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March 20th, 2009
01:35 PM ET

Government by lynch mob

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/US/03/15/AIG.bonuses/art.aigbuilding.gi.jpg]

David Gergen | Bio
AC360° Contributor
CNN Senior Political Analyst

For the millions of us who do not work in the financial industry, “outrage” is almost too weak a word to describe our feelings toward those at AIG who ran the company into the ground and then took bonuses and are now living off our tax dollars. Yet, there has to be a better way to fix this than the direction Washington is now headed.

There is almost a sense of mob rule in the Capital. In a classic case of CYA, the same politicians who helped get us into this mess with AIG are now trying to outdo each other in punishing the miscreants of Wall Street. Members of Congress have been the most extreme, but even President Obama is now supporting the House bill that would impose a 90 percent tax on employees who earn more than $250,000 at companies that have received at least $5 billion from the government’s finance rescue program.

Passage of this bill may make all of us feel better in the short run, but in the long run, it holds substantial risks for ending the economic crisis and putting ourselves on a road to recovery. Consider this central point: in coming days, the U.S. Treasury Department – with the President’s blessing – will propose a huge program to remove the toxic assets from financial institutions, trying to get credit flowing again to business and consumers.

At the heart of that program, by many reports, is the idea that the U.S. government would entice investors – in many cases, hedge funds and private equity firms – to buy these assets by giving them a loan to make the purchase and by limiting their losses should the assets go totally sour. The government would apparently split any profits.

What is it that would make the hedge funds and private equity groups want to play? Why, the prospect of big profits, of course. Uncle Sam would be saying to them, “We’ve got a great deal for you: if you will part with some of your money, we will give you a chance to buy these assets at a really small price (we will pay the rest), we will limit your downside risk, and you stand to make a big upside gain.”

Sounds like a sweetheart deal, and in some respects it is, because the Administration has decided that it is not well positioned to buy these toxic assets with public funds (do you want the government to have a gigantic new bailout program?). Instead, the Administration (read Secretary Geithner and others) now believe that it is better to persuade investors to put in private money – and the way to get them is to offer the prospect of big rewards.

Trying to decide whether they want to play, some of the investment players have been having private briefings with Treasury and other officials, asking them this question: if we come in and buy these assets, will we be subject to the rules limiting executive compensation and bonuses? So far, they have been assured that no, they would not be subject to those rules. But some of the investment types are still hesitant because they worry that if they do make a lot of money – which is the whole reason why they would play – that there would then be a populist tide against them and Congress would sweep in, change the rules, take their profits, and engage in a public hanging.

So, one can only imagine the feelings among some potential investors on Wall Street as they watch the attacks on the AIG bonuses and see how even as innocent a man as Edward Liddy was viciously treated (Liddy is the fellow who was persuaded by the Bush Administration to come out of retirement and fix AIG on a salary of $1 a year). The very fact that the House passed the bonus tax bill yesterday by 328-93 has already had a chilling effect upon potential investors. If the Senate and the White House now go along with the House bill, which will clearly discourage investors from getting further into bed with the government – just as it will encourage those who have taken TARP money to get out of the government program as soon as possible. And that in turn could easily imperil our chances of restoring the health of our financial industry – a key to our overall economic recovery.

The bonuses paid to AIG employees, especially in the unit that almost broke up the company, were wrong. Few doubt that. But surely, there are better ways to recover the funds and to correct this injustice than to unleash a populist assault on the institutions that need to be partners in helping us fix the biggest economic crisis since the Great Depression. A simple idea for starters: tell those who have accepted the bonuses to give them back voluntarily or find other work.

The crucial thing now is that we need to take a deep breath, pull together as a people, and find a calmer, more thoughtful path out of this crisis. Government by lynch mob is not a good answer.


Filed under: 360° Radar • AIG • David Gergen • Raw Politics
soundoff (40 Responses)
  1. N

    Anderson, please keep talking about this. You have the forum in which to educate people. If you keep sending the message often enough hopefully enough folks outside "the industry" will begin to understand your point. Well done!

    March 23, 2009 at 9:33 am |
  2. Martin

    Aside from the fact that the legislation is unconstitutional under the First Amendment – specifically as it pertains to Bills of Attainder – it renders moot the possibility of hedge funds and private equity funds engaging with the government on any sort of bail out. Likely the Congress will have to eat its own words, or at least the paper they're written on, and find another way to vent their righteous anger. Oh, and just a suggestion to our Congress – please read the next package of legislation that comes your way.

    March 23, 2009 at 9:08 am |
  3. Patrick from Bäle

    "Calm" is good advice because 'calm' would be a saving grace in the face of the 'changes' this crisis is telling us to make. 'Calm,' also because we're going to need a little more time and patience to work our way out of the need for such a crisis. After all, in terms of evolution, this global crisis is a mere "flash-in-the-pan," but if we don't make fundamental changes to our way of life–our economic, social and political life, I'm afraid we are going to get fried in this 'pan!'

    It's quite simple, we can't go on living the way we were living, period!
    It doesn't even take 1/2 a rocket scientist brain to figure that out, but it might be necessary to get 'fried' before significant change begins to happen. Perhaps we might venture to say that the "American Dream" is already in the pan.

    So, 'Change'! Change what? Let's start with something obvious yet basic enough just to get a grip,–"Everything!" Start by questioning– 'everything' in our lives. Are we "doing-the-right-thing?" That's a good beginning, we wouldn't want to be half-hearted about the seriousness of this affair. It's kind of a secret this 'questioning everything' but if we don't let it be out, the chances seem good that we might end up in a life style appropriately identified as, "pre-Big Bang!" We don't want to let such an opportunity pass us by.

    March 20, 2009 at 9:32 pm |
  4. Judy

    In truth, most of us have been watching the front door of the bank while all real cash flow is gushing out the back.
    AIG only received billions, while trillions of dollars, have been dished out to others, about whcih we will never know!
    Please President Obama, senators, congress people, give the money to those of us who have paid 20% down on our homes. Paid our house payments in a timely fashion. Have little or no credit card debt. Work ( yes WORK) for a living a big chunk of change.
    Enough for us to pay off our homes and cars.
    Within a few months, our economy will strong.
    Strenghten support for unions trying to establish themselves by preventing companies from harrassing and intimidating activists.
    No, I have never worked in a union shop. That is why I will work until I am 66 to collect retirement money and continue to work full time, because I will lose my home. Nurses DO NOT get free medical care!
    One last concern.................. I am one of many not hundreds, not thousandsa but millions, of middle c lass hard workers, who are paying but not playing. We cannot afford to retire! Anyone who would like to see my Social Security estimation for 2011, when I will be 66, I will be happy to rpovide you a copy.

    March 20, 2009 at 8:58 pm |
  5. Roberto in British Columbia

    Historians will look upon these events as the reason for the fall. We are proving to be our worst enemy.

    March 20, 2009 at 8:21 pm |
  6. Craig

    Thanks for your insights, David. All parties concerned should be less reactive and more creative. Why doesn't the President focus his considerable charm on those who received the infamous bonuses, instead of on the angry public? Has he invited them to the White House, shared his inspirational rhetoric and asked them personally to sacrifice their bonuses in a spirit of community responsibility? Did anyone in the administration attempt to persuade them before assuming they would suit the government? Wouldn't this have been a great time for real communication and team building? Maybe the problem with those who are attempting to fix the problem is that too many of them are lawyers locked in an adversarial mindset.

    March 20, 2009 at 8:04 pm |
  7. Timothy Gibson

    So, if I were to receive a few million and at the same time told either give it back or hit the road, I think I would hit the road Jack, who would need to keep working with a big goodbye like that, certainly not myself.

    Those responsible need to be punished like anyone else would be, not rewarded, and the same applies to congress. For them now to offer the same sweet deal to further the cause is like the south hiding their precious silver while giving up their gold to help fight the war. A sweet deal is not always as sweet as it may be made to appear and can turn sour in the mouth very fast as we have witnessed with the chaos left in the wake of the Bush era.

    Nothing for nothing means nothing!

    March 20, 2009 at 7:46 pm |
  8. Judy

    There is an answer. Give the hard working tax payer, their money back!
    I'll take 250 thousand after taxes.
    After working over forty years as a nurse, I have not earned a total million dollars in my lifetime!
    Of course, I can here these, receivers of ill gotten bonuses asking, why would a nurse deserve such a large amount of money? They only save and enrich the lives of others. They work 24 hours a day; 7 days a week. every holiday, birthday, anniversary...............
    And the next time I hear someone say, "you will get your reward in heaven", my reply will be, there will only be, other dedicated people; who have worked and paid their fair share, while they were here, on earth, why should they serve me?
    I hope someone will rain on the parade, of those who have promoted the "trickle down theory "all these years. Only it will not be water or money hitting their umbrellas, it will be the manure they have been spreading, to deny the middle class, from obtaining the American dream!

    Judy Opial, RN CHPN

    March 20, 2009 at 7:43 pm |
  9. A. Halcomb

    The true outrage is all the congressmen and senators and the president who signed this bill apparently without reading it and then trying to blame someone else. If I signed a document without reading it that was this problematic my employer would fire me.

    March 20, 2009 at 7:42 pm |
  10. Carla

    Thank you so much for writing! I 100% agree. I think that Allen above said it far better than I could. I need a government that can remain level headed even in the most difficult of times.

    March 20, 2009 at 7:38 pm |
  11. Jeff

    I think congressional leaders should set an example and show their true patriotism by not getting paid for a year and do their job as a community service.
    Not all, but I'm sure the greedy secret deals they made in the past made them enough money to get by on for quite a few years.
    "Lead by example and others will follow"

    March 20, 2009 at 7:27 pm |
  12. Dulcie - Denver

    David Gergen,

    Ah, what a pleasure to hear from a cool and considered analyst!

    I really only became engaged in politics last August, when the DNC was here in Denver. I was encouraged and engaged by now-Pres. Obama and his message. And I still believe in it.

    Look, I think a big part of what's going on on Capital hill is partisan politics. Yes, Americans are in a particularly volatile mood these days, but the bonuses really don't amount to much in the big scheme of things. The GOP is on the sidelines poking at the American people and fomenting discontent. Don't get me wrong, we have reason to be discontented but whipping us into a froth isn't necessary.

    The GOP's ox has been well and truly gored and they're scrambling. About all they're capable of right now is pointing out every single foible of the new administration. Personally, I'm sick of both sides right about now. We, as a people, keep getting distracted by minutia: Who did what to whom and when? I honestly don't care.

    Meanwhile the Democratic party is still shouting 'Neener, neener' at the GOP, further inciting their opposite number to finger pointing and tsking. Look, a lot of the new agenda flies in the face of GOP fundamentals and they're having a tough time changing gears. They're angry and confused. I *support* the new agenda, but can we please stop with the finger-pointing and recreating the Spanish Inquisition?

    Lets get over it and MOVE ON!

    March 20, 2009 at 7:21 pm |
  13. Joy in Seattle

    The reason behind the new legislature does not change the fact that it is completely unacceptable to tax these people 90%. That turns someone who earns 250K into someone who earns 25K. This is a classic case of two wrongs do not make a right.

    The policy makers made a mistake. They just need to make sure it doesn' t happen again and cut their losses.

    March 20, 2009 at 7:07 pm |
  14. Mike

    David Gergen, I strongly applaud your voice of reason and moderation in the face of so much hysteria in Congress and in the media on the AIG retention bonuses. Passing a punitive tax bill will make many people feel they scored a victory for justice against the people who helped bring down the economy, but the legislative action will do nothing to help solve the global financial problems we face. I would have much rather that the govenrment pursue the clawback provisions built into the stimulus bill.

    Treasury has sent Congress a request for additional regulatory authority to deal with the potential insolvency of large financial institutions that are otherwise "too big to fail." Congress must give the administration the tools it needs to deal with this crisis. While the FDIC is able to seize depository banks, it does not have the ability to deal with the much larger and complex bank holding companies such as Citi and BoA, and non-bank financial institutions such as AIG. Congress should tone down the populist rhetotic and get back to dealing with the more serious challenges that threaten to bankrupt us all.

    March 20, 2009 at 6:54 pm |
  15. kalvin lee

    All must bow to the allmighty AIG. since the dregs of modern society run the us government, the represenatives of the us government have no chance of withstanding the intellect of the allmighty AIG.

    March 20, 2009 at 6:47 pm |
  16. Laura W

    David Gergen – nice to see you. AIG and all of the outrage is a bit draining after a few days. When you think about it – we were already screwed long before AIG screwed us again. They just rubbed more salt in the wound.

    March 20, 2009 at 3:32 pm |
  17. kristen

    Great piece, David. Very insightful! It seems that Congress wants to quickly become heroes of their own story by being the first to speak and the first to point a finger. It’s almost like there needs to be a day of silence in Congress where no one is allowed to speak for 24 hours. They just slow down, sit at their desks and think, then think some more about how to not try and be the hero. Obama could take a day of silence, too. Less doing and more focus would probably do him and his soul a lot of good.

    Have a great day!

    March 20, 2009 at 3:13 pm |
  18. Raghava Manyapu

    It seems the Housing Refinance or Home Loan Modifications benefits are only or mainly meant for those who are having jobs now at this juncture, not for those 5 millions of people who lost their jobs and struggling to pay their mortgages.
    No Bank of Mortgage company is coming forward to the jobless people's rescue......Mr.President Obama "can you/your team diret the concerned authorities to help these people to get the Modificaton/ Refinance ASAP.

    Thanks
    Raghava

    March 20, 2009 at 3:13 pm |
  19. xtina, chicago IL

    the 90 percent tax was wrong; Im glad one of the persons receiving the bonus stood up to them. Congress is way out of control.

    March 20, 2009 at 3:10 pm |
  20. teddy

    Hindsight is always 20/20. If AIG had come out and said we do not want these bonuses Congress has approved in the Stimulus Bill it would not have made the news.

    Besides this tax of 90%. I think they still would have paid over 50% in taxes anyways. Typical of Democratic Senators & Congressmen to act outraged when they are too blame in the first place. Should they taken the money no, should they viewed as crooks and greedy people no.

    Look at all the money that's being wasted on this non-material news item. Listen a month or two we won't even remember this. Definitely not a year from now.

    People out in the streets protesting should go home and work on their own lives and not be so concerned with other people.

    March 20, 2009 at 3:07 pm |
  21. abaesel

    You are spot on! A rational and thoughtful analysis of the issues. Mob rule isn't appropriate in any situation and especially not here where it could adversely effect the entire country. Rational minds, such as yours, need to have the courage to speak up and speak loudly.

    March 20, 2009 at 3:05 pm |
  22. Michael

    I am puzzled, if I read the bill right and understand the media reports correctly most of these bonus's will not have to be repaid. The stipulation that this bill applies to is for anyone making over $250,000.00 a year, but if the reporting is correct most of these executives took a dollar a year and there guaranteed bonus. Meaning no tax !! Am I correct on this? Please let me know if I have missed something or has the US citizen just been duped again?

    March 20, 2009 at 3:05 pm |
  23. Lee Cannefax

    Nice view you have from the "cheap seats"
    Every body is a critic! Even if you are right on this point Anderson and you may well be; NO MATTER WHAT the administration does will draw fire. EVERYBODY has a "better idea".
    Look, we elected this team, we have to give them the ' ball' and let them run with it. To do otherwise is counter productive and actually part of the problem instead of the solution.
    I propose a 12 month moritorium of discord. GIVE THEM A CHANCE...

    March 20, 2009 at 3:00 pm |
  24. Rose from NY

    Government by lynch mob, indeed. What occurred was a shameful sideshow by our elected officials and a obvious distraction technique. Where is the accountability for the government's decisions? This is the height of hypocrisy.

    Who is their right mind would now trust the government to keep their word when they engaged in this bait and switch? I applaud you, Mr. Gergen, for posing these questions.

    Those in power should be questioned and made to explain their decisions. The AIG bonuses were a mistake, but this knee-jerk reaction to the public's outrage is far more troubling than the bonuses themselves. I am not in favor of a witch hunt.

    March 20, 2009 at 2:59 pm |
  25. EDC08

    All involved should be ashamed of themselves: the AIG executives who got us into this mess, the Congress for deregulating the financial industry in the first place, Republicans for making certain deregulation happened, and now the current Congress with their feigned outrage. This follks are all in bed with each other.

    I couldn't agree more with Mr. Gergen: either give the "bonuses" back or find another job.

    I would go one step further than Mr. Gergen: Congress should work for $1 or be fired.

    The American people are fed up - with each and every one of these people.

    March 20, 2009 at 2:57 pm |
  26. Mike

    Isn't this called "clawback," and I've recently noted that it applies to the Medoff victims, too.

    March 20, 2009 at 2:54 pm |
  27. Teri B.

    Outrage is the new black. We don't even have enough FACTS from the PRESS to understand who the heck we're supposed to be outraged at.

    Yet, the drum beats on . . . and on . . . and on. Every day there's some new drama we're supposed to whip ourselves into a frenzy about.

    Seriously, I wish the Press had whipped up all this outrage over Bush's policies and practices – WE MIGHT NOT BE IN THIS MESS!

    March 20, 2009 at 2:53 pm |
  28. James: Memphis, TN

    Although, legality issues are the concerns for the new tax bill for the AIG bonuses, has the Obama Administration reviewed the AIG bonus criterias for employees whom are eligible for the bonuses, and what financial account are these bonuses were to be paid?

    If AIG policies states bonuses were to be paid from company's earned profits or revenues like most bonuses of other companies, then it wouldn't be illegal to take away the stimulus bonuses since they should be considered some sort of a gift. The stimulus payment wasn't an earned profit or revenue for eligible commissions or bonuses. Commissions and bonuses are normally distributed from money earned.

    March 20, 2009 at 2:52 pm |
  29. Randy, Alaska

    In taxing the AIG bonus' at 90%, Congress conveniently overlooked the $ 4 billion in TARP funds congress received from banking lobbyists in order to recieve bailout mony and allow the bonus' in the first place. Until corporate lobbying is eliminated, the interests of the American people willnot be represented.

    March 20, 2009 at 2:36 pm |
  30. Lisa in CA

    In what is a classic exhibit of CYA (reminiscent of those in Congress who voted to pre-emptively strike Iraq then pointed the finger at Bush while failing to apologize for voting in favor of said action) those in Congress who feigned outrage and called upon the AIG execs to return their bonuses owe the American people an apology for a) writing the deal that allowed the bonuses to be given; b) voting to allow it to happen; and c) at the very least ought to offer to do the exact same thing they want the AIG execs to do - return their salaries for screwing up and offer to resign. Alas, I doubt very highly if this will happen for Congress thinks we, the taxpayers, are fools. And thus far, we have proven them correct.

    Maybe now Obama will finally produce the change he ran on - and find people outside the Beltway who can solve our economic situation. Maybe now he will also realize that what didn't work in the past continues not to work now ("top down"), and think outside the box ... maybe even starting with a "bottom up" recovery plan, or a combination of both.

    March 20, 2009 at 2:31 pm |
  31. Randy Black Cloud, Atigun Pass, AK

    In taxing the AIG bonus' at 90%, Congress conveniently overlooked the $ 4 billion in TARP funds that Congress received from lobbyists in order to receive bailout money and allow the bonus' in the first place.

    March 20, 2009 at 2:31 pm |
  32. Mike in NYC

    This legislation sets an awful precedent, both legally and politically (aside from the fact that most recipients of the bonuses are far from culpable).

    The media whips up the populace into a frenzy, the "bad guys" get soaked, and no one has the courage to challenge it in court. Neat.

    March 20, 2009 at 2:26 pm |
  33. Melissa

    I am so tired of this alarmist mentality of the Republicans.

    In this case, Congress is right in what they're doing whether you like it or not. This tax is not for valid wages, its for stealing the money of the people. Its for bonus' that are not deserved that were given when the company was going under.

    Do you understand how many people could have stayed employed if those bonus' hadn't been given out?

    $165 million in bonus'. That could have meant that a minimum of 3300 making $50 thousand a year got to keep their jobs. This economy is hemorraging jobs and you think its just fine to allow them to steal this money from that many peoples livelihoods?

    Stop defending it and stop trying to turn congress into the enemy for trying to get the money back.

    They are doing what they were hired to do. Protect the people.

    March 20, 2009 at 2:22 pm |
  34. Eileen

    Sad or funny? A company (USBA - Uniformed Services Benefit Association) is sponsoring a YouTube contest awarding a U.S. Savings Bond to the best video on the subject: "Why I believe in America. " I checked it out. No posts thus far. Because no one believes in America these days? Lose faith in greedy executives but keep faith in US, I say.

    March 20, 2009 at 2:19 pm |
  35. Linda

    I agree with you completely, David. What is missing are key hearings and questions being asked about thwere the rest of the bail out dollars are going. Buying up other banks, more tricky and complicated financial "packages", etc.

    Meanwhile half of the population – namely females – are now being asked to mortgage their future and that of their children for a stimulus package that doesn't include jobs for them!!! When is someone in the media going to question how billions of dollars in infrastructure funds for job creation is going to benefit female heads of households who are unemployed?! Although I know they exist – and I applaud them – I personally don't know of any unemployed (or employed!) female fork lift drivers, plumbers, construction workers, or electricians. And yet that is where the stimulus job money is going. Women are heads of households too!! And we pay taxes when we are employed!!!!

    March 20, 2009 at 2:10 pm |
  36. Arachnae

    There's no problem so bad that we can't make it worse – it's called cutting of your nose to spite your face.

    March 20, 2009 at 2:01 pm |
  37. Mia Hawk

    I watched Liddy's testimony in front of Congress and actually felt bad for him. He did not create this mess. He is being paid $1. Sure, I'm upset about the bonuses, but I cannot believe the grandstanding that these politicians are engaging in! Some of the senators were an embarrassment to me and this country. Barney Frank should resign and take his sanctimoneous and scandalous reputation with him.

    I am really sick and tired of hearing that the bills are too voluminous for these politicians to read through in the allowed time frame before voting. If the bills are too large to be read, understood, and voted upon properly, shouldn't that be a red flag? I am a pharmacist. I do not attempt to fill 100 prescriptions all at the same time. I give each prescription its due dilligence and attention. There are no small mistakes. If I fail to read one prescription properly or thoroughly, I could kill someone! It is time that our politicians woke up and saw that they can do just as much damage to the American people when they do shoddy work. This phenomena....the clueless voters, the pork that gets slid into the bills, the unaccountability....it is disgusting. Much more disgusting than the AIG bonuses, IMO.

    March 20, 2009 at 2:01 pm |
  38. Jim

    Hey Anderson, my employer just notified me that my federal tax rate was increased by $200.00 per month. The new tax table were just received in our offices today. Since I earn less than 40k per year, this is a big hit for me. No one in the media is addressing this issue. Where is the press on this and what happend to no increase in taxes for those of us earning less than $250,000 per year. so much for change we can believe in; and I voted for him!

    March 20, 2009 at 1:47 pm |
  39. Allen

    When I was a kid, I used to particularly enjoy westerns. Invariably, the sheriff would lock up the bad guy, and the 'mob' would come to 'lynch' the bad guy. The sheriff (good, moral, upright, a leader, not swayed by the mob, determined to apply the law equally to all); would go out, face the mob, and convince them to disperse. He did the right thing, even when unpopular.
    Compare this to our Congress. The polls show that the AIG 'bonuses' infuriated the electorate: "the mob'. Instead of facing the electorate, explaining that the situation needed to be approached rationally and subjectively, making sure that the law was applied to the AIG 'bonus' situation equitably while apologizing for their own mistakes in the process of allowing the 'bonuses' to occur in the first place. What did we get: the congressman from Colorado saying that "we" will come and get you with "pitchforks". They did not quell the mob; they joined the mob.

    I ask you, is this leadership? Is this Statesmanship? Is this the type of behavior that will lead to legitimate solutions?

    Al

    March 20, 2009 at 1:43 pm |
  40. Mary OK

    The congressmen who voted for this amendment should be ashamed of themselves. It definetly was mob action. And I suspect that the the government and AIG is now finding a way to hire these people as consultants to work for the Treasury department so that they can keep doing what was already evaluating as critical work on behalf of the taxpayers.

    March 20, 2009 at 1:40 pm |