Rethink the simplistic moral outrage over AIG

Interesting article -

I remember the television series "West Wing" fondly. In addition to great performances and fun and compelling story lines, the show occasionally hit upon some fundamental truths about American politics. None truer than this - politicians win with 10 word answers. The American public, for whatever reason, seems to accept 10 word answers to complex problems as if their simplicity is a hallmark of truth.

As the situation with AIG demonstrates, they could not be more wrong. In recent days, as we search for people to point fingers at to mask our own complicity in the greed and deception of the past 20 years (yes, I think we should bail out the guy making $35,000 a year who bought a $600,000 house), I am amazed at how such complex matters are reduced to short, simple "truths" that are neither simple, nor are they truth. They are politics at their worst - playing to fear and the need of every person in
trouble to have someone else to blame.

Let's take a look:

Moral Outrage #1 - AIG took taxpayer money and paid out $160 million
in bonuses.

Complex Truth - Compensation structures in that industry call "bonuses" what most of us would call deferred compensation. As one commentator pointed out, "Jenny" gets hired for $300,000 - $100,000 in salary and $200,000 in a "bonus" if she meets certain personal performance standards that have nothing to do with company performance.

She is, for all intent and purpose, a $300,000 a year employee. She has a mortgage, credit card debt, and other obligations all consistent with being a $300,000 employee.

Now what happens if she suddenly has to give back $200,000? Simple, she
defaults on her mortgage, defaults on her other debt, and probably declares bankruptcy. Few people who work for a living (sorry, Mr. Obama, Jenny is not "rich") could take a 66% pay cut and survive. Jenny will become part of the financial problem instead of part of the solution. I would note that many UAW employees just voted against concessions that include giving up a mere $600 Christmas bonus.
So, let's take away all AIG bonuses, and watch more individuals collapse financially.

Moral Outrage #2 - Banks paid $17.1 billion in bonuses for 2008.

Complex Truth - A great whipping post, only everyone forgot until the mayor and governor of New York spoke up that the city and state collected nearly $1 billion in tax revenue from these bonuses. Pull on the bonus thread and the city and state of New York suddenly cannot pay their bills. Oops. Suddenly we begin to see that every financial decision has ripples. You cannot cast stones without creating them.

Moral Outrage #3 - Citigroup Ordered a Corporate Jet.

Complex Truth - This one irked me too until I read about Gulfstream starting to lay off employees. When we hold up things to moral outrage, we often forget that someone builds those corporate jets. If we make buying them our 10-word moral outrage for the day, the workers who build them lose jobs.

Moral Outrage #4 - People Making Over $200,000 a Year Should Pay More Taxes.

Complex Truth - Being wealthy at $200,000 or $250,000 a year is a fallacy. If these incomes come from salaries and bonuses (see above) these people work for a living. Moreover, making $200,000 a year in Montana is very, very different than making that same amount in New York or San Francisco. But most important, the less net income these people have, the less they buy. Ask the sales associate at Best Buy who loses his job in the big screen television area if he wants "rich" people to bring home less money.

I could go on and on, but you get the point. We have Detroiters marching against the Cobo Hall deal because they simply do not understand it, and have been whipped in to a frenzy by an equally ignorant group of council members.

A female in this state is incompetent to consent to sex before the age of 16, but if she kills someone at 13 she can be tried as an adult. Soldiers can fight and die at 18, but can't be trusted with a beer until 21.

So, before people express moral outrage because CNN or Carl Levin tells them to, they might want to think about the next 10 words in their thought on a subject. Too often, moral outrage ignores the complexities of our world, the consequences of that outrage, and the real reason for it - the need to blame someone else for our
circumstances.

Gary Bazydlois the general counsel for real estate development company Schostak Bros. Write to him at TalstonMorior@yahoo.com.