Punitive Damage

Congress is in a lynching mood over bailouts and bonuses


The financial crisis has been widely interpreted as proof of the need for extensive government regulation of banks, insurance companies, and other capitalist institutions. The antics of politicians now that they have a greater role, however, are a vivid reminder of why they can't be trusted with such power.

These days, every politician assumes that because he has a driver's license and an ATM card, he must have all the necessary skills to run an automaker and operate a bank. House Speaker Nancy Pelosi and Senate Democratic Leader Harry Reid, for example, said Detroit should use its bailout money to become "a global, competitive leader in fuel efficiency."

Never mind that if we know anything from recent automotive history, it's that the Big Three's competitive advantage is in trucks and SUVs. If they had spurned that segment during the decades of cheap gas, things would have been very different: They would have reached the brink of bankruptcy long before now. But Congress' idea of a sound business plan is to build cars that suit its grand ambitions rather than, say, the tastes of consumers.

Banks getting federal money have likewise been subjected to a frenzy of finger-wagging. Politicians were shocked when Northern Trust hosted a client event featuring the band Earth, Wind and Fire. House Banking Committee Chairman Barney Frank and 17 other Democrats demanded that it "immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events."

But Northern Trust didn't ask for federal help—it was conscripted into the bailout. It happens to be managing its money well enough to be making a profit and repaying the taxpayers.

And did anyone notice that after Earth, Wind and Fire did the Northern Trust gig, it performed at a White House dinner? Why is it OK for President Obama to host "lavish events" that are financed by taxpayers but outrageous for a bank to use mostly private funds to entertain valued customers?

Then there is the insurance giant American International Group, which unleashed bubbling torrents of outrage when it paid large bonuses to hundreds of employees. Angry lawmakers have no idea what these workers should be paid, except that it should be a lot less.

Of course, some taxpayers feel that members of Congress should forfeit their salaries in years when they fail to balance the budget. But our leaders' contempt for failure applies only to the private sector.

They demand that the bonuses be rescinded and, failing that, threaten to tax them away, at proposed rates as high as 100 percent. "Let the recipients of these large and unseemly bonuses be warned—if you don't return it on your own, we'll do it for you," thundered Sen. Charles Schumer (D-N.Y.).

No one in the lynch mob wants to admit that the amount is piddling from the point of view of taxpayers. It adds up to less than 1 percent of the $170 billion the government has poured into AIG. The prevailing reaction amounts to swallowing a camel and straining at a gnat.

AIG could have refused to make the payments, but only by violating contracts it had made with employees. Officials at the Federal Reserve Bank of New York entertained this option, reports The Washington Post, only to realize that the spurned staffers would have sued and gotten not only the payments but "punitive damages that would make the ultimate cost perhaps two or three times as high as the bonuses themselves."

Refusing to pay would also have driven away any top employees with alternatives—which would tend to be the better people, who might just be useful in restoring the company to health. Congress's approach brings to mind the sardonic workplace sign: "The floggings will continue until morale improves."

Expropriating property from people who did nothing more than accept money they were legally due sounds uncannily like a bill of attainder—a legislative measure declaring someone guilty of a crime, and imposing punishment, without trial. This weapon was expressly forbidden by the framers of the Constitution because it is fundamentally unfair, at odds with the rule of law, and driven by mass hysteria rather than dispassionate fact-finding.

Once upon a time, those were considered bad things.


NEXT: That'll Teach You, Granny

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  1. The question springs to mind of how the congress could write a special tax that only penalizes the AIG employees without running afoul of the constitutional prohibition of bills of attainder.

    I guess they’d just pass it for the publicity and leave it up to the courts to throw it out.


  2. John C., you are an early poster – whoo boy…

  3. Or maybe it’s AIG’s bad luck that the previous administration put the patriotic american people in the mood to disregard some of the peskiness that is the constitution to accomplish what some think is the right thing to do.

  4. But as Steve Chapman write

    Ahem. “Writes”.

    their antics serve as a vivid reminder why they can’t be trusted with such power

    This has always been true. Chapman is just realizing this?!?

  5. Epi, Chapman’s has shown he knows this about as long as I’ve been reading his syndicated column.

    I suspect that’s why he referred to it as a “reminder”.

    You know something that reinforces or brings to the front of your mind something you already knew.

  6. Wow! Great catch!

  7. catches!

  8. Chapman’s has shown

    Ahem. “Chapman”.

  9. I just loom so large in your minds, don’t I!

  10. Pretty good article. I listen to a lot of NPR since I drive around delivering pizzas for a job. They have a (slightly) disproportionate amount of liberals on most of their political shows who nearly all come on bitching about the AIG bonuses. If companies were going to fail before receiving bailout money, then it is a certainty that they will fail once the government tries to micromanage every aspect of the business. It feels like the owner’s rich dickhead son just took over the business, is taking a tour through the plant, and changing the way all operations run on a whim without knowing anything about the business.

    The other thing not mentioned in the article is that on top of the bonuses, people are bitching like crazy about AIG paying off the people it owes money in the form of CDS’s. The government explicitly gave AIG money so that it could pay off its debts because it had so much debt that defaulting on all of it would (scary voice) COLLAPSE THE WORLD ECONOMY /voice. Now they are up in arms that the money is being used to pay EVIL BANKS WHO MADE BETS (ie, the people AIG owes that the money was intended to pay).

    If the money isn’t for debts, and it isn’t for paying employees, what is it for? Do the pols even know?

  11. U B de Man!

  12. Well the Fed is going to start buying up their own debt with the dollars they’re printing.

    Warm up your wheelbarrows, boys.

    That million dollar bonus will buy you lunch in a year.

  13. When China and Russia call you out for heading too far toward socialism, you know you have a problem. Hopefully this charade will backfire and Americans will come to their senses about government managing society.

  14. I’m looking forward to the justification of a bill of attainder and a violation of ex poste facto law with regard to taxing bonuses already paid in addition to the tax in place when they were paid out. I guess the bright side is they aren’t going the rescission or reformation route which would violate the very fabric of contracts.

    The comment made by a Congressman that they came to the 90% by assuming the other 10% would be taken care of by local taxes is scary. Now when Congress wants out of a contract all they have to do is write a bill to punish you for entering into the contract. Everyone says this should be a lesson to government for taking stakes in private companies. I’d say the inverse is more apparent. Private companies should be watching this vowing to cut off their left nut with a spoon before ever getting in bed with the government.

  15. Episiarch,

    Are you still practicing your joe impersonation? Let go, man, let go!

    The one thing that makes libertarians right and partisans of liberal and conservative wrong is that we are the only group in 21st century America that, as a matter of course, understand that too much power in anyone’s hands is a bad thing. Especially undefined, unchecked, unlimited, unaccountable power, which is where we’re headed.

  16. Chapman’s has shown

    Ahem. “Chapman”.


    Hey, it’s early in the morning.

    And I’m old.

  17. The very same blowhards in Congress and Obama who are bellowing about this now are the one’s who voted for for it, approved it, and knew all about it beforehand.

    The head of AIG who was subjected to a Stalinist style show trial in Congress yesterday hand nothing to do with negoitiating or apporving those contracts. He was brought in after the fact at the request of the government and the thanks he get’s for it is being the designated whipping boy of Congress to deflect attention from their own responsibilty for it.

  18. Pardon me: “[P]artisans of liberalism and conservatism.” As I’ve noted here before, I don’t actually speak English and am only able to post here courtesy of Google Translator.

  19. Yes, if Nancy Pelosi had been in charge of GM, it would have gone bankrupt even more quickly than it did under the current management. If the AIG boys don’t like the government running their business, why did they sell the feds an 80% share?

  20. Even controlling shareholders can’t interfere with contracts. If they do manage to do so, it’s breach, which is actionable and would result in even more costs. Not to mention that senior executives might get their suit paid for by the company, as part of their contract.

    The only honorable and responsible move for failing companies is bankruptcy, I’m afraid. The government will abuse the crap out of the slightest power it’s given–that’s obvious. And this Congress may be one of the worst ever, making it all the more dangerous to dance with.

  21. Only a fool would have imagined that Uncle Sam was going to shower Wall Street firms with money without ever asking for a pound of flesh.

    Thanks to its ongoing cluelessness (rewards for failure; million-dollar redecorations, etc.), Wall Street is only digging the hole deeper.

  22. The question springs to mind of how the congress could write a special tax that only penalizes the AIG employees without running afoul of the constitutional prohibition of bills of attainder.

    If they write a law imposing a tax on bonuses paid to employees of businesses that are owned 80% or more by the federal government, that would hit AIG and no one else.

    Sadly, the courts have generally allowed tax laws to apply retroactively. That is, they can pass a law in June that changes the taxation on income you received in the past January.

    I think they can write a confiscatory tax law for the AIG bonusses that will stand.

  23. If the money isn’t for debts, and it isn’t for paying employees, what is it for? Do the pols even know?

    It’s for saving the economy. Duh.

    Now shut up and go buy stuff.

  24. You know it’s bad when sitting U.S. Senators tell their fellow citizens that they might want to consider killing themselves. Things are getting out of control.

  25. Grassley was right.

  26. I do believe this is the first time I’ve ever seen big-bux business executives referred to as “workers”. This wouldn’t be an example of using misleading language to invoke emotional sympathy when the facts suggest revulsion is more appropriate, would it?

    These guys got in bed with the fedguv, took its money (our money, but never mind) and now they’re all shocked that the fucking has come? Doesn’t sound like the best talent money can buy to me; sounds like a pack of utter fools. They and the congressvermin deserve each other.

  27. Well, if the same politicians who enabled these bonuses to happen in the first place are now going to insist that all the bonus money be returned to the Treasury, then I say that Obama, Dodd, and every other politician who received a contribution from A.I.G. ought to follow suit and give all of that money to the Treasury as well.

  28. Mercedes-Benz, BMW and other globally successful auto companies pay the US government’s gas guzzler tax every year and go right on selling cars and making a profit in the US. Congress apparently takes no notice of that.

    As to Congress’s “outrage” over bonuses, when is someone going to call a spade a spade? The legislative branch of the government, abetted by the executive, was working itself up to pass a bill of attainder, the founders’ very definition of tyranny. Should there not be a price to be paid for this outrageous behavior? What’s next? A corruption of the blood bill?

  29. i’ve heard it said a few times that these bonuses were already contractually agreed-upon. i don’t hear that mentioned much when someone is crying about how unjust the bonuses are. if that’s true, i have absolutely no problem with them. but then again, who the hell gets a contractually-agreed-upon bonus? i thought a “bonus” was just supposed to be a surprise that shows up one day in your paycheck.

    and, even if they weren’t contractually-agreed-upon, congress never told the companies how they had to spend the money. that was their own fault.

  30. but then again, who the hell gets a contractually-agreed-upon bonus?

    Damn near anyone who gets a bonus. Most bonuses (not counting penny-ante “Christmas” bonuses) are incentive payments, payable under agreements between the company and their employees. Often they are for meeting defined financial/quality/whatever goals.

    Sometimes they are just for not leaving. These latter are “retention” bonuses.

  31. I just loom so large in your minds, don’t I!

    Now, cut that out!

  32. Giving billions to AIG, is just part of the economic problem, when it comes to the Stimulus/ Omnibus spending carousel. Money is siphoned away to support 40 million foreign nationals, who have overstayed their welcome.

    If our so-called honest politicians are not going to enforce the laws of illegal immigration enforcement– we must do it ourselves. This month they commit such anti-sovereignty deeds such as killing E-Verify, so they have ignored THE PEOPLES wishes. These Senators have a secret agenda, to suddenly pounce on the unsuspecting US population with a reformatted AMNESTY? They have Rep. Gutierrez on emancipation touring the country, looking for sympathetic votes for a new path to citizenship for lawbreakers. Sen.Harry Reid doesn’t care, nor does Nancy Pelosi or Dianne Feinstein.or most Democrats. Nor does a number of Republicans. These lawmakers have no conception of the magnitude of how many Americans are jobless. SO it will be up to the public citizen at large to contribute to federal enforcement? Our eyes should be on watching other workers on building sites, large construction projects like bridges, highways. Carefully scrutinize who is hired by contractors, factories, business, with activity that doesn’t seem correct. Have a friend who is employed in landscaping. Take good notes of what he has to tell you about other individuals working at the job site. Each month without public notice nearly 200.000 immigrants are settled into America, along with an unknown number of illegal immigrants the taxpayer has to house, feed, educate, arrange health services and of course a conveyor belt of prison inmates.

    Hundreds of billions of your dollars are spent in favor of unpatriotic corporate welfare. YOUR DOLLARS? Every year–day in–day out–your being unknowing seduced by a the k street lobbyists. They have undermined the capitol halls with pockets full of cash. They have seduced, greedy disloyal lawmakers who just want to be a re-elected. Who wouldn’t when they receive massive pay raises every year–benefits that the people can only dream of–unparalleled health care–and for Pelosi, whose arrogant demand to fly private jets with family to wherever? Think of how much of your dollars would be saved–without Washington waste. Yet we keep voting for the same old crowd.

    Have you any idea the costs to the US population if they force through another Immigration reform package. It’s another name for AMNESTY. Countless illegal/legal people will have more or less “Carte Blanche” to your tax money? IT will be a massive chain migration, as the extended families will be sponsored–the old, infirm and mentally handicapped services would be ‘extracted’ from your wage packet.

    We think the traffic on our highways is bad now? It will be hardly any movement at all in big cities. The suburbs will spread so fast outwards, that wild creatures will be living in your back yard. Small farms will be non-existent taking over by mass produced food supplies. Our cities garbage already have issues finding new landfills.

    Only the newcomers who jumped the fence are soliciting for work outside Home Depot. Illegal immigrants who have been here for some years, have borrowed their legal cousins social security card and was hired, by some unscrupulous manager who ignores the E-Verify application. He’s no longer digging trenches where illegal aliens work or a chicken processing plant. WASHINGTON, March 19 (UPI) — Wages and employment increased for legal workers after raids on six Swift & Co. meat-packing plants in several U.S. states in 2006, a study indicated. These laborers are not just painting walls, but laying carpet and framing homes. In California they have state jobs, such as road maintenance and running electric cable. They have infiltrated everywhere, even to drafting house plans, computer programming or started their own business and hiring others without papers. Then by cutting costs able to starve out, American tradesman who can no longer make a profit. That’s why you should have the–ICE– 1-866-DHS-2-ICE (1-866-347-2423) number on hand–in your cellphone directory. Call them–leave a message. Remember with businesses demanding more cheap labor, it might be your job next–NO MATTER WHAT YOUR TRADE, SKILL OR PROFESSION?

  33. Isn’t taxing income after it was paid also a violation of the Constitutional prohibition on ex post facto laws?

    I have to laugh at the idea that companies really think they need to pay large bonuses to retain the “talent” that racked up the highest losses in a century, but the government is supposed to follow its own rules.

    And speaking of bills of attainder, couldn’t the Constitutional prohibition on them be used as a legal tactic against property-seizure “laws” passed as part of drug prohibition?

  34. Ron Paul said it best – this is illegal and a distraction. Congress including then Sen. Obama passed the banker bailout and transferred power to the Tres. Sec. to not only disburse all funds but to let the Tres. Sec. keep the amounts and recipients secret. The bail out also stated that the Tres. Sec’s actions would not be subject to any review. Obama and Congress are controlled by intl. bankers who are openly planning a global government. See

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