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Epstein on AIG Bonus Tax:

Richard Epstein in today's WSJ:

The AIG bonuses were made pursuant to valid contracts entered into before the receipt of the bailout money. They were ratified in the legislation that provided for the bailout, and efforts to find loopholes in these contracts have proved unavailing.

Thus any sensible system of limited government should consider the proposed bills unconstitutional. Special taxes on some forms of income (but not others) and retroactive taxes put in place after business transactions are complete both merit strong condemnation. The bills in Congress are rife with both elements.

Nevertheless, a constitutional attack against any such law that might emerge faces an uphill battle.

Epstein's bottom line: Courts are too deferential to Congress, particularly in the context of taxes and economic regulation.

alkali (mail):
Courts are too deferential to Congress, particularly in the context of taxes and economic regulation.

Indeed. Any sensible system of government would hold that a non-progressive payroll tax is unconstitutional. Also, lower tax rates for capital gains violate equal protection. See generally Frank I. Michelman, Foreword: On Protecting the Poor through the Fourteenth Amendment, 83
Harv. L. Rev. 7 (1969).
3.26.2009 9:54am
Public_Defender (mail):
Contracts to pay millionaires $1,000,000+ are sacrosanct.
Contracts to pay blue collar workers $40,000 a year should not be honored.

Contracts are sacrosanct as long as you make at least $100K a year. Yeah, right.

I see the contract points. I also think a lot of the Congressional bloviating is, well, bloviating. But lots of people are being asked to take cuts from previously negotiated contracts, and almost all of them make a lot less than AIG execs and are even less responsible for their companies' downfall.

If we want line workers to take a cut in return for government aid, we have to demand the same from higher ups.

As to privacy, welcome to the world of working for the government. My pay is public record. So is the pay of pretty much every other state and local employee. Many states even have online salary databases. I don't see why government-paid AIG workers should have more privacy than the firefighters down the street from me.
3.26.2009 10:02am
Bill Quick (mail) (www):
<blockquote>I don't see why government-paid AIG workers should have more privacy than the firefighters down the street from me.

</blockquote>
Because you and your representatives agreed that they should be public. The employees of those companies taken over by the government did not do so, nor did the government require them to agree.
3.26.2009 10:17am
ShelbyC:

Contracts to pay millionaires $1,000,000+ are sacrosanct.
Contracts to pay blue collar workers $40,000 a year should not be honored.


The time to renegociate the AIG bonuses would have been before handing out the AID, right, back when you had leverage?

But the difference between the GM Union contracts and the AIG Bonus contracts is that the GM workers had contracted a wage that was significantly above market value for their labor, and causing GM to go bankrupt.

The workers could agree to either agree to renegociate the contracts, or let the company go under and find lower paying jobs elsewhere.

There's absolutely no evidence that AIG was in a similar situation. These bonuses appear to be designed to keep folks that AIG needed from taking jobs elsewhere.

Keep in mind, folks, these people are rich because they can do things that people are willing to pay them alot of money for. That's not the case with the GM workers.
3.26.2009 10:21am
Seamus (mail):
Contracts to pay millionaires $1,000,000+ are sacrosanct.
Contracts to pay blue collar workers $40,000 a year should not be honored.


Nobody is talking about requiring blue-collar workers to disgorge money they earned last year. At most, they are being asked to renegotiate contracts for money to be earned in the future. If that was what was being proposed for AIG employees, there wouldn't be nearly the same problem.

But speaking of straining at gnats and swallowing camels, what's really outrageous is that individuals who made contracts a year ago entitling them to an aggregate of $165 million, and who did the work that entitled them to that money, are being crucified because AIG is a recipient of federal funds that were granted so that AIG could pay *billions* of dollars to satisfy their gambling debts to Goldman Sachs and other big players. Why is Goldman Sachs deserving of megabucks but the individuals who worked for a year to keep AIG from falling even deeper in the hole are not deserving of what is by comparison a pittance?
3.26.2009 10:23am
Public_Defender (mail):
Bill,

They are at-will employees. The government-owners can impose terms of employment.

Plus, they could have quit when the government took over. They did not. I did not "agree" that my information should be public any more or less than they did. Plus, unless someone promised that their salary information was confidential, they have no contractual right to demand confidentiality, even of past salaries. None of that information is legally privileged.


And, as I said above, many other private and public employees are being told they must give up previously negotiated rights. People making AIG-level money should not be exempt.

If you put your hand out for billions of dollars, you should expect at least as much scrutiny as the public gives teachers, police officers, fire fighters, and, yes, public defenders.
3.26.2009 10:25am
Calderon:
Alkali said


Any sensible system of government would hold that a non-progressive payroll tax is unconstitutional. Also, lower tax rates for capital gains violate equal protection.


I must respectfully disagree. Since all people get the same benefit from legitimate government functions, the only constitutional tax is a flat tax (and not a flat percentage tax, but a flat tax as in everyone pays $2000 each year). If a welfare state is incorporated, it's only fair that the poor should pay more, since they are more likely to take advantage of the insurance offered by the welfare state than the poor. Thus, in a welfare state, the only constitutional taxes are regressive.
3.26.2009 10:30am
Public_Defender (mail):
Once, I was involved on a case with a damn good argument. There was a clear problem in a statute, and thousands of inmates were being held longer than they should have. Despite that, we lost the case. Later, I spoke to one of the judges. The judge saw that thousands would have been released and said, "That just wasn't going to happen."

Epstein's points are similar. They make a certain amount of technical legal sense, but they lead to such an unjust windfall (at least in the eyes of all but a few) that it "just isn't going to happen" (hopefully).
3.26.2009 10:33am
Public_Defender (mail):
If public could be confident that the people who got the bonuses really were getting paid for keeping AIG from going under, I'd be more sympathetic. But because of the confidentiality, we have no way of knowing how many of there employees were responsible (directly or indirectly) for the company's downfall.

The argument that the bonuses were earned is bald assertion because of the confidentiality that shrouds the them. Let the employees testify about what they knew and did as AIG was going under, and what they did to help stop it. Then, look at the bonuses to see if they make sense.

It's not too much to demand some accountability from people who individually receive six and seven figures of taxpayer money.
3.26.2009 10:40am
Calderon:
Public Defender said:


And, as I said above, many other private and public employees are being told they must give up previously negotiated rights.


Really? Are there are any other examples where people have a contractual right to a payment, and are being told if they stand on the right the result will be that it's taxed at 90%? (And especially examples where people had their base pay reduced to $1 on the premise they'd be receiving a lump sum payment after a certain period of time)

The UAW contracts were addressed above. The UAW can either grant concessions or not, and the US government can decide whether to provide more bailout money to GM and Chrysler. If the UAW doesn't grant the concessions, it can take its chances as to whether GM and Chrysler can stay out of bankruptcy, or whether the UAW can defeat a 11 USC 1113 motion in bankruptcy. No one is saying that if the UAW stands on its contract, the difference between its current wages and benefit and some lower amount of wages and benefits will be taxed at a higher rate, which is what is happening with AIG.

As for other examples, my guess is there are no contract rights involved. These are people's pay is subject to change at will, or their pay is not subject to change but their employment status is. But again, if you have other examples that actually are similar to what's going on with AIG, I'd be interested in hearing them.
3.26.2009 10:40am
ShelbyC:

Epstein's points are similar. They make a certain amount of technical legal sense, but they lead to such an unjust windfall (at least in the eyes of all but a few) that it "just isn't going to happen" (hopefully).



But isn't that why we have judges in the first place? I mean, people aren't just going to let witches run around unburnt either. Maybe your judge should be in front of some sort of board.

Btw the witch burning anology is exactly what's happening to the AIG folks.
3.26.2009 10:41am
David Welker (www):

Special taxes on some forms of income (but not others) ... both merit strong condemnation.


It is nice to see Epstein condemn the lower tax rate on capital gains. After all, this is a "special tax" on some forms of income.

Oh wait, Epstein wasn't arguing against the capital gains tax? Hmm... maybe Epstein is being more results-oriented than principled.


Two basic principles that animated our Constitution appear to have no traction today. One holds that property is the guardian of every other right. The second asserts that voluntary exchange is the source of general peace and prosperity.


Right, because the takings clause was TOTALLY in the main text of the Constitution and not an after-thought in the Bill of Rights. Of course the protection of property was more important than the protection of other rights. (Why, who cares if other rights are protected? As long as you have enough property, you will be fine.) Oh, and slavery was all about "voluntary exchange." Or maybe Epstein is just reading his preferred libertarian values into the Constitution?

Actually, Epstein is wrong. I read the Constitution. And guess what. The Founders thought exactly as I do. What an amazing coincidence! I guess we will just have to impose my views on the rest of society in the name of the Constitution.


It may seem laughable after the recent Congressional hearings, but our Court supinely defers to Congress's supposed "expertise" on complex matters of taxation and regulation.


Of course it is "laughable" that Courts might choose to defer to a democratically elected Congress. Then, we might actually live in a democracy, instead of the beautiful Lochner-like utopia foisted on us by libertarians who have discovered, low and behold, the Founders were actually libertarian!


But if Congress doesn't stop its descent into the abyss, the Court should confess its past sin of constitutional passivity and stop it for them.


Because my view could never otherwise prevail in a democracy!
3.26.2009 10:44am
ShelbyC:

But because of the confidentiality, we have no way of knowing how many of there employees were responsible (directly or indirectly) for the company's downfall.


For me it's not so much the confidentiality as much as my stupendeous glaring ignorance about how to run and insurance company. Not you?
3.26.2009 10:44am
PersonFromPorlock:

Courts are too deferential to Congress....

The whole business of deferring to the other branches of both state and federal government (not just Congress) sometimes makes me wonder how seriously the Court takes the primacy of the Constitution, at least against government actions. "Yes, but..." isn't much of a standard.
3.26.2009 10:46am
RSF677:
Public Defender,

They were not simply at will employees. They had employment contracts which guaranteed them a defined bonus. The government can not impose the terms of employment when an employment contract is already in place. Additionally, all of AIG's other unsecured creditors are getting paid out at par, so it is pretty hard to justify only lowering the employee's compensation and none of the other creditors. Additionally, each of these contracts was executed individually, so you would have to renegotiate with each employee.
3.26.2009 10:47am
Public_Defender (mail):
We also need to look into the formation of the deals. Were they arms-length deals negotiated in good faith? Or were they friends protecting friends with a failing company's money (soon to be taxpayer money)?

It seems like many in this thread are as quick to assume (without facts) that the bonuses were earned and fair as many in Congress were to assume that they were unfair.

You think this is witch burning. Others may think it's more like the OJ trial.
3.26.2009 10:49am
RPT (mail):
Mr. Adler, than you for allowing comments.

Epstein Article:

"The AIG bonuses were made pursuant to valid contracts entered into before the receipt of the bailout money. They were ratified in the legislation that provided for the bailout, and efforts to find loopholes in these contracts have proved unavailing."

Unless he has seen and analyzed the contracts, which is not indicated, this is mere conclusion. They are not "valid" until they are challenged and a court find them so.

ShelbyC:

"But the difference between the GM Union contracts and the AIG Bonus contracts is that the GM workers had contracted a wage that was significantly above market value for their labor, and causing GM to go bankrupt.....

Keep in mind, folks, these people are rich because they can do things that people are willing to pay them a lot of money for. That's not the case with the GM workers."

Contracts are not enforceable if someone opines that? Haha. How arbitrary, but convenient for GM. What kind of rule is this? How do you feel about credit card rates; are they unenforceable? Where;s your freedom of contract? No wonder the middle class is dying; more productivity, less wages.

Re the AIG "richness", there is strong evidence that there was little value to what these people did. Pre-bailout contracts with an insolvent entity may be voidable, based on law, not someone's "opinion" that blue collar workers have no contract rights. Give me a break.
3.26.2009 10:50am
Public_Defender (mail):
RSF677,
Did the contracts guarantee confidentiality of salary? If not, then you don't even have a contract argument on that point. Plus, Congress or a prosecutor can subpoena the salary information of any private or public sector employee. It's not legally privileged. And in this case, the information is relevant to whether taxpayer money was spent wisely.
3.26.2009 10:52am
Houston Lawyer:
So Public Defender would be OK with going after the cars and boats bought by union workers with their ill-gotten wages that drove Chrysler and GM into the ground. That is good to know.
3.26.2009 10:53am
ShelbyC:
RPT:

Contracts are not enforceable if someone opines that? Haha. How arbitrary, but convenient for GM. What kind of rule is this?


You're building a straw man. I never said either contracts are unenforceable. Contracts are enforceable unless one of the parties goes under.

If one of the parties might go under because of the contracts, the parites have an incentive to renegociate. The GM workers have an incentive to renegociate. That's not so clear with the AIG folks.

In any event, no one is talking about rendering the GM contracts unenforceable, or retroactively taxing the GM worker's gains.
3.26.2009 11:02am
Bored Lawyer:

We also need to look into the formation of the deals. Were they arms-length deals negotiated in good faith? Or were they friends protecting friends with a failing company's money (soon to be taxpayer money)?

It seems like many in this thread are as quick to assume (without facts) that the bonuses were earned and fair as many in Congress were to assume that they were unfair.

You think this is witch burning. Others may think it's more like the OJ trial.


PD: The part you consitently ignore is the timing issue. The fact is that these bonuses were specifically permitted by the very law which provided the bailout money. In reliance on that law and their promise, these workers then stayed on with a failing company. Now, after the fact, Congress wants to "claw back" the money after it has been earned.

Suppose I send my lawyer out to make a deal. He gets snookered by the other side and commits to bad terms. Granted the deal is a bad one (unfair, or whatever), but I am still bound by it. Both honor and preservation of one's reputation demand I live up to the commitment -- although I can blame my lawyer all I like.

Congress provided bailout money to AIG. It set the terms of the deal. Our 535 representatives cut a bad deal. Both honor and reputation demand we live up to it -- even though we don't like it.

You want to blame someone, blame our representatives for cutting a bad deal. But don't blow the honor and good faith of the United States trying to renege on your commitment.
3.26.2009 11:02am
Curt Fischer:

Calderon opined: Since all people get the same benefit from legitimate government functions, the only constitutional tax is a flat tax (and not a flat percentage tax, but a flat tax as in everyone pays $2000 each year).


This is just absurd. The rich clearly benefit more from government protections against theft and robbery than do the poor. They also benefit more from the government's military deterrence of would-be foreign invaders, conquerors, and marauders. In fact, even a cursory look at the utility derived by a given individual to the rule of law shows that any reasonably fair tax scheme would be at least somewhat progressive.
3.26.2009 11:05am
rosetta's stones:
"For me it's not so much the confidentiality as much as my stupendeous glaring ignorance about how to run and insurance company. Not you?"
.................................

No, running an insurance company is simple. You collect money, and try not to pay any claims. If an unavoidable and massive claim comes along (e.g. some risk sharing investments collapse, or a terrorist group crashes a couple airliners into the WTC), then you get your political muscle to step in with taxpayer cash. Got it now?
3.26.2009 11:06am
ShelbyC:
Public Defender:


We also need to look into the formation of the deals. Were they arms-length deals negotiated in good faith? Or were they friends protecting friends with a failing company's money (soon to be taxpayer money)?

It seems like many in this thread are as quick to assume (without facts) that the bonuses were earned and fair as many in Congress were to assume that they were unfair.


Right. If only we had some sort of system with prearranged rules to determine if the bonuses were earned and fair. Then, if someone thought they were unfair, we could appoint some sort some magistrate to oversee some sort of adversarial proceeding to present the facts and have some sort of delibrative body determine if they were fair or not.

But unfortunately we don't have anything like that, do we?
3.26.2009 11:08am
ShelbyC:

It seems like many in this thread are as quick to assume (without facts) that the bonuses were earned and fair as many in Congress were to assume that they were unfair.

You think this is witch burning. Others may think it's more like the OJ trial.



Yeah. Stupid presumtion of innocents. And you're right, it's just like the OJ trial, except for that pesky trial part.
3.26.2009 11:11am
J.L. Novak (mail):
This strikes me as a Contracts Clause issue. The impairment is certainly substantial by virtue of the diminished value of the contracts. Cf. Fraternal Order of Police v. District of Columbia, 1995 U.S. Dist. LEXIS 20951 at 20-42 (D.D.C. 1995). The more interesting sub-issue is whether rational basis would apply because these are private contracts or whether heightened scrutiny would apply because of the government's self-interest in the tax revenue. Either way, I think the impairment is impossible to justify given the carve-out in the legislation and the factual circumstances of the particular employees.
3.26.2009 11:15am
anonn:
David Welker,

The tax on capital gains is not a special tax. A capital gain is simply a gain on the sale or exchange of certain types of property. It is simply definitional. What you seem to be refering to is the low rates on gains from the sale or exchange of capital assets that were held for more than a year, compared to the rates on "ordinary income". On the otherhand, the AIG bonus income is ordinary income, yet is being subject to a 90% tax, whereas other ordinary income is subject to a much lower level of tax. The debate on whether long term capital gains should be taxed at a lower rate (and the entire "progressive" income tax system should exist) revolves around the tax rate. It is completely different than the tax discussed in the article. Of course I can't fault you for being disingenuous when its the only way you can try to make your point.

As far as property being an important part of the Constitution, you can't seriously argue that the Bill of Rights was an afterthought, can you? Are ou familiar at all with the debates over the consitution, one faction wanting a bill of rights expressly protecting a large number of rights, including property, while the other side argued that the bill of rights was unnecessary because there was no power grandted to the Feds to violate those unenumerated rights.

As for a healthy skepticism of elected officials, why do you hold democracy up as an unimpeachable ideal to be respected? As I read MY Constitution, the word democracy does not appear once. Why is that? The end is liberty, democracy is only a means (and a poor one at that).
3.26.2009 11:23am
bloodstar (mail) (www):
Eh

it's not going to pass anyway, so the AIG Bonuses themselves are now simply a symptom of a bigger issue of populist rage and the sense by people that they've been 'had' and that the fatcats have 'gotten away with it.' It being defined as making giant profits while destroying a company and nearly taking down the entire world economy with it.

Now, while we're on the subject of AIG, can someone explain why two of their managers resigning in Paris would do this?

Representatives of the Federal Reserve, AIG's lead U.S. overseer, are talking with French regulators and AIG officials to deal with the consequences of a complicated legal scenario in which the departures of the managers in Banque AIG, a subsidiary of AIG's Financial Products unit, could trigger defaults in $234 billion of derivative transactions...


any system that can have a quarter Trillion dollars in defaults happen based on 2 people resigning is utterly and completely insane.
3.26.2009 11:37am
dave h:
I presume for most people it's the retroactive nature that distinguishes this from the UAW and other situations. If the government had forced AIG employees to stay on for no wages, presumably everyone would decry that. How is it any better to allow them to stay on, and then take the wages after the fact?
3.26.2009 11:43am
ArthurKirkland:
This is getting too messy. Courts too deferential to Congress. Congress acting as a mob, or acting in a half-baked manner, or not acting at all.

We need executive leadership. Perhaps the President should declare a War On Toxicism. He would possess essentially limitless authority (cue: Addington, Yoo) to defend our economy. Come to think of it, he wouldn't even need to declare war. He could merely have Congress approve a Use of Economic Force measure.

Or, the United States -- Congress, the President, the courts, the citizenry -- could act responsibly. Pay bonuses (perhaps renegotiated where appropriate) without demonizing the recipients and willfully refraining from distinguishing the innocent from the guilty (lesson: Guantanamo). Pursue those who engaged in wrongful conduct without leniency -- sometimes, after paying the bonus -- from every direction (civil, criminal, public shaming). Rearrange the system to prevent the existence of any entity "too big to fail." Rigorously separate the "rent money" (banks, insurance) from the "mad money" (securities and related investments) in the financial industry. Rework compensation (and corporate governance) structures to avoid nine-figure payments to those who wreck huge companies. I am certain those who predicted the problems caused by deregulation and poor regulation, and those who have more recently studied it, could identify other worthwhile endeavors.
3.26.2009 11:46am
David Welker (www):
anonn:

A tax on bonuses above a certain amount for institutions that take a certain minimum amount of bailout money is also "simple definitional."

Everything is defined.


the AIG bonus income is ordinary income


Capital gains could be "ordinary income" if we defined it that way. Likewise, AIG bonus income and other bonus income for firms receiving a certain amount of bailout money could be classified as something "other" than "ordinary income" if we wanted to.

The definition of "ordinary income" was made by Congress.


Of course I can't fault you for being disingenuous when its the only way you can try to make your point.


I can't fault you for acting as if these definitions made by Congress are objective things that exist "out there" since that is the only way you can make your point.


As far as property being an important part of the Constitution, you can't seriously argue that the Bill of Rights was an afterthought, can you?


In fact I can argue that. The main thing that the Constitution did was provide a structure for government. I know that is not as "sexy" as all of these rights. But, that is the fundamental and critical role played by the Constitution.

I think it an interesting point of view that elevates the Bill of Rights above the rest of the Constitution and acts as though one those rights in particular, namely property rights, is somehow the animating force behind the entire document. To assert that property rights are actually the most important part of the Constitution (because through property rights, all other rights are founded?) is a tad bit ideologically self-serving.


As for a healthy skepticism of elected officials, why do you hold democracy up as an unimpeachable ideal to be respected?


Right. It is so much better to bow down to unelected judges than abide by the results of a democracy. That is SO much better.


The end is liberty, democracy is only a means (and a poor one at that).


I think a more accurate VIEW of the purpose of the Constitution (besides protecting slavery) is stated in the preamble:


We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.


Protecting liberty is only one very important purpose for which the Constitution was established. Obviously, the value of liberty must sometimes be traded off against the other objective that the Constitution is established to promote.

But anyway, even if liberty were the only end of the Constitution (it isn't) I don't think praying for unelected judges to provide it for you would get you very far. At least that hasn't worked out for some people, like Dred Scott for example.

Maybe you should think twice before assuming that the unelected judiciary shall be your savior.
3.26.2009 11:53am
Smooth, Like a Rhapsody (mail):
Assuming arguendo that Public Defender is a lawyer, this comment chain is very disturbing.
If someone who graduated from law school can not understand both the ridiculousness and the rank injustice of the bonus clawback scheme, then there is no hope that the average American can be persuaded by basic reasoning about the law. That means that the only rhetorical weapon that anti-clawback forces have at their disposal is reciprocal demagoguery.

Sad.
3.26.2009 11:56am
David Welker (www):
J.L. Novak:


This strikes me as a Contracts Clause issue.


From the Constitution:


No State shall ... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.


Even if you were right about the contracts clause being conceptually at play (and I would disagree with you) last time I checked, the contracts clause only applied to the states.
3.26.2009 11:57am
David Welker (www):

If someone who graduated from law school can not understand both the ridiculousness and the rank injustice of the bonus clawback scheme


Yeah. What is wrong with these law schools. Shouldn't they have brainwashed everyone to think the same way about what is or is not just? All this diversity of opinion! How despicable.
3.26.2009 12:00pm
Joe T Guest:

Why is Goldman Sachs deserving of megabucks but the individuals who worked for a year to keep AIG from falling even deeper in the hole are not deserving of what is by comparison a pittance?


Because former Goldman execs are key players in determining how this is going to shake out, and Goldman gives a sh1tload of money to the Members of Congress who regulate their industry?

Oh wait a minute, was that supposed to be a rhetorical question?

The real issue is that if this is such a big scandal, why Geithner didn't take advantage of the contract bonus abrogation clause written into the Stimulus Bill, amending TARP, which granted him authority to do so. He had the chance, Liddy ran the bonus question by him, and Geithner passed on it. WTF?
3.26.2009 12:02pm
David M. Nieporent (www):
It is nice to see Epstein condemn the lower tax rate on capital gains. After all, this is a "special tax" on some forms of income.
You know, a lot of liberals keep trying to raise this argument in this discussion. It's quite telling, however, that none of them condemn the higher rate on ordinary income; they all condemn the "lower rate on capital gains."
3.26.2009 12:03pm
David Welker (www):

Congress acting as a mob, or acting in a half-baked manner, or not acting at all.


Congress only acts like a mob when it does something I disagree with. When it does something I agree with on the other hand, it is being a great deliberative body deserving of respect.

In fact, any decision made by any group whatsoever that I disagree with is a decision that is made by a mob.
3.26.2009 12:07pm
David M. Nieporent (www):
This is just absurd. The rich clearly benefit more from government protections against theft and robbery than do the poor. They also benefit more from the government's military deterrence of would-be foreign invaders, conquerors, and marauders. In fact, even a cursory look at the utility derived by a given individual to the rule of law shows that any reasonably fair tax scheme would be at least somewhat progressive.
This is just absurd. The poor clearly benefit more from government protections against theft and robbery than do the rich.

Consider the police force being cut to zero tomorrow. What would the rich do? They'd arrange for private security force to protect their own life and/or property. What would the poor do? Suffer from predation.
3.26.2009 12:09pm
David M. Nieporent (www):
Welker, Sarcastro already did that shtick, and better than you. Stick to trying to make real arguments.
3.26.2009 12:10pm
David Welker (www):
David M. Nieporent,


You know, a lot of liberals keep trying to raise this argument in this discussion. It's quite telling, however, that none of them condemn the higher rate on ordinary income; they all condemn the "lower rate on capital gains."


I am sure it is "quite telling."

I wonder what our deficit would look like if we did tax ordinary income at the capital gains tax rate. Would that be practical?

But, the point is, we already do have a "special tax" that discriminates on income based on its source, and how it is derived. Your observation doesn't exactly address that point.
3.26.2009 12:12pm
David Welker (www):
David M. Nieporent,

That Sarcastro is better at sarcasm than me is no reason I shouldn't practice!
3.26.2009 12:13pm
cboldt (mail):
-- Epstein's bottom line: Courts are too deferential to Congress --
.
The people can at least vote on who will comprise the Congress. Better Congress be eventually accountable, because the Courts sure aren't.
3.26.2009 12:19pm
Constantin:
Yeah. What is wrong with these law schools. Shouldn't they have brainwashed everyone to think the same way about what is or is not just? All this diversity of opinion! How despicable.

Did you go to one? They pretty much do.
3.26.2009 12:20pm
Curt Fischer:
David Nieporent: How do you think the rich will "arrange for private security"? Such arrangements will cost them some of their wealth. And the more wealth that needs protecting, the more they will need to spend on protecting it.

The poor have little to lose, so it's not clear to me why you think they would "suffer from predation" to a greater extent than they would become predators.
3.26.2009 12:20pm
ShelbyC:

They'd arrange for private security force to protect their own life and/or property


In the absence of effective govt protection, such arrangements are called protection money, extortion, etc.
3.26.2009 12:26pm
second history:
This article is about a week late, the Democrats in the Senate have really no intention of bringing up this issue for a vote.

On the other hand, conservatives have long argued that the courts are not deferential enough to Congress, only when it is a Democratic Congress that they suddenly discover judicial deference to congressional intent is actually passivity.
3.26.2009 12:36pm
David Welker (www):
Curt Fischer,

I am not sure who benefits more from law and order as between the rich and the poor.

But, I have no doubt that we all benefit. We all need law and order in order to live stable lives with some amount of predictability in order to facilitate planning and happiness.

More generally, I think you relying on the argument that "they benefit more" as a justification for progressive taxation is simply conceding too much. You are implicitly conceding that whether or not the rich benefit more from taxation is in fact the standard by which we need to justify progressive taxation. But there are plenty of expenditures for which the progressive taxation of the rich does not lead to proportionately more benefit for the rich. All of that is entirely legitimate.

There need be no principle that the rich benefit more from taxation in order to justify progressive taxation. The better argument is that providing basic social services and a social safety net to everyone is the right thing to do. There should be a basic level of security for everyone, regardless of income.

Furthermore, the resources that happen to be controlled by the rich are, in truth, social resources. People who are rich do not acquire all that wealth as individuals, through their own actions as individuals. Instead they acquire it through deals and bargaining with other individuals. That is, through a social process.

Wealth, ultimately, is invariably a social product. Society thus has the right to direct wealth to ensure a social safety net. (For example, the minimum income advocated by Milton Friedman.)

Of course, the wealthy benefit, just as everyone else does, when we have less social dysfunction and fewer criminals caused by dysfunctional behaviors and circumstances.

It should be noted that economic insecurity is hardly the only important source of social dysfunction -- one should also point to broken families as a major contributor.
3.26.2009 12:44pm
AndyinNc:

This is just absurd. The poor clearly benefit more from government protections against theft and robbery than do the rich.

Consider the police force being cut to zero tomorrow. What would the rich do? They'd arrange for private security force to protect their own life and/or property. What would the poor do? Suffer from predation.

How well did that work out for Louis XVI and Marie Antoinette?
3.26.2009 12:46pm
David Chesler (mail) (www):
It seems to me the problem is that these payments are being called bonuses. A bonus is a gift I get from my boss at the end of the year, because we had a good year, maybe a week's pay or a bottle of wine. And I haven't had one of those in a long time. If they'd called these payments "deferred wages" they would be a lot easier to swallow.

On the other hand, Shelby C writes:
Keep in mind, folks, these people are rich because they can do things that people are willing to pay them alot of money for. That's not the case with the GM workers.

Neither the AIG workers nor the GM workers are the only people who can do those things. I know if I had it to do over again I might well have gone into investment banking or some sort of finance, instead of software, 30 years ago. Classmates who were not as bright as I was have done a lot better in those fields. What are the special skills or abilities these millionaires have?
3.26.2009 12:48pm
Guest12345:

Shouldn't they have brainwashed everyone to think the same way about what is or is not just?


I thought the law was about law and not about justice.

This whole thing is stupid. Without a doubt the majority of these employees could have walked anytime during the last year and gotten high paying jobs elsewhere. These employees were told by their government appointed boss that they would get paid if they stayed on and help clean up the mess. They stayed on, they've reduced AIG liability by a trillion dollars, they should get paid. And it turns out that the majority of people receiving bonuses are no more responsible for the CDS cluster fork than the janitors.
3.26.2009 1:03pm
David Welker (www):

I thought the law was about law and not about justice.


Of course the law is about justice.


We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.
3.26.2009 1:10pm
Ariel:
I'll repeat what I said on a previous thread, from the business perspective. One issue is that the unwinding has proceeded from $2.7T to $1.6T. Who will do the other half?

And imagine the job offer that would be involved here:

Job description:
- Unwind assets that very few people properly understand
- Once you're done, you're fired

Compensation:
- Nominal salary
- Bonus, depending on the whims of Congress

How many people would sign up for such an arrangement?

Meanwhile, in other news, Treasury wants private investors to team up with Treasury and FDIC to buy toxic assets, but promises, double secret special promises, not to take away the profits if they're "too high," whatever that means. Anybody believe them? And if you do believe them, why?

From a legal perspective, we should all be concerned if Congress can effectively invalidate contracts that it (or its antecedent that it purchased) at a whim. If Congress wanted to say no more retention bonuses for these folks, I don't think I'd have a problem with it philosophically - as a practical matter, it would still be hard to wind down the contracts, but at least they'd be respecting the rule of law.
3.26.2009 1:23pm
PubliusFL:
David Welker: From the Constitution:

No State shall ... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Even if you were right about the contracts clause being conceptually at play (and I would disagree with you) last time I checked, the contracts clause only applied to the states.


The 14th Amendment's equal protection clause has the same "no state shall" language, yet SCOTUS was clever enough to effectively apply it to the feds through the 5th Amendment due process clause. I wouldn't advocate applying the same principles to conclude that laws impairing the obligation of contracts violate due process, but it's not that much of a stretch.
3.26.2009 1:27pm
c.gray (mail):

Plus, they could have quit when the government took over. They did not.


They did not quit.

Even after being repeatedly assured by the CEO selected by the government that they would each be paid a retention payment, for a fixed sum specified in writing, for staying on board and helping to shut down a bankrupt operation with no future.

They stayed.

Even after the Secretary of the Treasury, with the knowledge of the President of the United States of America, successfully requested that the Chairman of the Senate Banking Committee insert statutory language specifically protecting those payments into the recently passed American Recovery and Reinvestment Act.

Clearly, after the above events, they were _complete_ _idiots_ for failing to realize that their bonuses were going to be the primary issue the taxpayers' elected representatives took with the AIG bailout, not the sums orders of magnitude larger being funneled to AIG's counterparties, such as Goldman Sachs, via an opaque, back-door process. How could they have been so blind?
3.26.2009 1:28pm
anonn:
Welker,

After putting words in my mouth, you almost make a good argument.

I don't think unelected judges should be idealized anymore than democracy should. That being said, when the government intervenes into everyday life in the name democratic process, I am glad to have a judiciary that limits the power. Ultimately I would rather have a government that did very little, but a judiciary that checks an overintrusive government is a second best.

As far as the definition argument, I never said they were "objective" or "out there," I simply pointed out that they are seperated into classes based on the way in which the income is earned, and for a variety of reasons (some of which you may object to), capital gains are taxed at a lower rate. They are taxed at this rate for everybody. The bonus "tax" is simply punishment (political grandstanding, actually).

As far as the constitution goes,yes, it provided a structure of government. A government with limited powers. The rights enumerated in the Bill of rights, for the most part. My previous post discusses the Bill of Rights, so I will let that speak for itself.

Furthermore, the consitution wasn't created to protect slavery. It was an unfortunate event that it did not abolish it, but so say that the purpose was to preserve it is utterly foolish. Also, the Dred Scott decision was wrong when it was decided and was a result of awful reasoning to reach a desired result. However, am I to assume that you believe that without a judiciary Dred Scott would have been free?

Maybe this time you will read what I said and respond to the substance rather than putting words in my mouth and pasting boilerplate arguments to rebut me.
3.26.2009 1:30pm
anonn:
My last post should read The rights in the Bill of Rights, for the most part, were presumed to exist without enumeration.
3.26.2009 1:32pm
ShelbyC:
David Chesler:


Classmates who were not as bright as I was have done a lot better in those fields. What are the special skills or abilities these millionaires have?


Well, the ones that make million dollar bonuses have the ability to perform services that people are willing to pay $1 million for. I have no idea why or what the services are. I just know that actor A would rather have service X that $1 million, and worker Y is able to perform service X and is willing to do so for $1 million.

You, me, or the UAW workers don't seem to have the ability to perform service X. We perform other services for < $1 million.
3.26.2009 1:38pm
Guest12345:

Of course the law is about justice.


We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.



From the footnotes in Wikipedia:


It is difficult to prove a negative, but courts have at times acknowledged this apparent truism. See, e.g., Boyer, 85 F. at 430 ("I venture the opinion that no adjudicated case can be cited which traces to the preamble the power to enact any statute.").


Please try again.
3.26.2009 1:46pm
Connecticut Lawyer (mail):
This isn't witch burning. That presupposes a level of rationality, an internally consistent belief system (evil is a physical reality that manifests itself in witches), which is not present here. All we have here is a lynch mob motivated by class hatred, stoked to the edge of madness by those doyens of the law, Messrs. Cuomo and Blumenthal.
3.26.2009 1:46pm
Curt Fischer:

David Welker: We all need law and order in order to live stable lives with some amount of predictability in order to facilitate planning and happiness.

More generally, I think you relying on the argument that "they benefit more" as a justification for progressive taxation is simply conceding too much.



I'm not sure how you have used my one argument for progressive taxation to impute my stance on the worthiness of all other possible arguments for progressive taxation. I don't wish to get drawn into a debate about what ALL of the possible arguments are. I just wanted to give one reason why Calderon's claims were absurd.
3.26.2009 1:49pm
Dan Weber (www):
The point of a strong Constitution and an independent judiciary is that they are supposed to mediate the abuses of democracy.

They don't always do what they should, and sometimes they can't act when we wish they would.

Also remember that "Constitutional" is not the same as "good" and that "Unconstitutional" is not the same as "bad."
3.26.2009 2:02pm
Seamus (mail):
Clearly, after the above events, they were _complete_ _idiots_ for failing to realize that their bonuses were going to be the primary issue the taxpayers' elected representatives took with the AIG bailout, not the sums orders of magnitude larger being funneled to AIG's counterparties, such as Goldman Sachs, via an opaque, back-door process. How could they have been so blind?

Indeed, one might say to them, as Otter said to Flounder: "You can't spend your whole life worrying about your mistakes! You fucked up - you trusted us!"
3.26.2009 2:08pm
ShelbyC:

Furthermore, the resources that happen to be controlled by the rich are, in truth, social resources. People who are rich do not acquire all that wealth as individuals, through their own actions as individuals. Instead they acquire it through deals and bargaining with other individuals. That is, through a social process.



Right. And they "aquire" it by creating it, in concert with other individuals, by making deals about how they're going to divide the wealth they create.

Is there an arguement that individuals that didn't share in creating that wealth are entitled to a share just by existing, or existing in a proximate region to the folks that created the wealth?
3.26.2009 2:10pm
ArthurKirkland:
Before we conclude that those who received (or were to receive) bonuses earned them, it might be worthwhile to consider whether there existed a complex, broad embezzlement scheme. If someone with authority to make compensation decisions for a business signs contracts awarding bonuses to employees (including himself and his friends) despite awareness that the underlying work being performed generates a nasty pile of gambling slips (credit swaps, shady mortgages, derivatives, underpriced assurances) that those in the know are merely pretending to view as worthwhile investments and revenue-generating financial instruments, the term "earned" seems misplaced.

I urge the government to hire top-flight lawyers -- plaintiffs' securities and mass tort lawyers strike me as the obvious candidates -- to examine every situation in which government funds have been deployed to address ridiculous financial mismanagement.
3.26.2009 2:27pm
Dan Weber (www):
ArthurKirkland, according to Libby's testimony, the employees receiving these bonuses were mostly not those involved in the selling of CDSs.
3.26.2009 2:37pm
David Welker (www):

Furthermore, the consitution wasn't created to protect slavery. It was an unfortunate event that it did not abolish it, but so say that the purpose was to preserve it is utterly foolish.


Really? Last time I checked, the Constitution protected the slave trade:


The migration or importation of such persons as any of the states now existing shall think proper to admit, shall not be prohibited by the Congress prior to the year one thousand eight hundred and eight, but a tax or duty may be imposed on such importation, not exceeding ten dollars for each person.


Also, Southern states were given disproportionate representation in Congress.

Finally, and quite significantly, non-slave states were required by the Constitution to return slaves back to their kidnappers:


No person held to service or labor in one state, under the laws thereof, escaping into another, shall, in consequence of any law or regulation therein, be discharged from such service or labor, but shall be delivered up on claim of the party to whom such service or labor may be due.


I think it is fair that protecting slavery is one of the purposes of the Constitution.


but a judiciary that checks an overintrusive government is a second best.


I am fine with an all powerful judiciary too. As long it always rules in a way that I agree with.
3.26.2009 2:45pm
David Welker (www):

The point of a strong Constitution and an independent judiciary is that they are supposed to mediate the abuses of democracy.


Really? Thanks for pulling this out of your ass?

You want to know what the purpose of the Constitution is? Read the preamble:


We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.


I don't know where the preamble says there is a special concern with "mediating the abuses of democracy."

By the way, whenever a democracy makes a decision I disagree with, that is an abuse.
3.26.2009 2:49pm
RPT (mail):
Clearly these AIG executives deserve the Medal of Freedom for their service to the country, or should we call it "mitigation of damages" for their efforts to fix the problems that they created (to the extent it is not Frank and Dodd's fault).
3.26.2009 3:06pm
David Welker (www):
Curt Fischer,

I know you are not talking about all possible justifications for progressive income taxation. But, I think that when you work so hard to battle for a particular argument, other arguments tend to fade into the background.

Further, I don't think I find your argument that the rich benefit more from law and order very persuasive. I think the poor as well as the rich benefit when they do not have to live a life that is "nasty, brutish, and short."

Think about Juarez, Mexico, where law and order has broken down. Do you think that most of the thousands of murders that occurred there last year were of rich people? I don't know the answer to that question, but I am willing to bet without looking at the empirical evidence that they were not.

What about the women factory workers in Juarez that were systematically kidnapped, raped, and murdered? Were they rich? Of course not. Are they not losing a lot (everything), even as much as a rich person loses, when law and order breaks down? I would say so.

Now, it is true that wealthy individuals do benefit more from taxation in certain instances. For example, when school districts are funded based on local property taxes, wealthier neighborhoods tend to have vastly superior schools. (I think this is also a matter of having fewer dysfunctional families with children in the school -- it is not just funding.) I don't think this is actually a good thing or something that better justified taxation. I think funding should be equalized for public schools across states.

Obviously, as a whole, public schooling disproportionately benefits those who are poor, since without it, their children would receive no education whatsoever, whereas the wealthy would pay for private education.

In general, I just don't think that linking benefit with the number of tax dollars paid by a particular individual is a wise rhetorical strategy. Such a rhetorical strategy does imply that expenditures which disproportionately benefit those who pay more taxes are better justified than other expenditures, all other things being equal. (Not that other justifications for taxation do not exist.)
3.26.2009 3:08pm
anonn:
Welker,

You need to distinguish between purpose and effect. I never said that the Constitution didn't protect the slave trade. The provisions regarding the slave trade and slavery were compromises to ensure the ratification of the consitution, so as to enact the purpose of the constitution as a whole.

You also continue to be deliberately obtuse in regards to the judiciary. I maintain that a strong, active judiciary is necessary so long as the government is intrusive. For all the judiciaries faults, it does to some limited extent curb some governmnet abuse. You continually use the phrase "all powerful judiciary," which is another example of putting words in my mouth. The judiciary today is active in ways it shouldn't be, but is passive when it should be strong (protecting rights).

Also, perhaps the preamble doesn't say "mediating the abuses of democracy" because democracy is nowhere mentioned in the document, and because securing the blessings of liberty includes curtailing government abuses, no matter what form they may take.
3.26.2009 3:11pm
ArthurKirkland:
I agree that it is likely that many of the current bonusees are not culpable. That is why I believe the bonuses should be paid (although some renegotiation, in light of the fact bankruptcy might have interfered with payment had the government dollars not intervened, might have been appropriate). That is why I believe we should sift to distinguish the honorable from the culpable. I expect to learn that the culpable have departed, riding a cushion of millions taken before their misconduct was disclosed. Those are the people with respect to whom I believe we should, as Mr. Burns would say, "release the hounds" (in the form of the plaintiff bar).
3.26.2009 3:12pm
Calderon:
Sadly, I had a longer post typed out that got eaten by the Intertubes. The Cliff Notes version is:

1. My comment about only flat or regressive taxes being constitutional mirrored the comment to which I was responding and was meant to be as "absurd" as that comment (though I think I lost and the first comment to which I responded is more absurd than anything I can come up with).

2. If you look at what's actually happened through history, particularly during feudalism in Europe, there's good reason to believe the poor benefit more than the rich from modern government. If modern governments were to collapse (obviously not very likely), the best historical model we could expect is for the wealthy to hire mercenaries, with a high likelihood of using those mercenaries to extract goods or labor from the surrounding populace. The idea that the rich should pay more taxes because government makes them better off than the poor is thus both "concern trolling" and false when compared to what would most likely happen in the absence of centralized, Leviathan governments.
3.26.2009 3:20pm
David Welker (www):
Back on topic.

With respect to the AIG matter, I don't have a problem with taxpayer dollars paying market salaries to executive with relevant experience.

But, this whole ridiculous game of paying yourself $1 in salary (to show that you are sacrificing!) and then huge and seemingly above-market (considering this economy and the number of laid of financial sector workers) "retention bonuses" is ridiculous.

I am not in a position to judge whether these bonuses, to the extent they substitute for a salary, were reasonable in light of market conditions or not. I suspect not.
3.26.2009 3:22pm
gallileo:

I urge the government to hire top-flight lawyers -- plaintiffs' securities and mass tort lawyers strike me as the obvious candidates -- to examine every situation in which government funds have been deployed to address ridiculous financial mismanagement.


I suppose it was too much to ask the congressmen who voted for the bill expressly allowing these bonuses to do a little due diligence first?

I think people are too blinded by the amount of money involved here--which more than I'll see short of winning the lottery.

If you don't make that kind of money, and you are unhappy about it, then you need to find a different line of work that does pay that much.

But imagine if the government promised you 10% of your current salary up front, and then 90% of it in a year if you finish the job. You have other opportunities, but this arrangement money looks as good as the others, and you like what you do.

Now, after you do the job, the government says, "We'll we didn't really mean that."

How fair do you think that is? Remember, fill in your own numbers here. Just because the AIG guys numbers are a lot bigger than yours doesn't change the fairness of the equation.

If the government--and especially congress--was unhappy with this arrangement, it shouldn't have signed off on it. Then everyone could have made their decisions properly.

The government didn't do its own due diligence, and now it pays. Obama and Congress are the ones to blame.
3.26.2009 3:22pm
David M. Nieporent (www):
How well did that work out for Louis XVI and Marie Antoinette?
Not well; they probably should have relied on private security rather than government employees to protect them.
3.26.2009 3:29pm
Ariel:
David Welker,

I'll repeat by reference what I wrote above. It's really a simple question - would you sign up for a job where your compensation was at risk of Congress taking it because the political winds are blowing in the wrong direction?
3.26.2009 3:31pm
RPT (mail):
Today's Washington Times:

"Don't believe everything you read. Because if you did, you might just think that Wall Street bankers and journalists are suffering disproportionately from job losses.

The truth?

"This is a blue-collar recession, just like we saw in '81," said Andrew Sum, professor of labor economics at Northeastern University. "In fact, we've seen no net loss among college graduates. At least not yet."

In the 14 months after the start of the recession in late 2007, more than 5 million jobs were lost. Close to 70 percent of them belonged to blue-collar workers - an overwhelming majority of whom were male - Mr. Sum said.

Hit particularly hard was the construction sector, where the unemployment rate is about 17 percent, he said.

So, why are the media portraying a different face of unemployment?

"Journalists are prisoners of their own perceptions," said Robert Lichter, director of the Center for Media and Public Affairs at George Mason University. "They describe the world they see, and the world they see is the neighborhood they live in along with doctors and professors."

In other words, journalists tend to write about the people with whom they identify most closely.

"It's a form of journalistic narcissism," Mr. Lichter said."

Ah yes, the "liberal MSM". Of course, these blue collar workers deserve their fate because, unlike the AIG execs, their work has little "market value". All they do is build things that the rest of us use, rather than push paper in transactions so complicated that only they can understand or unwind.
3.26.2009 3:39pm
Connecticut Lawyer (mail):
I don't know about the data nationwide, but I do know that the highest unemployment rate in Connecticut is currently in Fairfield County, and that is not blue collar unemployment, my friends, those are the folks who used to work for UBS, RBS, Sailfish Capital, AIG, etc., etc.
3.26.2009 3:45pm
David Welker (www):

You need to distinguish between purpose and effect. I never said that the Constitution didn't protect the slave trade. The provisions regarding the slave trade and slavery were compromises to ensure the ratification of the consitution, so as to enact the purpose of the constitution as a whole.


The whole Constitution is a document of compromises. We would not thus say that it has no purpose. At the end of the day, one of those compromises, which is purposely put in by someone, carries the day and that becomes one of the purposes of the document. Obviously, the Founders and Ratifiers of the Constitution had different purposes in mind when they came together to make the Constitution. But, at the end of the day, they had to compromise. And what they knowingly compromised on and where certain purposes prevailed, those can be said to be among the purposes of the document.

Putting protections in for slavery was done purposefully. It was not some unintended consequence. It was not some unknown side-effect.


I maintain that a strong, active judiciary is necessary so long as the government is intrusive.


And I also want a strong active judiciary as long as I can't get my way through democracy. For example, I want universal health care. And if I can't get it democratically, I want a strong active judiciary to order it and assert that they found a new right to health care in the Constitution.

If you think a "strong active judiciary" necessarily means a "libertarian" judiciary, I think you are seriously confused. If you think that the judiciary is only capable of checking government through its rulings and not expanding it, you are dead wrong.

You want more limited government? Convince your neighbors.

I for one find it continually amusing to see libertarian members of the Federalist Society in particular advocating for an activist judiciary.

But, it is not surprising. For libertarians, activism is only bad when it advances liberal goals. It is sort of like the filibuster. The President is entitled to an up and down vote on judicial nominations, as long as the judges are conservative or libertarian and nominated by a Republican President. If it is a Democratic President nominating liberal judges, filibusters are justified. Blue slips must be defended! Activism is bad, as long as the ends being advanced are those favored by liberals. But, if the judges are libertarian and have a special place in their heart for an expanded activist view of property rights. Well, that is just fine. And besides, we can always pretend that this imposition is part and parcel with our new fangled invented doctrine of "original-meaning originalism." (Having given up on original intent, we still have something to be self-righteous about!) There is absolutely no hypocrisy at all in using the judiciary to advance libertarian goals, but screaming at the top of our lungs self-righteously if we perceive it to be advancing liberals goals. None at all.


Also, perhaps the preamble doesn't say "mediating the abuses of democracy" because democracy is nowhere mentioned in the document, and because securing the blessings of liberty includes curtailing government abuses, no matter what form they may take.


Or perhaps you are engaging in pure speculation.

I am all for curtailing government abuses. (Where "abuse" is defined by me.) But, those who assert that it is the special place of the judiciary to curtail the democratic enactments of Congress and the President that it arbitrarily labels as "abuses" are, I think, seriously misguided.
3.26.2009 3:48pm
David Welker (www):

I'll repeat by reference what I wrote above. It's really a simple question - would you sign up for a job where your compensation was at risk of Congress taking it because the political winds are blowing in the wrong direction?


No. I could never imagine taking a risk in life. Heaven forbid. I mean, it is not as though I have marketable skills that would allow me to get another job. Basically, if you lose your job, your life is over.

Wait a minute? Wasn't risk-taking supposed to be that attribute that we celebrate in entrepreneurs and use to justify higher compensation for them?

Risk is part of life. I am not saying that risk should not be prudently minimized. But risk that originates from a political source is not uniquely bad compared to other sorts of risks. If you lose your investment, you lose your investment. It isn't going to be a huge amount of consolation that you lost your investment because the weather went bad or there was not in fact as much oil in that location you prospected because the risk did not originate in Congress.

All things being equal, should lowering uncertainty faced by investors and other stakeholders be a factor in policy making? Of course. Should it be an overwhelming factor in all circumstances? Of course not.

And by the way. I am all for minimizing the most important sort of risk that business faces. Namely, lack of law and order.
3.26.2009 3:58pm
ShelbyC:
@ David Welker, In order to show that protecting slavery was one of the purposes of the constitution, you have to show that:

1. Slavery was under some sort of threat
2. The constitution eliminated or mitigated that threat


All your examples show the Constitution protecting slavery from the institutions of the Constitution itself, for example, you show that the Constitution prevents Congress from outlawing the importation of slaves.

You don't cite any evidence that slavery was better off with the Constitution than without it.
3.26.2009 4:10pm
c.gray (mail):

[I]t might be worthwhile to consider whether there existed a complex, broad embezzlement scheme.


Why?

While it might be comforting to think some identifiable individual or group of individuals is responsible for AIG's losses via simple theft, is there any actual evidence such is the case?

The reality actually appears to be that AIG, like a large number of financial institutions spread world-wide, appears to have adopted strategies built around highly-leveraged investment in various schemes widely believed to have been rendered relatively safe by various new statistical modeling techniques. It turns out the models were wrong, risks were substantially higher than the models indicated, and various leveraged investments are being wiped out as the underlying assets and hedges are being revalued in light of more accurate assessments of risk.


To analogize to building, its as if a homebuilder (Lets say AIG Construction) started a home development on a flat space after a surveyor assured him it will never flood. They proceed to build the houses, market and sell houses on the site with this in mind. Every home has a finished basement.

A flood arrives a bit after most of the homes have been sold, and fills every home's basement with water. The water dissipates very, very, very slowly. Worse, because the site was NEVER supposed to flood, and was built with this in mind, its not clear the foundation of any the surviving homes can withstand another flood after the current one drains off.

It turns out that by "will never flood", the original surveyor actually meant the site was on a 100 year flood plain. Worse, the new experts hired to figure out how the flood happened, working in conjunction with the old engineer, are now claiming the area is actually on a 5-year flood plain and practically uninhabitable, let alone insurable.

Obviously, the homes are not worth what the current owners paid for them. These owners may FEEL cheated, but they're the victims of a huge mistake...not of fraud.
3.26.2009 4:18pm
EPluribusMoney (mail):
Let's see, the conservatives are saying that the government should honor contracts it signed and the leftists are trying to find any way, legal or illegal, moral or immoral to avoid paying "the rich." And most on the left don't even realize that the "bonuses" are going to people to undo the mess, not for creating it.

And did you hear that 1/4 trillion dollars is now at risk because two guys who lost their bonus quit. Way to go Congress!
3.26.2009 4:22pm
anonn:
Welker,

There is a difference between the judiciary preventing the government from action and the judiciary telling the government to provide universal health care. When the judiciary starts mandating universal health care from the bench, then it stops being a judiciary.

Also, thank you for the suggestion that I convince my neighbors to vote for limited government. That doesn't completely miss the point at all.

Its not a debate if you just paste my words and then ramble on on topics that don't adress what I say.
3.26.2009 4:28pm
c.gray (mail):

risk that originates from a political source is not uniquely bad compared to other sorts of risks.


No, its not. But perceptions of political risk in a society are uniquely within the control of the members of society's political establishment. And when an activity is perceived as risky, people demand substantially higher compensation in exchange for undertaking those risks.

So when politicians are throwing around million, billions, and occasionally, trillions of dollars in economic bets, does it make sense for them to _maximize_ the taxpayers' new counterparties' perceptions of political risks? Or to _minimize_ those perceptions?

Which has Congress been doing lately? Do you approve?
3.26.2009 4:51pm
MarkField (mail):

If you look at what's actually happened through history, particularly during feudalism in Europe, there's good reason to believe the poor benefit more than the rich from modern government. If modern governments were to collapse (obviously not very likely), the best historical model we could expect is for the wealthy to hire mercenaries, with a high likelihood of using those mercenaries to extract goods or labor from the surrounding populace. The idea that the rich should pay more taxes because government makes them better off than the poor is thus both "concern trolling" and false when compared to what would most likely happen in the absence of centralized, Leviathan governments.


I think this is only partly true. First, and most important, what would certainly change under feudal conditions is the nature of those who retain wealth. Instead of capitalists (good), we'd see criminal gang chiefs (bad). So, yeah, there'd still be rich folk, but those who are rich today would lose because they couldn't compete in a society where force is the measure.

Second, while the poor would lose (they always do), they lose less than the rich. See above.

What government does is set ground rules under which people can become rich by means other than force. That seems worth paying extra for.


Not well; they probably should have relied on private security rather than government employees to protect them.


Since the etat were them, the government employees WERE their private security.


@ David Welker, In order to show that protecting slavery was one of the purposes of the constitution, you have to show that:

1. Slavery was under some sort of threat
2. The constitution eliminated or mitigated that threat


There's another possibility as well, namely that slaveholders wanted to forestall future threats. That's what they did.

In any case, the importation clause fits even your narrow definition because the slave trade would have been halted sooner but for the clause and the Deep South knew it.
3.26.2009 4:52pm
Crust (mail):
Epstein:
Special taxes on some forms of income (but not others) ... merit strong condemnation.
That strikes me as a rather general way to frame it. For instance, does Epstein strongly condemn the fact that employment income is taxed more heavily than capital gains?
3.26.2009 4:53pm
Crust (mail):
EPluribusMoney:
And did you hear that 1/4 trillion dollars is now at risk because two guys who lost their bonus quit. Way to go Congress!
Way to go whoever set up a contract such that two people quitting could put $250 billion at risk! If that's really true, what were they thinking?
3.26.2009 4:55pm
PC:
Job description:
- Unwind assets that very few people properly understand
- Once you're done, you're fired

Compensation:
- Nominal salary
- Bonus, depending on the whims of Congress (between $100,000 and $724,000 after taxes, for 6 months of work)


Fixt, and sign me up! If I can write algorithms to decompose an n-dimensional matrix, I can probably unwind some complex gambles.
3.26.2009 5:19pm
David Chesler (mail) (www):

What are the special skills or abilities these millionaires have?



Well, the ones that make million dollar bonuses have the ability to perform services that people are willing to pay $1 million for. I have no idea why or what the services are. I just know that actor A would rather have service X that $1 million, and worker Y is able to perform service X and is willing to do so for $1 million.

You, me, or the UAW workers don't seem to have the ability to perform service X. We perform other services for < $1 million.


That's somewhat circular, same as if I asked you why a dinner at Robert's Steak House is worth a hundred times a dinner at McDonald's, and you told me it's worth it because people are willing to pay it. I'm about as free market as they come, but that doesn't mean there isn't something underlying.

I'm sure some of it is luck, some of it is cronyism and/or dues paying. I can maybe see it in a CEO, where not what he knows but who he knows can bring in investors to a degree that his salary is justified. Some of it is a willingness to work relatively long hours (12 hour days add up to more than 40 hours per week, but not more than a young doctor, or a programmer at a startup, or someone working two jobs.)

I'm not so concerned about these particular executives — I once got a 6-month-pay retention bonus for going down with the ship, and I was just an engineer — but what is it about them that they could have commanded a salary elsewhere such that anything near this was needed to retain them, what is it about executives elsewhere commanding similar compensation?

Unlike the UAW situation, there isn't the same kind of monopoly on labor. What's the barrier to entry to becoming a finance executive?
3.26.2009 5:19pm
David Welker (www):

Also, thank you for the suggestion that I convince my neighbors to vote for limited government. That doesn't completely miss the point at all.


It doesn't miss the point.

Because the proper way to advance your limited government agenda is not through the unelected judiciary getting all "creative" with the language of the Constitution. The proper way to achieve that goal is democratically.
3.26.2009 5:24pm
PC:
What's the barrier to entry to becoming a finance executive?

You have to have an obsession for coke and strippers and no sense of responsibility when you wreck the company you work for.
3.26.2009 5:25pm
David Welker (www):

There is a difference between the judiciary preventing the government from action and the judiciary telling the government to provide universal health care. When the judiciary starts mandating universal health care from the bench, then it stops being a judiciary.


Oh. I see. When the judiciary interferes with the democratic political process to advance your agenda, that is all fine and good. But if it interferes with it to advance some other agenda, that is bad.

I am just curious. What exactly are you going to do when the Supreme Court does something you don't like? Are you going to run to the Supreme Court building and scream "you are no longer a judiciary!" Like someone would care? That would be amusing.

I am afraid that this unprincipled one-sided judicial activism that you advocate just ain't going to fly.
3.26.2009 5:29pm
David Welker (www):

You have to have an obsession for coke and strippers and no sense of responsibility when you wreck the company you work for.


hilarious
3.26.2009 5:30pm
Dan Weber (www):
Really? Thanks for pulling this out of your ass?


Wow. Someone woke up on the wrong side of the web.

I stand by my point: in any country, you don't want a pure democracy. It blows.

A pure democracy is one where the majority decides one day that you die, and so you die.

I think the AIG tax bill is just like Proposition 8: a horrible piece of legislation that is nonetheless entirely legal. Both the AIG tax bill and Proposition 8 were done entirely democratically, but that has nothing to do with them being good laws.
3.26.2009 5:31pm
Guest12345:

But, this whole ridiculous game of paying yourself $1 in salary (to show that you are sacrificing!) and then huge and seemingly above-market (considering this economy and the number of laid of financial sector workers) "retention bonuses" is ridiculous.

I am not in a position to judge whether these bonuses, to the extent they substitute for a salary, were reasonable in light of market conditions or not. I suspect not.


Except it's not what the employee could get at market prices. Maybe many of these employees would only be able to receive $200,000/yr salary from somewhere else, it still requires quite a bit more than that to get them to sink with the ship. Becoming unemployed in June 2008 is looking a lot better than being unemployed in March 2009. If you want someone to take the latter, you have to make it worth their while.

Additionally, you have to look at how important these specific individuals are in maximizing the upside and minimizing the downside of the whole unwinding process. From one point of view the number's you should be comparing is how much liability have these people eliminated vs. their cost. Currently the numbers I've heard are something like $1 trillion vs. $165 million.
3.26.2009 5:33pm
David Welker (www):

Becoming unemployed in June 2008 is looking a lot better than being unemployed in March 2009.



You can't base any of your calculations on knowledge gained after June 2008 if that was the time these deals were made.


From one point of view the number's you should be comparing is how much liability have these people eliminated vs. their cost. Currently the numbers I've heard are something like $1 trillion vs. $165 million.


That is a faulty comparison. The right number is how much money they saved taxpayers by unwinding liabilities using whatever unique skills they bring to the table versus how much their replacements would have saved. It is perfectly possible that whatever replacements would have come to the table would have actually done a better job of unwinding. You have to factor in that probability as well.
3.26.2009 5:39pm
David Welker (www):
Dan Weber,

You can have any personal political views you like.

But, if you want to talk about the purpose of the Constitution, maybe you should actually, you know, provide evidence to support your point of view?

It is sort of a pet peeve of mine when people talk about the purpose of the Constitution without having any idea of what they are talking about.

It especially annoys me when people say that the Constitution is all about one thing (i.e. maximizing liberty) when the preamble itself makes clear that it is about many other things as well.
3.26.2009 5:42pm
Dan Weber (www):
That's probably why I said a strong Constitution and independent judiciary.

Both of those are very important checks on government power, whether or not that government power is "democratic."
3.26.2009 5:46pm
Xenocles:
"That's somewhat circular, same as if I asked you why a dinner at Robert's Steak House is worth a hundred times a dinner at McDonald's, and you told me it's worth it because people are willing to pay it. I'm about as free market as they come, but that doesn't mean there isn't something underlying."

Actually, nothing is inherently valuable. Value is entirely subjective.

Examples:

Lots of people value gold, but if I were starving in isolation and you gave me the choice between ten ounces of gold and ten ounces of rice I'd choose the rice.

If I have more food than I can eat, trade, store, or plant next year it becomes wastage, worth less than nothing because of the cost to dispose of it.

Putting bolts in a car is very important for car production, and cars serve a very useful purpose. Unfortunately, it's an extraordinarily easy task and there is a glut of people able to do it. The result? The price for that labor goes way down. Contrariwise, the number of people who can design a profitable car is much smaller. That's why engineers and designers get paid more than floor laborers.

Your example of a steak dinner is probably more nutritious than a value meal. It probably tastes much better, too. But even there we have subjectivity. I have a pretty insensitive palate, so anything over a certain threshold of quality will be wasted on me. (As a result, I don't ever buy wine more than $20 a bottle. It may be better, but I can't benefit from the difference.) So is the dinner worth $100? Probably not to me, but it may be to a gourmet.
3.26.2009 6:20pm
Guest12345:

You can't base any of your calculations on knowledge gained after June 2008 if that was the time these deals were made.


Fair enough. So this is what June 2008 looked like in general:

Economic snapshot June 2008.

And, AIG specifically:

AIG posts tens of billions of dollars in losses and dumps a CEO.

A reasonably intelligent person would have been able to see that AIG wasn't on the upswing and trends were down. Getting your place at a secure company early on is the prudent choice.
3.26.2009 6:23pm
Public_Defender (mail):
My posts contained hedges. I criticized Congress for bloviating. I conceded that there was at least an arguable point to those defending the bonuses on legal grounds. The WSJ article concedes that given existing case law, there are at least arguable grounds to recoup the bonuses.

But the reality is that we don't know if the people receiving the bonuses really earned them. Were the bonuses part of an arms-length honest negotiation? Or did they come from friends protecting friends? Or did they come from people misrepresenting themselves to get the contracts? Did any of the recipients participate in the downfall either by actively causing it or by ignoring warning signs and doing nothing? Many bonus supporters say that "many" or "most" of the recipients deserved the money, but what about the others?

These people got millions in taxpayer money. It's reasonable to ask that they show that they earned it.
3.26.2009 6:30pm
Xenocles:
"These people got millions in taxpayer money. It's reasonable to ask that they show that they earned it."

As I understand it, the only requirement for getting these things was to remain on the job until a certain time. The government implicitly approved this standard when it offered boatloads of cash to prop up operations. Congress later explicitly approved it with language in the stimulus bill.

Therefore, these people earned the money just by showing up. If you want higher standards than that the blame lies at the feet of the people who were supposed to provide oversight or at least a measure of discretion with respect to our money. AIG isn't pissing our money away, Congress and the Fed are by supporting their business as usual.
3.26.2009 6:38pm
Calderon:
MarkField said

I think this is only partly true. First, and most important, what would certainly change under feudal conditions is the nature of those who retain wealth. Instead of capitalists (good), we'd see criminal gang chiefs (bad). So, yeah, there'd still be rich folk, but those who are rich today would lose because they couldn't compete in a society where force is the measure.

I'm skeptical of that point, and definitely don't think it's "certainly" true that who had wealth would change. Especially if the current governments had a somewhat slow demise, the currently wealthy would be able to prepare and entrench themselves.

I'm also skeptical about criminal gang chiefs having that much of an impact, though there would probably be some. People have prospered and become rich under circumstances where the law and central government were much less effective than they are now, such as the US in the late 18th and most of the 18th centuries. Without governments, you'd have likely have "Order Without Law" situations than the "nasty, brutish, and short lives" that Hobbes envisioned.

The biggest concerns, touched on my initial post, would be wealthy people fearing that they need to recruit small armies to defend themselves, and then using those small armies to oppress those around them (in part to collect funds to help pay for the mini-armies).


Second, while the poor would lose (they always do), they lose less than the rich. See above.


Same, see above. The currently rich would be in a better position to replicate the services they receive from the government than the poor. If/where society stayed ordered, the rich would be fine but there would not be the government services that currently help the poor. If/where society became more violent, the rich would have been in a better position to hire guards to protect themselves.


What government does is set ground rules under which people can become rich by means other than force. That seems worth paying extra for.


Sure, and I'd think almost everyone would agree that we're better off with governments that regulate the use of force. (Though of course anarchists would disagree) It's the other stuff government makes people pay for (or overexpenditures on either external or internal protection) that's in question.
3.26.2009 6:42pm
Sagar:
PC: If I can write algorithms to decompose an n-dimensional matrix, I can probably unwind some complex gambles.

a lot of people have inflated opinions of their ability and worth (as in compensation they deserve). why don't you apply for a job and see if you can get one to "unwind some complex gambles"
3.26.2009 6:45pm
Sagar:
PC: you can also fib on your resume (just for kicks, even if it is against your ethics) that you do infact "... have an obsession for coke and strippers and no sense of responsibility when you wreck the company you work for."
and land an executive position.
3.26.2009 6:47pm
MarkField (mail):

I'm skeptical of that point, and definitely don't think it's "certainly" true that who had wealth would change. Especially if the current governments had a somewhat slow demise, the currently wealthy would be able to prepare and entrench themselves.

I'm also skeptical about criminal gang chiefs having that much of an impact, though there would probably be some. People have prospered and become rich under circumstances where the law and central government were much less effective than they are now, such as the US in the late 18th and most of the 18th centuries. Without governments, you'd have likely have "Order Without Law" situations than the "nasty, brutish, and short lives" that Hobbes envisioned.

The biggest concerns, touched on my initial post, would be wealthy people fearing that they need to recruit small armies to defend themselves, and then using those small armies to oppress those around them (in part to collect funds to help pay for the mini-armies).


The whole history of the Middle Ages is essentially one of local warlords demanding protection money, not the other way around. Yeah, at first the wealthy hired them, but eventually the thugs realize they don't need to be hired. Want, take, have. We tend to idealize the nobility of that era, but we really should think of the various counts and dukes as Mafia dons.

Frontier conditions in the US were marginally better -- but nasty and brutish all the same -- because people weren't that far removed from civilization. Not only did they grow up in civilized places and bring those habits with them, but they were physically closer to it than most of Western Europe from, say, 550-1100.
3.26.2009 7:00pm
gallileo:

Were the bonuses part of an arms-length honest negotiation? Or did they come from friends protecting friends? Or did they come from people misrepresenting themselves to get the contracts? Did any of the recipients participate in the downfall either by actively causing it or by ignoring warning signs and doing nothing? Many bonus supporters say that "many" or "most" of the recipients deserved the money, but what about the others?


These are questions to ask before the fact, rather than after. It is very likely your congressman and both your senators voted for the bill that authorized them.

If they failed their due diligence, they should be the ones to pay up. If you don't like that, vote 'em out.
3.26.2009 7:04pm
Public_Defender (mail):
And I think people misunderstood my OJ analogy. Since I didn't explain it, that's understandable. The result of the OJ murder trial was legally correct. But a guilty man went free because because government agents handled presented it incompetently. The same thing may be happening with the people who got tons of money from AIG while bringing it down.
3.26.2009 7:06pm
Public_Defender (mail):

These are questions to ask before the fact, rather than after. It is very likely your congressman and both your senators voted for the bill that authorized them.

If they failed their due diligence, they should be the ones to pay up. If you don't like that, vote 'em out.


Translation, "We may have snookered you, but it's your fault, and we ain't talkin'." That attitude is part of what makes so much of the public want to make the AIG people lose.

Even if the question is "how badly did Congress screw up," it still makes sense to investigate whether the recipients of the money deserved it. We won't know the answer unless we ask the question and demand an answer.
3.26.2009 7:12pm
gallileo:
"We may have snookered you, but it's your fault, and we ain't talkin'.


No, that is not what the AIG people are saying at all. You'll note that none of them think they snookered anyone. Congress, (and the American Public) think the bonuses were terrible and evil--when they explicitly--explicitly--authorized them.

But the fact of the matter is that very, very similar bonuses are routine authorized in bankruptcy proceedings, by judges who do far more careful analysis than the congress people did. It is completely reasonable for an AIG guy to look at that and expect it to be paid under a "usual and customary" standard.

If there was fraud or featherbedding in these bonuses, then fine, the perps should be prosecuted and sanctioned under normal fraud and securities law regulations. But you'll notice there is no accusation of fraud or featherbedding. At best its uninformed, "You shouldn't get bonuses for running the company into the ground." to the people who didn't run the company into the ground.

The general disgust with the bonuses is completely indiscriminate with regards to who got them and who didn't. The passionate desire for the clawback has nothing whatever to do with the negotiations in good faith that went on here.
3.26.2009 7:29pm
PC:
Sagar, I took your advice and checked if AIG is hiring for executive positions. Alas, they are not.

gallileo, someone is lying. AIG said they had to give these people bonuses because the swaps were so complicated that only these specific people could unwind them. Then we get an EVP from AIGFP who is quitting (and donating his bonus to charity) who said he knew nothing about the swaps and that the people that wrote the swaps are long gone. Something doesn't add up.
3.26.2009 7:42pm
Guest12345:

gallileo, someone is lying. AIG said they had to give these people bonuses because the swaps were so complicated that only these specific people could unwind them. Then we get an EVP from AIGFP who is quitting (and donating his bonus to charity) who said he knew nothing about the swaps and that the people that wrote the swaps are long gone. Something doesn't add up.


Actually he didn't say he didn't know anything about swaps, what he said:


I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.


Additionally there is knowledge beyond merely knowing what a swap is. It's knowing AIG business processes. It's knowing the relationships between AIG business units. So a person can not be responsible for selling swaps and still be the best available person to handle unwinding it all.
3.26.2009 8:01pm
gallileo:
PC,

No one is lying--at least that we know of. Try to use your imagination here a little bit:

In AIG's opinion:

A) There aren't many people in the world who know these swaps
B) You can divide the ones who do know about them into two groups:
1) the guys who completely blew it and are gone
2) some guys who understand them, understand our process, and have historically made millions for us with solid books of business that even made money in 2008.

C) We would really like to hold on to group 2.

Now, there might be other people out there who could do the unwinding, but there are extremely good reasons for an internal hire on this. It takes months to get people up to speed on the details of doing business inside a financial business like this. Months to figure out who to call to get this or that contract term explained.

I know the amounts are stunning. As I said before, I'll never see this kind of money except perhaps in a lottery win, but still, consider it with much smaller amounts, in a much different situation:

I offer to pay $20 to my teenage son when he is finished painting my fence. He paints it. I'm short on cash and pay him $20 out of my home equity line of credit.

Then, two months later, even though he did a reasonably good job, I decide that money out of the HELOC really shouldn't go to this kind of project. Because I'm his father I can raid his room and take back the money.

Does anyone really think that is fair?

Why would a larger amount change it's fairness?
3.26.2009 8:18pm
PC:
gallileo, I'm suspect about anything that comes out of AIG. They still have their Chief Risk(!) Officer on staff. He's been there since at least 2000.

As to your analogy, it would make more sense if you said you got into some financial trouble and asked your son if you could have the $20 dollars back. Then your son started stomping around the house, holding his breath, shouting and screaming about how unfair it is of you to ask for the $20.

Then he keeps the $20.
3.26.2009 8:33pm
Public_Defender (mail):

The general disgust with the bonuses is completely indiscriminate with regards to who got them and who didn't. The passionate desire for the clawback has nothing whatever to do with the negotiations in good faith that went on here.

And the general defense of the bonuses in these comments is also completely indiscriminate with regards to who got them and who didn't. The passionate opposition to the clawback has nothing whatever to do with the negotiations in good faith that went on here.

Maybe we all need more facts. And the argument that this is the way things have been done on Wall Street is not exactly the most persuasive line of defense.
3.26.2009 8:45pm
gallileo:
Public Defender:

On the contrary, the defenses--at least mine--all have to do with the rule of law. If you believe Liddy's statements that the people who did the damage are gone, then that leaves the government trying to shaft the people who didn't do the damage.

"Maybe we all need more facts."--you check those things out before you sign the contract, not after. If you don't trust Liddy to run the company without more oversight, then you have someone more carefully oversee him, rather than saying, "Oh yes, sure, give those bonuses out. No problem." Then change your mind later without any evidence whatsoever that these bonuses were handed out unethically.

I don't particularly think we should be giving these guys bonuses, and I would have no problem at all with not giving these guys bonuses--if that had been the deal the government had struck from the beginning. It wasn't.

PC:

To continue the analogy, the father didn't just ask for the money back. The father is threatening to take the money back by force and telling the son he is horrible for doing a good job at the pay rate they both agreed on.

Your idea that the father is in financial trouble doesn't apply at all. If the government's motivation were financial trouble, it wouldn't be going for the relatively palty 1.6 million, it would be going for the billions back it needed.

If the feds had given AIG $1000, the amount in the bonuses would be less than a dime. The motivation isn't financial here at all, it's just boohoohoo, we struck a deal we don't like any more. A deal that anyone with half-a-brain would know that the public wouldn't like, but we couldn't be bothered to carefully read the bill and think about its implications before we rushed to pass it.

And now we want to undo it with another bill we can't take the time to think about the ramifications it might have if we pass it too.

Great, no wonder government is disfunctional.
3.26.2009 10:26pm
ArthurKirkland:
I was not advocating the use of government-sponsored legal wolverines (securities and mass tort lawyers from the plaintiff perspective) to sort out what became of the government money. I advocate their use to determine whether that which precipitated the bailouts constituted wrongdoing that could generate recoveries and convictions.

The bonuses are irrelevant, or nearly so, to this inquiry. First, play the bonuses (absent extraordinary circumstances, following a genuine sifting of the honorable and culpable). Then, scour the landscape ruthlessly for wrongdoing, and send evildoers into bankruptcy, prison, or both.
3.26.2009 10:27pm
Elizabeth Bartley:
I don't see a response to the claim that bills of attainder were only prohibited to the states, so here it is:

(Article I, Section 9 - Limits on Congress)

The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

The privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.

No Bill of Attainder or ex post facto Law shall be passed.


Bills of Attainder and Ex Post Facto laws are *also* prohibited to the states in Article I, Section 10.
3.26.2009 10:29pm
JaredS:
Several people have commented on the fact that long-term capital gains are taxed at a different rate than ordinary income. This ignores the fact that capital gains are on nominal income, not real income. It would in my opinion be perfectly fair to treat the real income from capital gains (and other returns on capital) as ordinary income, but treating the nominal income as ordinary income amounts to a tax on long-term savings at nearly the ordinary income rate. It's simply absurd to say that someone selling who buys $10K of stock in 1960 and sells it for $100K in 2000 had $90K of income in 2000 dollars. (I am aware that the current situation does tax the real income from capital gains of a term slightly greater than a year at less than the ordinary income tax rate under ordinary conditions of inflation.)
3.26.2009 10:32pm
Morat (mail):

gallileo, I'm suspect about anything that comes out of AIG. They still have their Chief Risk(!) Officer on staff. He's been there since at least 2000.

Just to be fair to Chief Risk Officer's everywhere -- I believe many companies are required to have them, but nothing requires they be listened to. And even those that aren't required by regulation, companies like to have them around to look "safe and responsible".

Before I sack any given CRO for stunning incompetence, I'd like to look through his internal memos, emails, and presentations for the last five or six years.

I'm sure lots and lots of them would be cushy jobs filled by dull-witted relatives of the CEO, but I bet a sizeable number were filled by people who were routinely ignored and marginalized. Until the company failed, when they'd be blamed.

Strikes me as a thankless job.
3.26.2009 10:39pm
MarkField (mail):

I don't see a response to the claim that bills of attainder were only prohibited to the states, so here it is


Without re-reading the entire thread, I thought the claim was that the Contract Clause only applied to the states.
3.26.2009 10:54pm
David Welker (www):

Without re-reading the entire thread, I thought the claim was that the Contract Clause only applied to the states.


That is correct. I quoted more than I strictly needed to (that was just to lessen the number of ellipses in the quote) but my point, as my commentary made clear, was clearly about the contracts clause and not bills of attainder.
3.27.2009 12:42am
Public_Defender (mail):

On the contrary, the defenses--at least mine--all have to do with the rule of law. If you believe Liddy's statements that the people who did the damage are gone, then that leaves the government trying to shaft the people who didn't do the damage.


Emphasis supplied.

That's a big qualification. He could have a very narrow definition of "the people who did the damage." Did the experts who remained suddenly parachute in? How did they become experts in these securities without participating in creating the problem? If they were at AIG, were they ignorant of what was happening? Were they like the Enron employees who kept their head in the sand to ignore trouble signs?

Even if the contracts are binding and we can't get the money back (a big if. according to the Epstein article), we need an investigation to see whether our Congressional and executive branch leaders passed a stupid bill and approved unearned bonuses.
3.27.2009 4:29am
Public_Defender (mail):
For those of you who said this was different from GM because those employees were supposedly only negotiating away benefits for future work, this morning, NPR reported that GM workers are being asked to give up already earned pension benefits to help make the company eligible for stimulus money.
3.27.2009 6:30am
Smooth, Like a Rhapsody (mail):
So, in other words, the GM workers have a choice, right?

When the question becomes one of (like one previous poster said) asking workers to give back the bass boats they bought with previously earned wages, then feel free, by all means to bring back that analogy.


Does any sentient person think that if Ed Liddy had said to the workers: "Sorry, guys, but I can see down the road and I am going to catch 10 kinds of hell if I pay these bonuses that we explicitly agreed to..."
that the workers would have recovered their bonuses plus triple damages in a lawsuit for the nonpayment of unearned wages?

No one is saying that the bonus recipients deserve in some abstract a priori sense to recieve the bonuses. People are saying that there are ways that are legal and do not reek of demagogic quasi-fascism to have handled this; for instance--do not agree to the payment of the bonuses in the first place; or put the company into bankruptcy before the bonuses are paid out (although I think that the bonus recipients would be very close to the top of the list of creditors).
3.27.2009 9:35am
Smooth, Like a Rhapsody (mail):
error:
"that the workers would NOT have recovered"
3.27.2009 9:47am
gallileo:

[If you believe Liddy's statement is] a big qualification. He could have a very narrow definition of "the people who did the damage."


If you don't trust Liddy to pay the bonuses ethically and morally, then don't explicitly authorize him to do it. Or require additional oversight. Or something.

But don't act surprised and then sharpen up the pitchforks when he does something that is standard operating procedure in a bankruptcy proceeding.
3.27.2009 10:17am
ShelbyC:
Public_Defender:


For those of you who said this was different from GM because those employees were supposedly only negotiating away benefits for future work, this morning, NPR reported that GM workers are being asked to give up already earned pension benefits to help make the company eligible for stimulus money.




Who the heck is saying that this was different? Both AIG and GM should be held to legally binding contracts. Both AIG and GM are free to re-negociate their contracts, but GM probably has a lot more leverage to do so, so that makes re-negociation for GM a more realistic option.

Part of that leverage comes from the fact that Congress made re-negociation a requirement for receiving bailout money for GM but not for AIG. There's an arguement to be made that they should have done so, but they didn't.
3.27.2009 11:07am
Dan Weber (www):
And the general defense of the bonuses in these comments is also completely indiscriminate with regards to who got them and who didn't


Both angels and scoundrels are entitled to the rule of law.
3.27.2009 11:17am
Public_Defender (mail):

Part of that leverage comes from the fact that Congress made re-negociation a requirement for receiving bailout money for GM but not for AIG. There's an arguement to be made that they should have done so, but they didn't.

There's a good chance AIG will be back. So the question remains, do we demand that the employees give back the money or not?

Not demanding the clawbacks from AIG undermines any argument to demand them from GM. There is a popular perception, apparently justified, that Wall Street people get held to a different standard. They always find a way to get protection when others get thrown to the wolves.

The pensions GM is trying to claw back mean the difference between comfort and poverty (or near poverty) for many ex GM employees. Can you say that for the AIG bonuses?
3.27.2009 1:18pm
Crust (mail):
JaredS:
Several people have commented on the fact that long-term capital gains are taxed at a different rate than ordinary income. This ignores the fact that capital gains are on nominal income, not real income.
True. If you prefer, compare the tax on long-term capital gains to the tax on interest income (nominal interest income is taxed as ordinary income). Does Epstein think that disparity "merit[s] strong condemnation" as his statement would seem to imply?
3.27.2009 1:30pm
darrenm:

Unless he has seen and analyzed the contracts, which is not indicated, this is mere conclusion. They are not "valid" until they are challenged and a court find them so.

Wow. You mean my mortgage is not valid? My credit card agreement is not valid? My insurance is not valid? ..."until they are challenged and a court find them so"? I'd always thought it worked the other way, that they were valid until they were challenged and a court found them not so. Kind of like "innocent until proven guilty".
3.27.2009 1:32pm
darrenm:
The largest recipient of bailout money is the Federal Government. It's giving it's employees bonuses. Shouldn't this have an exhorbitant tax on it, too?
3.27.2009 1:41pm
Smooth, Like a Rhapsody (mail):
Pub Def

What difference does it make whether we are talking about giving $1 million dollars to each of 2,000 people, or $2,000 to each of 1 million people?

Again, the objection to the bonus clawback is the manner in which it was done. If the gov't wants to be an equity holder, it should play by the same rules by which other equity holders play. Ask a court to put the company into receivership; or file a shareholder derivative action alleging a fraudulent conveyance.

Also, again, the GM workers can say, "no", to the proposal that they surrender their pensions. The contracts pursuant to which the AIG bonuses were paid have been fulfilled--the work was done and the bonuses were paid.
Any AIG creditor(including, I guess, anyone with a pension plan overseen by AIG) is in the same boat that the GM workers are in.

How far back do you want to go to recoup money that AIG may have improvidently paid out?
3.27.2009 1:46pm
ShelbyC:

There's a good chance AIG will be back. So the question remains, do we demand that the employees give back the money or not?

Not demanding the clawbacks from AIG undermines any argument to demand them from GM. There is a popular perception, apparently justified, that Wall Street people get held to a different standard. They always find a way to get protection when others get thrown to the wolves.

The pensions GM is trying to claw back mean the difference between comfort and poverty (or near poverty) for many ex GM employees. Can you say that for the AIG bonuses?



Sure, if it benifits us to do so. But I'm not sure what leverage we have. With the GM folks, we can say, look, if you don't agree to reduced payments, the company's going to end up in the crapper and you won't get anything. If you accept reduced payments you'll be better off and GM will be better off.

Can you think of a similar arguement we can make with AIG? I don't think the folks have any incentive to give back bonuses already paid.
3.27.2009 1:53pm
David Chesler (mail) (www):
Gallileo:
Does anyone really think that is fair?

That would not be fair (asking the teenage son who painted the fence for the agreed-upon money back.)

Why would a larger amount change it's fairness?

It would not. But if you'd paid your teenage son $2000 to paint the fence I'd be curious why. (And I might be tempted to go into the fence-painting business if you assert that it's worth $2000 to have one's fence painted.) It's largely orthogonal to the fairness.

But if you put the touch on me (where I'm some sort of rich friend or relative) and say "I need $200,000 dollars to send my son to college" I might well ask why you've been giving him $2000 to perform tasks that other people would have done for much less. I understand you didn't want a stranger tramping through your house and asking what you meant when you say "Paint the fence we installed when the neighbor got a dog, and use the same color as Grandma's house is painted" but was that convenience really worth $1900, or did you have some other motivation, like wanting to give your son enough money to buy a car without looking like you were a source of free money, or like wanting to impoverish yourself so you'd be eligible for financial aid?
3.27.2009 2:03pm
Calderon:
Public Defender said:


For those of you who said this was different from GM because those employees were supposedly only negotiating away benefits for future work, this morning, NPR reported that GM workers are being asked to give up already earned pension benefits to help make the company eligible for stimulus money.


I'm not an ERISA attorney, but I have worked with pensions. ERISA has an anti-cutback that prohibits decreasing benefits that participants have already earned in defined benefit pensions. See 26 U.S.C. § 411(d)(6); 29 U.S.C. § 1054(g); Heinz v. Central Laborers’ Pension Fund, 303 F.3d 802, 804-05 (7th Cir. 2002). Similarly, employers and plan participants cannot reduce accrued pension liabilities by agreeing to reductions.

So, unless there's a pension/ERISA attorney who can explain how "already earned pension benefits" can be reduced by GM, I'm skeptical of this story. Pensions earning can be reduced on a going forward basis, but what employees have already earned cannot be reduced to my knowledge.
3.27.2009 2:14pm
Public_Defender (mail):
AIG gets the $$$ because they screwed up so big that they threaten to bring others down with them. The poor GM workers can't hurt enough people to blackmail us. I get that. The public gets that. But that means that the public will be lookng very carefully at how that money is spent. The moral outrage of having high bonuses questioned rings hollow.

Look, I understand that you sometimes need to pay more than the minimum to fill a position. You could put warm bodies in chairs in my office for $40K, but they wouldn't be good enough and they would quit often. Heck, we have a hard time keeping anyone more than a few years as is. Welcome to working for the government. Higher-skilled positions make less than the private sector, lower-skilled positions make more.

But with AIG, I see no evidence that these high bonuses were actually needed to retain the employees (the word of AIG bigwigs doesn't count). I see no evidence that the employees earned the extra money. Compensation on Wall Street has been detached from long term performance for years, so the public justifiably won't accept "trust us" as an answer.
3.27.2009 2:17pm
Careless:

But with AIG, I see no evidence that these high bonuses were actually needed to retain the employees (the word of AIG bigwigs doesn't count). I see no evidence that the employees earned the extra money. Compensation on Wall Street has been detached from long term performance for years, so the public justifiably won't accept "trust us" as an answer.

And you've seen no evidence that these people didn't have other job options and did not earn their incomes. You're trying to take people's earned income out of ignorance.
3.27.2009 2:31pm
Smooth, Like a Rhapsody (mail):
As I understand the scenario, the recipients "earned" the bonuses by sticking around and doing their jobs for the specified time period (foregoing salary during that time). How much more "evidence" do you need?
3.27.2009 2:38pm
darrenm:

Also, Southern states were given disproportionate representation in Congress.

Are you at all familiar with with the concept of 'compromise'. The Constitution specified a slave was to be considered 2/3 of a person for the purpose of determining representation. Not 0 (as 'free' states wanted). Not 1 (as slave states wanted). It was a compromise. Would it have been better to just have 13 separate nations? I wonder how long slavery would have lasted, then.
3.27.2009 2:47pm
ShelbyC:
Public_Defender:

But with AIG, I see no evidence that these high bonuses were actually needed to retain the employees (the word of AIG bigwigs doesn't count). I see no evidence that the employees earned the extra money. Compensation on Wall Street has been detached from long term performance for years, so the public justifiably won't accept "trust us" as an answer.



What careless said. I have absolutely no idea if the bonuses were earned. Even if I had all the information I wanted about the bonues I wouldn't know how to determine if they are fair.

But I don't have any evidence that they were illegal. If they were, we have a system for dealing with that. It involves judges and juries.

But we don't have a system where legislators determine after the fact whether a negociated arrangement is "fair" or not, and taxes it all away if it's not.
3.27.2009 3:58pm
gallileo:

But if you put the touch on me (where I'm some sort of rich friend or relative) and say "I need $200,000 dollars to send my son to college" I might well ask why you've been giving him $2000 to perform tasks that other people would have done for much less. I understand you didn't want a stranger tramping through your house and asking what you meant when you say "Paint the fence we installed when the neighbor got a dog, and use the same color as Grandma's house is painted" but was that convenience really worth $1900, or did you have some other motivation, like wanting to give your son enough money to buy a car without looking like you were a source of free money, or like wanting to impoverish yourself so you'd be eligible for financial aid?


I see your point, but the fact that these sort of bonuses (in these amounts) are normal for a bankruptcy makes it not analogous to the situation.

And if congress really doesn't think what those guys did was worth the money, then they shouldn't have authorized the bonuses.
3.27.2009 4:01pm
Public_Defender (mail):
Calderon,

The story said that the union is being asked to negotiate away the benefits in return for government money.


But we don't have a system where legislators determine after the fact whether a negociated arrangement is "fair" or not, and taxes it all away if it's not.


Um, yes we do. It's called oversight. It happens all the time after government spends money.


And you've seen no evidence that these people didn't have other job options and did not earn their incomes. You're trying to take people's earned income out of ignorance.


Then let's hold hearings and find out. Bring the employees to testify. Subpoena their records. Get the answers.
3.27.2009 7:18pm
ShelbyC:

Um, yes we do. It's called oversight. It happens all the time after government spends money.


Really? You have examples of the governemnt passing a retroactive tax on individuals because the legislature wishes it hadn't spent some money?
3.27.2009 7:42pm
AnonLawStudent:
I always wonder how people with enough time to make a half dozen or more blog posts (during business hours, no less) are so knowledgeable about the appropriate level of pay for specialists in derivatives and credit default swaps. Perhaps Congress or a state attorney general should investigate... It might even be fair to retroactively impose a special tax on the over-inflated salaries of these commenters. It's also quite interesting that these same people think they are qualified to do work of a similar complexity.
3.27.2009 11:15pm
David Chesler (mail) (www):
if congress really doesn't think what those guys did was worth the money, then they shouldn't have authorized the bonuses.

Good enough, but closer to the reality is that some of us citizens would feel better about our representatives if we understood why they authorized the money. But what we get is a dog and pony show designed to make us think they're trying to undo the decision, and maybe denying that they made the decision (to pay the bonuses, to allow them to be paid, whatever) until we move on to something else and forget about it.

Is there a good explanation anywhere about what it is these guys do so much better than other people that they command the compensation that they get? Setting aside these particular people unwinding AIG, but the entire industry.
3.28.2009 12:54am
Public_Defender (mail):
Anonlaw student,
I only post from my home computer. I am amazed about how much work time some people appear to spend on these posts. I took some time off, saw an interesting thread, and posted. While we're on the topic, even to take a little time off, I have to document, document, document. That's really all I'm asking of people spending billions of taxpayer money. There's a lot of accountability that comes with government money that doesn't come with private money.

As to my question of whether $1.4 Billion in legal fees for a bankruptcy was a good idea, I would hope that the system would question whether $1.4 billion in legal fees is the best use of creditor's money. That's just another example of very wealthy people who want to send a bill to others no-questions-asked.

ShelbyC,
I don't know of another "retroactive tax increase," but Congress frequently looks at how federal money was spent after the fact. Maybe we can't get the AIG bonuses back. Maybe we shouldn't get them back. But it would be an insanely bad idea not even to look to see how the money was spent. If the money was properly paid to people who had zero role in the mistakes of AIG for work well done, the recipients should be proud to explain how they earned the money.
3.28.2009 4:32am
Calderon:
Public Defender said:


Calderon,

The story said that the union is being asked to negotiate away the benefits in return for government money.


I'm fine with believing that's what NPR said, but the media get legal issues wrong all the time.

As I said above, to the extent the NPR story said the UAW was being asked to cut back on existing, already earned pension benefits, my understanding of the law is that it can't be done. Their pensions can be frozen, or the amount that they earn in the future can be reduced, or (what often happens when there's a prospective pension change) their pensions may be effectively frozen for a while and then start to increase again when the new and reduced pension formula catches up with their old level of benefits. But their existing earned pension benefits cannot be reduced. (Unless the pensions undergo a distress termination, but I'm not aware of that occurring outside of a bankruptcy)
3.28.2009 10:24am
nicestrategy (mail):

This whole thing is stupid. Without a doubt the majority of these employees could have walked anytime during the last year and gotten high paying jobs elsewhere.


Is that because of their merit, or because of their inside information that their new employer could use to play arbitrage with CDOs being underwritten by the people of the United States?

The AIGFP group was incredibly irresponsible and they threatened the economic future of millions of people in an effort to leverage their position for millions more in personal gain. Legal or illegal, these people are disgusting, reprehensible villains. If we have to pay extortion money so they don't take down the entire system, then we'll pay. May they rot.

Interdependence makes libertarian economics ridiculous. Why on earth should I pay for the mistakes of greedy derivatives traders? Because they'll &^%$ us over even harder if we don't?

USA! USA! USA!
3.28.2009 8:29pm
ChrisTS (mail):
Mark and Calderon:

I'm puzzled by an assumption that you both appear to make in discussing the comparative dependency of the rich and poor on a stable legal order: i.e., that what constitutes 'wealth' under our existing system would continue to be counted as 'wealth' after the break-down of the system.

Much of what the currently well-off ‘have’ is money. Money is what the system determines it to be: this kind of paper and not that, these bits of metal and not those. Indeed, the wealthy in our nation have most of their wealth in the form of electronic money - money on the books but not in their pockets.

To be sure, many of the wealthy also have things - land, houses, boats, cars, jewelry. But those things are also only of value because of the social and economic system that exists. A fabulous glass house in the desert is not of much use when there is no running water and no electricity. With what will the post-social collapse rich pay their private armies? As Mark observes, once the thugs realize they can just take what they want, they will, and who has most of what used to be called ‘money’ will be irrelevant.

That said, I do want to distinguish my point from an earlier poster’s. Some valuations are genuinely subjective; that is, they are entirely dependent on the personal interests and situation of the valuer. Don’t much care about the quality of wine? Then the quality of wine is not an important value question for you. But there are other ‘value objects’ that are not subjective in this sense. Clean water is always of value to humans, even if the circumstances of some humans make it of less relative value than something else. If you have lots of clean water but no food, then the water is of less relative value to you than food is.

In other words, there are some objectively valuable [good and evil] things and conditions, even though their degree of importance is relative to situational particulars.
3.28.2009 9:40pm
Public_Defender (mail):

This whole thing is stupid. Without a doubt the majority of these employees could have walked anytime during the last year and gotten high paying jobs elsewhere.


I've heard this claimed, but never proven. What's your evidence that this is true?

The bottom line is that if you are going to get six or seven figures of US taxpayer dollars deposited into your bank account, you should be able to explain what you actually did to deserve it. If you got it according to a contract, you should be able to explain why the contract was a good commitment of taxpayer dollars.

All I see here and elsewhere from AIG defenders is "Trust us, we earned it. We'd explain it to you, but you're too stupid to understand. So, just trust us."

Given AIG's history, and the history of pretty much every other "expert," "trust me" just doesn't cut it anymore.
3.29.2009 2:28pm

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