Tuesday, March 17, 2009

A Class Of Its Own

When General Motors begged for bailout funds, the federal government demanded that the company get its house in order first. So GM went to its unions and renegotiated key elements of the labor contracts, including pay scales and benefits such as health care for its retirees.

When the city of Sacramento faced an unsustainable budget shortfall, it went to its police union and renegotiated that labor contract, resulting in the union agreeing to waive the pay raises that were coming due so that there would be no officer layoffs.

When AIG came back to the feds for a brazillion more dollars to stay afloat, the government cheerfully complied, and at least $150 million dollars in bonuses were paid to the executives who caused the very problems that put the international insurance company on the brink of bankruptcy, and, this time, the feds did nothing, citing the sanctity of contracts.

The "center-left" editorial board of the Los Angeles Times noticed the disparity and published an editorial today that mostly got it right when it came to the Obama administration's handling of the matter.

After decrying the stumbling response of the Obama team to the outcry over those bonuses, the editorial points to just why people are so angry:

There are at least two lessons in this episode for policymakers. First, when Washington saves a company from bankruptcy, it interrupts the painful but necessary process of restructuring a failing firm. Had Washington allowed AIG to slide into bankruptcy in September, a federal judge would have been empowered to cancel the bonuses regardless of contracts. ...

And second, although it's good for firms to pay employees based on their performance, AIG and many other financial industry players rewarded short-term successes with no regard for the long-term outcome
. ... [Emphasis added]

What both the prior and the current administration have done is accept the notion that financial executives are more important than the little people who work under their supervision, i.e., the rest of of us, so much more important that rules do not apply to them. Those executives are entitled, as the editorial put it, to their "heads-I-win, tails-I've-already-banked-my-bonus mentality." We are entitled only to offer up whatever benefits we do have so that we can retain our jobs.

And, while the rest of us are fired for egregious mistakes, financial executives are entitled to shrug and then cash their bonus checks because for a brief period of time, their shenanigans made the quarterly earnings report look rosy.

I noticed that several of the national papers are reporting that AIG has increased security at some of their buildings. That just might be one of their few good ideas.

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