Arrogance, incompetence

The House of Representatives voted 328-93 on Thursday to levy a 90 percent tax on all bonuses paid to employees making in excess of $250,000 at firms receiving $5 billion or more in government funds under the Troubled Asset Relief Program, known as TARP. A similar bill is likely to pass through the Senate.

The proposed retroactive tax comes after American International Group’s announcement last weekend that it planned to honor $165 million in bonuses paid to employees in its financial products division, which dealt extensively in the credit default swaps largely responsible for causing the financial system’s collapse last October.

On cue, Congress devolved into a three-ring cirque d’soapbox, with seemingly every official within a 10-mile radius offering a seething sound bite for replay on cable news.

Iowa Sen. Chuck Grassley, for instance, went so far as to echo the pitchfork-wielding sentiments of those who have sent death threats to AIG employees, recommending they commit suicide as he apparently imagined a typical Japanese businessman would.

On Wednesday the House Financial Services Committee, led by chairman Massachusetts Rep. Barney Frank, spent hours blasting AIG CEO Edward Liddy about the bonuses and demanded their immediate repayment, threatening a subpoena of the names of recipients if Liddy was not forthcoming.

It is not hard to agree with Congress addressing this outrage. Certainly the anger over the insurance giant’s gross misuse of the $173 billion dollars it has received in order to stay afloat is warranted.

That the group most responsible for delivering economic catastrophe onto the backs of the American taxpayers could be handsomely rewarded for their mistakes is appalling.

However, Congress’ nitpicking over mere millions in bonuses is misguided, if not downright disingenuous. A multi-trillion-dollar economy hangs in the balance. Put in context, the bonuses constitute a mere 0.1 percent of the money lent to AIG as part of the bailout.

Disgusted as everyone is, AIG is still on the hook to repay as much as $173 billion in loans and guarantees at a generous 8.5 percent interest rate, even as the government continues to hold an 80 percent ownership stake in the company.

As opposed to berating AIG, Congress should be doing everything in its power to ensure AIG’s full recovery. For better or worse, the health of the economy depends on it.

By levying this tax, Congress has created the perverse incentive for the institutions most in need to flee the bailout program.

Likewise, employees at institutions affected by the tax might choose to take their knowledge and skills elsewhere.

Rather than offer a comprehensive fix for a financial system currently teetering on a tightrope, Congress has found a whipping boy to mask its culpability in a no-strings-attached bailout that many of its members signed off on.

If our political leaders were genuinely concerned about punishing incompetent, overcompensated employees with a hand in the current crisis, they wouldn’t need to look further than the nearest mirror.