Saturday, March 21, 2009

We Are So Angry That We've Lost Our Minds

I remember reading news about the race riots in Detroit and Los Angeles when I was growing up during the '60s. It was confusing to me at the time because I could never understand why enraged mobs would vent their anger by killing people and destroying businesses and homes in their own neighborhoods. I could understand the rage, but the actions it prompted seemed totally counter-productive.

Now, more than 40 years later, self-destructive mob rule has come to Capitol Hill. The same members of Congress who were either complicit or clueless while our financial system self-destructed are now so angry over the outrageous bonuses granted to a handful of AIG employees that they have passed legislation that threatens the underpinnings of our whole system.

More than anything else, what has made America unique and great over the years is that we are ruled by laws and not by men or women. If the laws need to be changed then we change them but we never take a Mulligan. We never go back and change the rules retroactively or in the middle of the game because we are angry. Until now.

Last week, in its first bipartisan vote of the year, Republicans and Democrats in Congress were so angry at bonuses that were paid to a few managers at AIG that they overwhelmingly passed a bill that would retroactively punish thousands of employees of several other financial services companies.

A government bond trader or research analyst at Goldman Sachs or Morgan Stanley who was told six months ago that he or she would get a bonus (which on Wall Street is really part of their annual salary structure and not something special) and received the check three months ago may now have to give much of that money to Uncle Sam.

The legislation passed by the House calls for all income over $250,000 earned by any employee of any of the top investment firms to be taxed retroactively at a rate of more than 100 percent (counting Social Security and Medicare). That is not just for bonuses earned at AIG--which is 80 percent owned by the government--but at all firms that took TARP money.

Some of these firms have behaved recklessly in recent years and many executives have become rich by exploiting the system. Anyone who broke the law should be pursued aggressively and pay a heavy price for their transgressions.

But outrage, even justifiable outrage, is no excuse for vengeful, destructive legislation which would have a chilling effect on our economy going forward. What business executive in his or her right mind would commit capital to a venture if they thought the rules of the game might changed by the government after the contract was signed?

Halliburton and defense contractors have admitted that they defrauded and overcharged the U.S. government in the past. Should Congress pass a law today taking back bonuses paid to all employees of those companies years after the fact? That the kind of logic they're using to justify the more than 100 percent tax on Wall Street bonuses they just passed.

Fortunately it seems that some sanity is working its way through the anger and outrage in the Senate and White House. It now appears likely that the bill that sailed through the House with huge support will come under closer scrutiny in the Senate and cooler heads will prevail.

President Obama says we should stay angry but express our outrage in productive ways. I say we should get rid of the anger altogether. We don't have the time or energy to waste on villains--even if they deserve to be punished. That's the job of the legal system--not our legislators. We need to focus on results--not revenge.


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