In a recent post by Chris MacDonald here at Open Salon, a case is made for the idea that money owed should be money paid. It's a superficially plausible argument, but I'm not buying it.
Just to start with, let's note that these companies were not forced to declare bankruptcy before being allowed to take the bailout payments. They were, of course, bankrupt. That's what we mean when we said they were going to fail.
These companies were not forced to formally declare bankruptcy, presumably, because it would have injured the public confidence. Some in the public might not have understood the difference between Chapter 11 reorganization and Chapter 7 liquidation, and there could have been a panic resulting in a run on the banks. The government wanted to avoid this, so it moved directly to action, bypassing the time-tested ritual acknowledging corporate failure.
The irony is that because of the extreme nature of the failure, the banks were not asked to take legal, ethical, moral, and social notice of the obvious truth: They had failed. No trustee was appointed to manage these businesses. Instead, it was business as usual to be conducted by the people who brought us this problem.
But in the true spirit of “no good deed goes unpunished,” the banks seem to have not taken any kind of observable notice of the fact that they were, de facto, bankrupt. So they paid what they felt were bonuses owed.
Now I haven't read the contract, but when I've been in the lucky position of being eligible for bonuses, those bonuses have been contingent on performance—both mine and that of the company. So you'd think the same would be true of these executives, too. If it's not true, then that would make me want to check more carefully whether there was a breach of fiduciary duty on the part of whoever wrote the contract, since unconditionally promising payment even when there was no performance sounds like a marginal practice to me. It would also call into question the use of the term “bonus.”
However we got there, it's a consequence of how the bailout began that the banks apparently either felt they were not bankrupt, or knew that they were bankrupt and decided to blatantly ignore the fact. The former seems to me to be grossly negligent from an ethical point of view, the latter actively offensive.
Had they behaved as if they were bankrupt, these agreements would and should have been on the table for renegotiation. Indeed, it should have been made clear to these companies that it was a non-negotiable condition of their receiving government aid that the mere paying of anyone at these bankrupt businesses a reward for a job well done was unacceptable. That it was not made clear does not free them of the ethical responsibility to care. It's not like they aren't reading the newspaper. It's not like they don't know that this money is paid at the peril of our nation and the likely expense of our children and grandchildren.
Am I failing to understand the plight of these “poor” employees, who were just trying to make a living and were innocently caught up in this? I don't think so. I don't think they were innocently caught up. If they're due bonuses at this order of magnitude, that's prima facie evidence that they authored the present catastrophe. Before I'd hand them a dime, I'd want to see evidence to the contrary.
Yes, in absolute dollars, these “poor” corporate officers have probably lost a lot of money. But I reject the notion that they have felt the economic crisis in the material way most of the country is feeling it. They are not fearing they will be without heat at night, without medical care, without food on the family's table. That's not what this money means to them. That they can consider it's business as usual and that it's perfectly ethical to just receive this money and go about life spending it is proof that they are out of touch with everything going on around them.
Perhaps if deprived of the money for cause, their allegedly unparallelled brains and talents would get the hint that in order for them to profit, the rest of the world needs not to be taken into collapse in order to fund their good fortune.
The world is not perfect. But the American people are having at least 2 trillion extra dollars of debt dumped on them. That was not part of any contract the average American signed either. So when we talk about promises and promises broken, let's talk about that too. Americans are being told “Tough, you have to take these extra terms. No choice. They come with being an American.” And yet there are not riots in the streets. Americans are accepting they have to pitch in for the country they love, even knowing they'll be paying for years.
Money is owed and must come from somewhere. Why is it ethical to economically burden Americans who both didn't cause the problem in the first place and also don't have the money to fix it when it's being alleged to be unethical to burden Americans who did participate in the creation of the problem and who do have the money to help fix it?
The real problem is that for some people, society has already melted down or is melting down around them, while for others society is still intact and flourishing. Claiming that continued excessive cash flow is justified because civilized society demands it seems to neglect the tenuous nature of that civilized society. What civilized society really demands is to behave in a way that acknowledges that people are really hurting and that continued excess cash flow is part of the problem, not part of the solution.
Before the economy melted down, I used to refer to it as fragile. People would tell me it was operating fine, and that all indicators were good, but I'd tell my family that this was a temporary state, that the wrong indicators were being looked to, and that it was not going to last. And it didn't. I'd call the “solution” of paying out the bonuses “ethically fragile.” It appears superficially right, but only if you are looking at the wrong indicators. The truth is that we are at risk of soon not living in civilized society. And what civilized society really demands is an “ethically robust” solution.
The bonuses should not be paid. Those that were paid should be reclaimed or heavily taxed. To put it in the terminology of insurance, something I'm sure AIG folks can understand, let's call it “riot insurance.” I think it's something for which we dare not skip our payments just now.
If you got value from this post, please "rate" it.
Graphic composed from public domain pieces at