As members of the House Financial Services Committee prepared to question AIG’s chief executive, Edward Liddy, Rep. Jeb Hensarling (R., Tex.) invoked the famous line from Casablanca: “I’m shocked — shocked! — to find that gambling is going on in here!”
The line from the corrupt Captain Louis Renault, a regular gambler at Rick’s American Cafe, is quite appropriate for this situation. U.S. lawmakers are now feigning outrage over the $165 million in bonuses paid by AIG to its executives — even though Congress voted to make such bonuses legal. And today, on a party-line vote, lawmakers voted against taking the bonus money back from the company.
One after another, members of the subcommmittee asked some version of the question: How could the company, in the midst of raking in $173 billion from the government and its Troubled Asset Relief Program (TARP), do something so “unconscionable?”
Rep. Paul Hodes (D., N.H.) declared that the AIG employees’ contracts containing the bonuses “should be held to be invalid or unenforceable on the grounds of public policy.” (No one is sure exactly what that is supposed to mean.) Rep. Barney Frank (D., Mass.), chairman of the Financial Services Committee, suggested that the government use its status as 80-percent owner of AIG to sue and recoup employees’ contractually obligated bonuses. “They gave themselves contracts that insulate them from the losses,” Frank complained. “We’re the effective owners of this company. We ought to exercise our rights as the owners . . . . Let’s bring a lawsuit, as the owners, against people who really did damage to the company.”
But Frank, Hodes, and 244 other congressmen — all Democrats — voted last month for a stimulus package that explicitly allows TARP funds to be used for such bonuses. To be precise, President Obama’s $789 billion stimulus package contained the following provision, which deals specifically with executive compensation at AIG and other companies that receive TARP money:
The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.
Rep. Ed Royce (R., Calif.) read this statutory language to the subcommittee twice during the hearing’s early-afternoon session, just in case anyone was unaware. The executive compensation loophole was not merely a holdover from President Bush’s original bailout plan. It was laid out in clear statutory language that was enacted and signed by Democrats over vigorous Republican opposition. The provision was inserted in conference committee by Senate Banking Committee chairman Christopher Dodd (D., Conn.), one of the biggest beneficiaries of political contributions from AIG employees.
As Royce noted, “Some Democrats were aware of the bonuses, and went out of their way to protect those bonuses.” President Obama was one of them, but you would not know it from his dramatic performance on Monday, when he addressed the issue of AIG bonuses. “I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama asked. “This is not just a matter of dollars and cents. It’s about our fundamental values . . . excuse me, I’m choked up with anger here.”
Yet it was Obama who signed the very bill that made the rules for bonuses under TARP, and that bill clearly allowed these bonuses. Obama stumped for it all over the country — but did he actually read it? And are politicians such as Obama, Dodd, and all the others who supported the stimulus package entitled to feign outrage when their own legislation produces easily foreseeable and undesirable results?
Rep. Scott Garrett (R., N.J.), one of the few members of the Financial Services Committee who both understands bailout legislation and has been unsparing in his criticism of it, put the question in the simplest terms: “What I really want to say to some of the loudest critics is, ‘What did you expect?’”
But it isn’t just a question of what they did expect. It is also a question of what they now expect. For even as the Financial Services Committee hearing was still taking place, the full House had the opportunity to vote on a measure that would stop payments to AIG until the bonus money is returned and require future bonuses at TARP-assisted firms to be approved by Treasury.
House Democrats defeated the bill with a procedural motion in a party-line vote, 221 to 182. Among those voting to block consideration of the bill were Frank, Hodes, and Rep. Gary Ackerman (D., N.Y.), who had earlier caused the entire Financial Services Committee to burst out in laughter by referring to AIG’s credit-default swaps as “I Can’t Believe It’s Not Insurance.” In fact, all but six of the 42 Democrats on the House Financial Services Committee voted to kill the no-bonus bill (four of them did not vote). Then they all went back to the hearing to question Edward Liddy, AIG’s new CEO, and express further outrage at the bonuses.
In Congress, true outrages are not intended to be remedied in realistic ways. Rather, they represent opportunities for politicians — in this case Democrats — to pretend outrage at their own legislation, and then to score points with populist rhetoric.