Hysteria on Capitol Hill
On a recent episode of his popular comedy news show, host Jon Stewart quipped, “I find cheap populism oddly arousing.” If Mr. Stewart is correct, sales of Viagra went down drastically during the AIG (American International Group) bonus debacle.
AIG was, and still is, the largest insurance company in the United States. Its clients include individuals, cities, counties, companies and institutions, including the University of California. Its services include everything from the routine, life and automobile insurance, to the highly specialized, terrorism and mergers and acquisitions insurance.
In September of 2008, when AIG abruptly collapsed under the weight of huge losses from its mortgage backed securities unit, the government decided, correctly, that AIG was too big to fail. Since then, the government has provided the company with an initial bailout of $85 billion to keep it afloat. That figure has grown to a total of approximately $173 billion, as AIG continues to suffer losses.
Given the size of the bailout, the virulence of public reaction to news on March 15 that AIG would be paying out more than $165 million in bonuses is not surprising. Rising popular anger, spurred by the weakening economy and a widespread sense of injustice among the American people, found release in a spasm of populist anger.
Protestors camped out on the driveway of AIG employees. Members of Code Pink, the anti-war group, harassed AIG CEO Edward Liddy as he testified in front of Congress. AIG received death threats, including one e-mail in which the writer said that his greatest hope was that “all the executive and their families should be executed with piano wire.”
Public officials joined in the hunt. Chris Cuomo, New York’s attorney general, and Barney Frank, chairman of the House Financial Services Committee, both called for the names of the individuals who received the bonuses to be published. To what end? Perhaps Mr. Cuomo and Mr. Frank wanted to give the people who wrote the death threats targets for their brand of frontier justice. Or maybe they, like Sen. Charles Grassley, who suggested that AIG executives commit suicide, simply wanted to score some cheap political points at the expense of a group of unpopular people.
This anger is understandable. It seems unfair, as many have taken to repeating on news shows and across the blogosphere, that the same people who brought the country into the crisis in the first place are now benefitting at the taxpayer’s expense. People, having watched helplessly as their savings and financial security evaporate, are angry and they want a target for that anger. Unfortunately, AIG made itself a convenient target.
It is possible, even likely, that Cuomo, Frank, Grassley and other members of Congress are, at some level under the political posturing, genuinely angry on behalf of the American people. However, their behavior is not only unproductive but also potentially harmful for the nation’s economy.
First, it is important to remember that much of the money that the government gave AIG is in the form of loans. If AIG recovers, the government and the taxpayers could recoup the money. In fact, they might actually stand to make some money. On the other hand, if AIG fails, the government stands to lose a lot of money. Many of AIG’s numerous units are still profitable. It is only the mortgage-linked unit that is pulling the company down. Unfortunately, as The New York Times noted, an insurance company’s most important asset is its reputation. For AIG, that reputation, thanks to the willingness of Congress to cater to popular rage, is now damaged, perhaps beyond repair.
The flap has also damaged AIG’s ability to retain the talent it needs to work through this crisis. As difficult as it is for many people to understand, the majority of people who received the bonuses were not in fact the same people who got us into this mess. Many work in units that were in no way connected to the crisis. According to the Economist, these people are still, despite the financial crisis, in demand. If these people decide to leave and find friendlier workplaces, as some already are, the defections will have serious effects on AIG’s future viability.
In some ways, the issue has already resolved itself. Many of the bonuses, in face of a 90 percent tax, have already been returned. Congress and the press will no doubt move on to the next story. However, by allowing and encouraging populist anger to foment, Congress has undermined support for future efforts to stimulate the economy. They have, for different reasons, undermined both public and the private trust in the government. The next time Congress needs public support to push through a big program or private cooperation on some initiative, it will find that its members’ eagerness to score a few political points will have caused long-term and far-reaching damage to goals far bigger than a few bonuses ever could be.
Mengfei Chen is a third-year international studies and public health double-major. She can be reached at email@example.com.