIG). Much of it stems from a misunderstanding of financial pay schemes. To most, a bonus is pay additional to a salary, and the operating assumption is that AIG bonuses are given on top of million-dollar salaries. That is not so. Base financial salaries are relatively low âÄî in pricey New York âÄî making bonuses a much more extravagant form of tips for waiters and waitresses. There are other arguments to be made, though many readily dismiss them. The threat of losing employees is quite real. Foreign firms can poach employees, and a punitive 90 percent tax on bonuses may encourage some banks not to take government assistance, which could prolong their suffering. And the earlier attempts at capping pay were scrapped in part because of the amount of tax revenue that would be lost by the state of New York, which is heavily dependent on finance tax receipts (and faces a $14.2 billion budget deficit). The government will be footing that bill regardless. Presumably, some will be reading this as an apology for Wall Street. No. The selfishly aloof symbolism that the compensation scandal at AIG creates is undeniable. Financial success involves luck, and factors that contribute to it, such as the money supply and the business cycle, are not controlled by the industry. Pay does not equate to skill. But Treasury Secretary Tim Geithner has more to worry about than bonuses. He has been working nearly alone, since senior aides have not been appointed. Officially, he is listed as the only political employee âÄîunder Henry Paulson, there were 120. Should we nationalize AIG, even though it owes most of its money to foreign debtholders? Would that spark an international incident? These are questions Geithner should focus on. The most aggravating nonsense has come from Congress, eager to deflect blame, just like the Kremlin. But it was Congress that took undue credit for the pre-bust economy. It was Congress that encouraged lending to weak borrowers. It was Congress that would not put teeth on regulation of any kind. And it was Congress that, in the middle of a recession, decided in December to give itself a raise that costs the ubiquitous taxpayer a further $2.5 million. Sen. Grassley, do consider your own advice. St. JamesâÄô Street welcomes comments at [email protected]