The furor over the AIG bonuses is one of those periodic perfect storms of political culture which, for a brief flash of illumination, clearly reveals how American society is actually run. Clarity, it turns out, is scary. Or as investor Warren Buffett put it, when the tide goes out, you can see who’s not wearing anything. A lot of people have been caught “naked” by this scandal, and it’s a tawdry sight indeed.
Here’s my working list of revelations (or more accurately, confirmations) of how our market system and political culture really work. It’s not a pretty picture.
We’ve seen the bloated sense of entitlement among the investor class. Only a cosseted elite could believe that that the executives in charge of a failing division of AIG — which, by the way, played a direct role in the global economic meltdown — should receive $165 million in bonuses. The beauty of being rich is never having to clean up after oneself.
We’ve seen the complicity of the political club that works hand-in-glove with their Wall Street friends. Clearly, Treasury Secretary Geithner, Lawrence Summers, New York Senator Schumer and other top officials thought the use of taxpayer bailout money for AIG bonuses could be slipped by with a wink and a nudge: a favor to be rewarded indirectly with campaign contributions later. What are friends for? Senator Banking Committee Chairman Chris Dodd, once the recipient for a Countryside mortgage with preferential terms, had no problems with approving a bailout package that could siphon away huge sums to pay bonuses. (“It’s Chinatown, Jake!”)
Senator Ron Wyden of Oregon says that his legislative provision limiting bonuses to $100,000 among companies receiving federal bailout money, was mysteriously stripped from the legislation in the Senate/House conference committee. He doesn’t know who eliminated the provision, but he does say that Obama Treasury officials wanted it out. So the taxpayer safeguard was eliminated.
We’ve seen the Obama Administration’s highly selective commitment to open government. Despite claiming to want “transparency” to be the touchstone of his administration, we still don’t know who stripped the Wyden provision from the bailout legislation. President Obama has failed to level with the American people. We’ve only recently learned that AIG bailout money was going to dozens of other companies (some, foreign banks!) that had contracts with AIG. This is no way to restore trust in the economy or in the Administration’s recovery plans.
Treasury Secretary Geithner knew about the AIG bonus contracts, if not last year, then when he participated in the Bush bailout of AIG, as head of the New York Fed. And if he didn’t know about the bonuses until last week, he was an incompetent steward of taxpayer resources. This makes Geithner’s more recent claims of outrage disingenuous at best. Yet Obama has declared that Geithner is doing an outstanding job.
We’ve seen the grotesque inequality between the average taxpayer and Wall Street executives. At a time when the American people are losing their jobs in record numbers and taxpayers are being asked to make enormous sacrifices, the investor class that is chiefly responsible for our economy’s’ collapse is actually rewarded! It turns out that the capitalist class, when its ox is gored, becomes a sudden convert to socialism.
We’ve seen the utter fraudulence of free market ideology, which purports to be private, self-regulating and accountable, but which invariably requires public oversight, bailouts and intervention to keep it afloat. The crisis is too urgent and severe for us to have a more leisurely, intellectual reckoning of how Milton Friedman, Ayn Rand, Robert Rubin and all the other neoliberal policy gurus were wrong, wrong, wrong. But the left must not neglect a bit of unfinished business: a thorough deconstruction of how free-market ideology, as practiced, is an intellectual scam.
A more challenging task will be to creatively re-imagine how the commons and markets can be re-integrated into a new shared model for understanding the economy. What new institutions and mental frameworks must be invented to build a more equitable and stable political economy?
We’ve seen the hypocrisy of laissez-faire champions who credit their “self-made” fortunes to their entrepreneurial skills and responsibility, now laid bare as the result of unacknowledged risk-shifting to others, especially hapless small investors and taxpayers. When such risks are undisclosed and government is forced to provide enormous bailouts to keep the market apparatus functional and restore trust to market transactions, the very idea that capitalism honors individual “freedom to choose” is a bad joke.
There are surely other illuminating insights to be learned from the AIG bonus scandal. It is one of the richest, more instructive episodes to hit our political culture in many years. The tragedy is that it has taken a devastating economic crisis to confirm what many free-market critics have been saying for years. The only question that remains is whether there will be a genuine political reckoning and reform — or more of the same, after a fresh coat of PR spin has been applied.