Stop with the Populist Outrage!

I am as outraged about AIG's taxpayer-funded bonuses as any other American, but the populist rage-fanned by the Congress is really getting out of control. Today, a group of "activists" are planning "bus tours" of AIG executives' homes around the country. To do what? Are there any pitchforks on that bus? Meanwhile, the NY Attorney General Cuomo is reconsidering his plans to publish the names of AIG executives who received the infamous bonuses after the government-appointed AIG CEO informed the Congress that the company had received email threats wishing for executives' families to be strangled with piano wire. Iowa Republican Senator Grassley wanted to get his populist creds by calling for the executives to commit suicide the Japanese style.

Ok, chill out. Yes, these bonuses were awful, but they are nothing unexpected. They show the gap between the rich and the rest which capitalism necessarily creates in its constant rush for capital. Instead of scoring cheap political points (which will be forgotten by the 2010 Congressional elections), the Congress needs to act as a voice of reason and use the opportunity to educate the public about the crisis. It should hold hearings like the ones we had after the Watergate, which lasted for 2 years, and were really educational in explaining what had gone wrong in the Nixon administration. Instead of hauling the poor AIG CEO (who by the way, was appointed by the government after the bailouts and had nothing to do with the current mess) and pounding him with harangues, the Congress should help the President get to the bottom of this mess.

However, as an excellent article in the business section of today's NYT points out, the populist rage is seriously hampering our efforts to get out of the crisis:

1. The bailout money to AIG was not a gift, but a loan which means that the company will pay back the taxpayer with interest. But if the company is being pummeled with death threats that hardly helps its stock. No one in the right mind will want to own any piece of this company which makes it harder for the AIG to pay us, the taxpayers-back.

2. It is distracting. Instead of solely focusing on the bonuses, the Congress should investigate how the AIG spent the bulk of the money. For example, why did they pay 100 cents on the dollar to the Goldman Sachs, Bank of America, and CitiGroup, the very same companies that bought the risky credit default swaps that had gotten us into this mess to begin with. In other words, why did these companies receive the full value for their dollar? This is even harder to understand if you remember that Godlman Sachs had gotten $25 billion cash infusion (note: former Treasury Secretary Paulson had been the CEO of Goldman Sachs) before getting the bailout money from the AIG.

3. Finally, it is destabilizing. I think the Dems' plans to tax 90% of all the bonuses is a terrible idea. It affects even those in the AIG (and other companies) who had had nothing to do with the mess. Keep in mind that the AIG is an enormous company in which only one division was involved in the credit default swaps mess. The rest, like the insurance division, are hardworking people who are trying to fix the company and help us all fix the economic crisis. But if the Congress issues the bailout money and then keeps changing the rules, it will be impossible to stabilize the market. Also, how can you expect any Wall street investor to participate in Geithner's plans to buy up the infamous toxic assets off of banks' books if they will be attacked by the angry mob every time they turn a profit?

So, the Congress should act like an adult here, step up and start educating the public rather than ride the wave of populist rage in the hope of scoring enough political capital that will hold until the next election in 2010. Barney Frank should hold hearings which would bring in top economic scholars and educate the public (in layman's terms please) about the credit default swaps, "too big too fail" growth of these companies, global capitalism, etc. Maybe then we will be more prepared when the next crisis hits. And it will inevitably hit again. That's just the nature of capitalism.