Steven Pearlstein: Wall Street's Dangerous Refusal to Learn

You have to wonder what else has to go wrong, how much more wealth will need to be destroyed, before the people on Wall Street get the message that it’s no longer business as usual.

The latest outrage, of course, is over the $400 million in retention bonuses promised to those financial geniuses at AIG’s Financial Products unit last year, months before the insurance giant was essentially taken over by the government in a bailout that already has required an injection of $170 billion in taxpayer money.

The legal argument for honoring these ill-considered contracts is that a deal is a deal and that trying to abrogate them will only wind up costing the government even more in legal fees and punitive damages. But that doesn’t mean the government and its handpicked new management team at AIG were powerless to renegotiate those contracts long before last weekend’s deadline.

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Posted in * Economics, Politics, Economy, Ethics / Moral Theology, Office of the President, Politics in General, President Barack Obama, Stock Market, The 2009 Obama Administration Bank Bailout Plan, The Credit Freeze Crisis of Fall 2008/The Recession of 2007--, The September 2008 Proposed Henry Paulson 700 Billion Bailout Package, Theology

12 comments on “Steven Pearlstein: Wall Street's Dangerous Refusal to Learn

  1. Dave B says:

    “But that doesn’t mean the government and its handpicked new management team at AIG were powerless to renegotiate those contracts long before last weekend’s deadline.”

    We bought the liabilities with the assets. Do you think the Donald or anybody else worth his salt wouldn’t have renegotiated? The “tough” business types will drag their feet because they are backed up by the US treasury (our tax dollars). The Secretary of Treasury office appears to have had no idea what was going on or if they did they were incompetent. There is also the fact that Treasury is understaffed because appointments to staff treasury are having problems forcing Tim Geithner to work with minimal staff. Wall Street is fine, it is our Representatives who have the Dangerous Refusal to learn! Of course it is all Bush‘s fault!

  2. billqs says:

    I wonder if the failure to renegotiate bonuses when the government basically “took over” AIG has anything to do with the over $100k the AIG Financial Services Department gave to Obama’s candidacy? He and Chris Dodd were the two top recipients of AIG money.

    What we see now is what happens when you don’t allow a deeply financially troubled company to fail. Had AIG taken Bankruptcy protection, the contracts that promised these $165 million bonuses would have been subject to renegotiation at the hands of a Bankruptcy judge.

    By not letting them fail, there is no forced negotiation and the contracts stand. As repugnant is that is, the inviobility of contracts is constitutionally based and we can’t throw out the rule of law just when it produces a result we don’t like.

  3. Creedal Episcopalian says:

    Billqs:
    But they did deal with the AIG bonuses in the “Stimulus” Package!

    [b]Fox Business reporter Rich Edson pointed out that during the Senate porkulus negotiations last month, Dodd successfully inserted a teeny-tiny amendment that provided for an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax.[/b]

  4. Jeffersonian says:

    And who signed that “simulus” bill, CE? I think it was the same guy who was huffing and puffing yesterday about how awful these bonuses are. Maybe he could read what he’s signing next time instead of being so eager to piddle away our children’s and grandchildren’s patrimony on pork projects.

  5. Branford says:

    This is what happens when bills are rushed through without proper vetting. Now perhaps that’s what Congress wanted, but it should not have happened. And I have a real problem with Congress now wanting to tax these bonuses at 100%. How can Congress cherrypick tax increases on individual companies or people? Ripe for abuse and arbitrary power – that anyone in the government even advocated it is horrendous. Who’s next? Whoever displeases the government?

  6. Dave B says:

    Branford, I also believe thath taxing these bonuses is unconstitutional (nobody seems to care about the constitution any way). I don’t believe you can enforce taxation on bonuses already recieved since this would be ex post facto law or enactment!

  7. Harvey says:

    I wonder if business would get the message if we let them fail outright. Some would survive and move on ( The Great Depression proved this !!). I’m getting tired of people coming up with bailout scheme that sets up me, my children, grandchildren and great-grandchildren to pay for all these business schemes.

  8. Jeffersonian says:

    Wall Street. Sure. [url=http://finance.yahoo.com/news/Fannie-plans-bonuses-of-up-to-apf-14679491.html]What about Pennsylvania Avenue[/url]?

  9. Statmann says:

    It is amazing how fast our monetary measuring rod is changing. Billions up to just a wee bit ago was a large number but now that we “think” in Trillions, it’s pocket change. The nation, Congress, President, and even crazy Uncle Ned are in a tizzy over about $200 Million and no one seems to know where about $200 Billion (which is ONLY 2o percent of a Trillion) was spent. Not to defend the bonuses, but they amount to only one tenth of ONE percent of what the government has ALREADY given to AIG. So you see, the recovery bill was only $1.5 Trillion (instead of $1,500 Billion). So another recovery package of (say) $I Trillion will sound rather small. We are on a long and bumpy ride. Statmann

  10. Tegularius says:

    [blockquote]Fox Business reporter Rich Edson pointed out that during the Senate porkulus negotiations last month, Dodd successfully inserted a teeny-tiny amendment that provided for an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax.[/blockquote]

    In reporting this, Fox News is passing on a [url=http://firedoglake.com/2009/03/17/treasury-attempts-to-blame-dodd-for-aig-bonuses/]big fat lie coming out of the Treasury department[/url]. Chris Dodd wrote a fully retroactive limit into the Senate bill. The Treasury leadership pressured him to add the Feb. 11 2009 exception; he resisted that pressure and kept it out of the Senate bill, but the exception was inserted by the conference committee and was part of the final bill.
    The Treasury department, not Dodd, has full responsibility for this.

  11. Jeffersonian says:

    Or not: [url=http://news.yahoo.com/s/politico/20090318/pl_politico/30833]Dodd admits inserting bonus loophole[/url]:

    [blockquote]Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision. .

    “We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon. [/blockquote]

  12. libraryjim says:

    It’s a good thing Dodd is a Democrat. If he were a republican, he would be hounded into submitting his resignation.