That 90% tax on bonuses

The House passed a bill that would tax some of the Wall Street bonuses at 90%. That's a very high tax rate. It's almost as bad as the "There’s one for you, nineteen for me," in the Beatles' "Tax Man." Supposedly the Beatles actually faced a 95% tax rate.

I doubt the 90% tax rate is going to survive. Obama seems a little hesitant. It's definitely punitive, and I don't like legislation that comes out of anger. I think this will be seriously modified in the Senate.

What I am hoping will happen is that raising the top marginal tax rate will suddenly look a very moderate and modest move. You don't like 90% for your bonus? How about 39% on your total income? Much better, no?

And thus, hopefully, we will come a little closer to eliminating the deficit.

Obama on AIG: "I'll take responsbility."

President Obama talking today about AIG: "I'll take responsibility."

And the crowd goes wild:

One job I do not want

The one job I would really hate to have right now, even though I am sure it pays very well, is head of marketing at AIG. Really, really happy I don't work in that department today. Just thrilled about that. AIG has spent decades building a reputation as a responsible, sober insurance company. Insurance companies are supposed to be good at evaluating risk. In just a few months they've become a symbol of risk management gone spectacularly bad, and then in just a couple of days they have become a symbol of unchecked greed. Millions of people who had never heard of AIG now associate it with the worst of the crisis.

It's almost too bad AIG isn't paying bonuses right now, because people in the marketing dept. there deserve combat pay just for showing up to work. I'm sure they didn't get AIG into this trouble, but they're sure paying the price.

Those AIG bonuses

So AIG paid some bonuses while they were taking billions of dollars in government money to avoid bankruptcy. Wow.

Like about a gazillion other people, I am pissed off about this, but not too pissed off; in the grand scheme of things, this doesn't surprise me that much or bother me much more. $165 million is not that much money compared to what we're spending to keep AIG afloat, and I think I am just not that surprised any more at the sheer stupidity and greed of people on Wall Street. I'm saving my anger.

What I am surprised at is the stupidity of whoever wrote these contracts. I can understand incentives in a contract: make X amount of money, and we will pay you Y bonus. I have no problem with that. But apparently these people wrote contracts that promised payment of bonuses even when they clearly DID NOT make X amount of money. They must have written contracts that did not take into account the fundamental ability of the company to actually pay the money promised by the contract.

AIG does not have $165 million to kick around. We have lent them tens of billions of dollars. They will make the argument that if they don't pay people, they'll leave. Fine. Let them leave. Then hire someone else and give them incentives to clean up the mess. Right now there are lots of unemployed investment bankers out there. I have no problem incentivizing people to clean up a mess. I have real problems with paying people for failure.

One ancillary question running through this debate has been: can we get the money back? How about taxing the bastards? Megan McArdle asked Laurence Tribe about the technicalities involved in that. I don't think it would be a good idea to target these people particularly. I think Obama is going to wait until the argument swings to whether or not we should raise the capital gains tax, or the top tax rate on the wealthy. He's going to have a fair amount of ammunition. The Republicans argue that the private sector is a better steward of money than the government. Right now, that is just laughable.

First thots on the current financial crisis

The crisis in the financial world has exploded so quickly that it's hard to keep up. I haven't been too surprised by the latest turn of events. I've been hearing rumors of Lehman's imminent demise for a while. I didn't know that AIG was in as much trouble as it was, but, then again, apparently neither did anybody else. I had a strong suspicion that the bailout of Bear Stearns wasn't the bottom. This, however, damn well better be the turning point.

One quick observation: I'm glad that, in one respect, George W. Bush did exactly the same thing as Bill Clinton: picked a former chairman of Goldman Sachs as Treasury Secretary (Clinton's choice was Robert Rubin, Bush's was Henry Paulson). I'm not sure I agree with Paulson - jury's still out on exactly what he's doing - but at least he projects a sense that he knows what he's doing, and he's capable of making decisions quickly. At this point, I think I'm glad that Bush seems almost irrelevant to managing this crisis. We should be thinking of Bush at this point in terms of the Hippocratic Oath: first, do no harm.

The terms of the debate are already taking shape: how much oversight should the government have? Decisions made in the next few weeks will have reprecussions for years, if not decades. Obama is coming down on the right side.

• No blank check.
• Rescue requires mutual responsibility.
  Taxpayers should be protected.
• Help homeowners stay in their homes.
• A global response.
• Main Street, not just Wall Street.
• Build a regulatory structure for the 21st Century.

Thank God Democrats control Congress. Otherwise this could easily be pretty much a straight bailout of irresponsible bankers.

My gut reaction comes down to this: the two driving forces on Wall Street are greed and fear. Everybody in finance knows that. Crises develop when one dominates, and is not balanced by the other. As people are successful, fear recedes, and greed takes over.

The purpose of regulation is to serve as a controlled and constant application of fear, to counterbalance greed.