The Unemployed Life

Out on the Street: Anger is Bad Policy

Each week, “Joe the Trader” chronicles his experiences with life after Wall Street.

Joe the Trader is angry.

I’m angry at AIG, Merrill Lynch, and all the companies that are being propped up by the government and still paying people as if it were 2007. In January, I asked a good friend, Colin, who is employed by a troubled bank, how big a hit his bonus payment took.

“It really wasn’t all that bad,” he said. “I was paid down only 40%, but I don’t know how that’s possible—without the government we would be bankrupt.”

As shocking as Colin’s pay package was, it was nothing compared to the plundering of Merrill Lynch, where C.E.O. John Thain pushed through bonuses at the eleventh hour. In a quarter where ML gave Bank of America a $15 billion hickey, he paid some of his cronies—whom he had on staff for as little as a few months—over $20 million. At the same time, many of the rank-and-file took pay cuts.

It took a few weeks for the bad taste of the ML bonuses to leave my mouth—only to be replaced with the foul flavor of the AIG Financial Products bonus news. Once again, corporate leaders showed how out of touch they are. While someone outside the financial industry may be outraged by the entitlement of the executives at the top, to me it’s catastrophic. Not only do I share the anger, but these decisions have completely eroded popular support for salvaging the financial system—a system that I need to be functioning in order to get a job.

AIG C.E.O. Edward Liddy offered up retention of the best and brightest as a reason for the bonuses. Sure, I can see that you need to keep a few key people who know where the land mines are located. But does he really think that everyone who received a bonus at AIGFP is one of the “best and brightest?” Not only did this division of the company blow up, but there is an army of qualified people out there. I may have lost some money in ’08 but I didn’t bring the house down like his guys. I’d love to work for a salary and the opportunity to sort AIG out. And where exactly are AIG’s “best and brightest” supposed to run if they feel underpaid? No one is hiring. Believe me, I know. Plus, as was pointed out by a Recessionwire commenter, David Halberstram’s book, The Best and Brightest, reminded us that they were the ones who got us into the Vietnam War.

Still, as furious angry as I am with the corporate elite, I believe that to indiscriminately tax bonuses at 90% is rank populism. So although I’m a card-carrying Democrat, I’m also really angry with Barney Frank, Charlie Rangel, Maxine Waters and the rest of Congress. Our leaders are suffering from an extreme case of myopia. Bankers are an unpopular lot these days, and taxpayers are rightly upset that their money seems like it’s extravagantly rewarding failure. Unfortunately, the alternative of confiscating these bonuses is worse: it brings into question the sanctity of all contracts, hurts families and ultimately is an unproductive distraction from the bigger issues. It is a relief to know that our founding fathers had the foresight to address these issues. In the Federalist Papers (#10), James Madison warned of the power of majority factions, likely to be caused by an “unequal distribution of property” and argues that representative government by leaders is required to check and look beyond the emotion of the masses.

First, the bonuses paid to AIG, no matter how unsavory, were legal. In the case of AIG, the contracts have been known about for some time. Neither Treasury nor Congress attached any strings to the money it gave AIG and the company had a legal obligation to pay its employees as it had agreed to. All economic activity is based on a contract and if we arbitrarily allow some to be broken, the rest will come under question. Ex post seizure and abrogation of contacts is in stark opposition to the basic tenets of our society, which is a nation of laws. Going back again to Madison and the Federalist Papers (#44), he writes,

“Bills of attainder, ex post facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation.”

In addition, many of the people who received bonuses are people like us—people who were doing their jobs for the pay they had been promised. Many were not involved in the disastrous investment decisions that brought these companies to their knees. They weren’t out to scam taxpayer money, but they were under contract to do a job and expected to get paid a certain amount of money if they did it. (The insane structure of Wall Street compensation deserves discussion, but it’s not the average employee’s fault.) The bonuses to individuals who worked for firms that received TARP monies have already been paid—and in some cases they may have been spent. To tax people after the fact would impose undue hardship. It would be akin to asking autoworkers, whose benefit awards are one of the key competitive problems for the auto companies, to pay back medical contributions for 2008.

Finally, even though these sums sound big, they’re relatively small. In the case of AIG, the bonuses represent less than one tenth of one percent of the monies provided to the firm. Yet the bonus to an individual most likely represents a large portion of that person’s income. The $165 million paid out to AIGFP employees cost each American $0.54, while the overall $185 billion package is costing each tax payer over $600. Our elected officials should be spending more time on fixing the financial system than fixating on bonuses. Judging by Tuesday’s Congressional hearings, our representatives feel it is much more important to blow off populist steam than to actually understand Treasury Secretary Geithner’s plan.

It’s ok to be mad. I’m mad. I’m mad that I don’t have a job. I’m mad at the people who got us into this mess. I’m mad at our reactionary elected officials who are grandstanding instead of repairing. But I’m not mad at the rank and file, people like Colin, who are trying to navigate this mess and provide for their families. Just like you. Just like me.

Joe the Trader spent 11 years as a proprietary trader at a major U.S. bank. He has three children and currently lives in Brooklyn. You can read more of his columns here.

Tags: bailout, Congress, controversy, Out on the Street, TARP, The Unemployed Life, Wall Street