Easily Distracted

Some connected capstone thoughts about various debates on the AIG bonuses and related matters:

1. It’s fair to say that I’ve been a bit flip about the continuing market value of expertise within AIG and related businesses which have received TARP funds (or, in fact, those which have not). Nevertheless, I think some pretty harsh skepticism is important, and I’m still fairly gobsmacked at the degree to which some writers take it at face value that it is vitally important to have highly experienced personnel working at AIG-F.P. and other similar enterprises and to compensate them at very high levels accordingly. Or the degree to which they trust the assurances of people inside those businesses that they possess that kind of expertise.

If there’s one thing we all can see about this crisis, it’s that people with this allegedly vital expertise are the ones who made catastrophic mistakes in the first place.

Over at Megan McArdle’s blog, one commenter objected to my devaluing of expert knowledge in AIG-F.P. by saying that it’s crucial to continue to employ people who know the value of the assets involved.

Problem: the people who are employed there didn’t know the value of the assets they were dealing with before all this happened. That’s why we’re in this mess. Even if they didn’t directly work with credit-default swaps, a lot of experts in those businesses didn’t seem any more alert to or knowledgeable about the true character of those investments before the house of cards collapsed.

When experts get things this wrong, I need to hear more from them than “I wasn’t involved” in order to believe that their expertise remains indispensible. The analogy I made at Megan’s blog was to many high-level experts in the politics and economics of the Soviet Union during the 1970s and 1980s. Very few of them, looking back, seem to have noticed or understood the dynamics that led to the eventual collapse of the Eastern Bloc and the Soviet state, even right up to beginning of those events. I can understand that. That lack of understanding didn’t seem to humble a lot of those experts, or make them rethink their general practices or methodology. I went to a conference on ethnic identity in the early 1990s where several prominent former Sovietologists were key speakers, having moved into this new field to become important prognosticators and policy advisors. They seemed to me to be just as wrong in some disastrous ways about this new field of expertise, but more importantly, not a single one seemed to have given up an ounce of the hubris with which they had previously applied to knowledge about the USSR.

So far what I see mostly among financial experts is, “Some other expert got it wrong, my knowledge is intact” or “markets just do this kind of thing every once in a while, funny old world ain’t it” or “actually I was right about everything, it’s just that the unwashed masses did a bunch of stupid things that I never thought they’d do and screwed up all my really quite correct analysis”. So I think some skepticism about the high market value of that kind of expertise remains legitimate.

This is not a skepticism that I apply only to financial expertise. Long-time readers of this blog know it’s something I worry about constantly within my own professional world.

2. I feel like there is an asymmetry in public discussions about how and when we feel obligated to think about the interactions between systems, agency and individual responsibility. I’d like to think that I care about those interactions all the time. I would certainly like to care about them all the time. However, I know I have cases where I’m more inclined to maximize individual culpability for actions and cases where I’m more inclined to stress systematic or institutional causality.

I think there are reasons why I have those inclinations. For example, I think the more social or economic power you have as an individual, the more culpable you are for how you use it. (Consider this the Spider-Man theory of society.) Because I know I have this bias, I also agree that it’s important to look at the institutional, systematic and habitual worlds around the powerful. I’ve long argued that this is one of the problems with cultural studies, cultural anthropology and social history. Those fields often act as if the social and institutional contexts of power are already well-understood or known simply because the powerful often represent themselves so forcefully through documents, texts and other expressive culture. If you’re interested in the ethnography of everyday life in a small farming village in southern Africa, you should be just as interested in forging an ethnographic understanding of neoliberal development experts in Washington DC or in the upper reaches of postcolonial bureaucracies, and in both cases, treat the subject as something that you don’t know about in advance of doing ethnographic work. (There are practical problems in studying the powerful in this way, but that’s a different problem.)

However, to flip this around, I find it disconcerting when commenters argue that we have to sensitively appreciate the systematic and institutional pressures operating within the world of someone like Jake DeSantis and then proceed to argue that underwater mortgages are very simply understood as the collective stupidity of greedy or ignorant people for which they are entirely culpable.

Conservative and libertarian writers often sneer that liberals are too obsessed with social explanations for behavior that privilege underlying or structural preconditions, but I haven’t noticed that they’re any less inclined to those explanations when they’re well-suited to their ideological priors.

3. Building off my second point, I guess I’m struck by the way the discussions of the AIG bonuses tends to reveal one’s predispositions of sympathy and trust. While a lot of loosely libertarian writers tend to believe in the wisdom of crowds as a general construct, some of them tend to view the wealthy with a tautological reasoning that if you’re wealthy, you must have done something right, and ergo, your representations about what you did right (or what you didn’t do wrong) are trustworthy until proven otherwise. If you’re just an ordinary schlub earning an average salary, that makes your representations of why you’re in the situation that you’re in somewhat untrustworthy: you must have done something wrong at some point.

It’s a kind of Calvinist libertarianism: you don’t have to prove that your work has produced wealth because you’re talented; if you’re wealthy, you must have been so. The elect know they’re going to heaven because they’re the elect: what they do in life matters not so much.

I really do think that some people get ahead in the world because of talent, insight, drive, skill and so on. And if I can be really simplistic for a moment, I think in an ideal world that’s the way it should be. But clearly also there are people earning a great deal who are in that situation because of dumb luck or pedigree or because their industry has locked in structural advantages that overflow their coffers with so much cash that they can’t help but dole it out in buckets to every employee. Or because they’ve effectively stolen those earnings from other people through legal, institutional, economic or social chicanery.

I’m not saying that there should be some great redistributionist crusade until we’ve limited wealth to the “deserving rich”. All complex social systems generate parasitic as well as constructive niches. I am saying that we shouldn’t just trust that everyone who is earning $750,000 after taxes did work or contributed expertise that has that actual value to a free-market economy. You could call that the Catholic branch of libertarian or free-market thought: not only prove that you are indeed doing good (value-creating) deeds in the world, but be anxiously humble and vaguely guilt-ridden about whether your proof is adequate to that challenge, be concerned about your sins and shortcomings. This is why a lot of the talk about “going Galt” and other extreme Randian flavors of libertarianism seems so utterly silly to me: the people who talk that way come off as so utterly certain of their own membership in the elect, their own superiority. If they’re not rich yet, they’re sure that’s because society or government is keeping them down.

4. Just an observation from studying games. Players may accept and tolerate a rule that puts them at a disadvantage as long as they think that adapting to that rule is possible and open in theory to any player. However, there is nothing more likely to absolutely enrage the players in a game than a late change in the rules engineered by a player who previously benefitted from the earlier ruleset but is now being harmed by it. This is especially true if it’s felt that the earlier beneficiaries were cheating, or something close to it.

I think as far as risk and consequence in free-market economies go, this is precisely what’s happening right now. This is why I do think it’s absolutely right to be infuriated by post-bailout compensation at TARP-receipient companies even if it’s not right to come up with complicated clawback mechanisms. In this sense, there is nothing minor about the way in which the players who took the biggest risks now want to change the rules so that people who avoided risks get stuck with the consequences.

In short, for anyone who wants financial capitalism to continue to exist in some form similar to what is has been, this is an important moment to lose this round of the game by the rules that you previously argued legitimated your victories. If the reason why you were entitled to huge gains in the last twenty years was because you took the big risks, now’s the time to accept that the pain coming your way should be exactly proportionate to the gains of the past.

If you want a very real-life example, the computer game Diablo 2 was a wildly popular multiplayer game when it first came out. The game’s creator, Blizzard, was indifferent to the proliferation of cheating and exploitative behavior. The result: eventually people either cheated or left. Many people chose the latter. This left the cheaters with each other, and an ecosystem that is all wolves, no sheep, tends to dwindle down to a small number of permanently famished wolves. (This is one reason Blizzard is now so intensely vigilant about cheats and exploits in their current flagship product, World of Warcraft.)

5. I think we’re all afflicted with some really messy, unresolved views of the moral and rational meaning of contract, obligation and negotiation.

There was a story a while back about a University of Florida professor who has a 1/1 teaching load with some administrative responsibilities who was fighting pressure from her administration to teach an additional course because she was hired with an explicit contractual agreement that her teaching load would be 1/1. I suspect that most of the people who rained down outrage upon her and called upon the university to break that contract by whatever means necessary might be the same people arguing that AIG and the federal government have to make good on their contract to Jake DeSantis and pay what they agreed to pay. The reverse is probably equally true, however.

In both cases, some of those who argued that contract is legally sacrosanct also agreed that the contract in question was unwise, foolish or morally reprehensible. I think that’s actually a fine combination of arguments: that contracts should stand, but that we can continue to talk about how unwise or problematic they are, perhaps in order to discourage such contracts in the future. What makes a contract unwise or immoral, however, tends to be something that most of us tend to have contradictory thoughts about.

In any case, where this gets even messier is when we come to believe that the consequences of an existing contract are so disastrous or unwise that efforts should be made to convince the parties to such a contract to renegotiate its terms. I actually felt that the University of Florida professor in question should really step back and think about the harm that her contract does her own institution and her larger profession, and that this should condition a willingness to add an additional course. But for the same reason, I’d say it’s perfectly legitimate to argue strenuously to AIG-F.P.’s remaining staff who are owed large retention bonuses that accepting those bonuses not only harms their own company but the society as a whole. Making those arguments strongly while staying clear of any implied threat to compel parties to contract to do the right thing is clearly a tricky business.

Dear Mr. DeSantis:

Thank you for your heartfelt resignation letter printed today in the New York Times.

I would be remiss if I did not reply with a few comments. Since your company is now effectively owned by the government to which I pay taxes, consider this a reply from one of your employers.

You concede that you and your colleagues may have been overcompensated overall for your work in the past. You’ve worked ten or twelve-hour days in the past few years, and your division of AIG-F.P. made a profit. You do not discuss the exact compensation you received during those previous years. Yet in this year, after your company as a whole has suffered a catastrophic failure, has received massive amounts of public funds and your work has consisted of dismantling your company’s financial products division you believe you have earrned your after-tax compensation, paid in the form of a “retention bonus” of $742,006.

Again, that’s your after-tax income, being paid by a company which lost more money than any other business in history, after it came close to destroying the entire global financial system. I don’t work the same hours you do, and I don’t produce profit for a company as you once did, but that’s just shy of a decade’s worth of work for me. And I’m exceptionally well-compensated in comparison to 90% of working Americans.

I appreciate that you’re going to give away this money to charities working to undo the damage your company and others caused. Respectfully, may I suggest that you don’t understand that many of us believe that if you reaped the benefits of your company’s risky conduct, you should be exposed in equal measure to its failure. This should not just mean that you lose whatever value you held through AIG’s stock, but that your compensation this year should reflect your company’s failure. The fact that there is anything at all available to compensate you is a consequence of your company being bailed out by the American taxpayer.

You observe that you should not be cheated of your payment any more than a plumber who fixed the pipes should be robbed of payment if an electrician subsequently burns the house down. You might want to make that analogy more precise. If the plumber who fixed the pipes was employed by the same contractor as the electrician, worked on the pipes while the electrician was connecting the wiring to the plumbing system, and watched as the electrician laid a trail of flowing gasoline between all the homes in the neighborhood, then the plumber might reasonably expect that his own payment might be at risk.

Yours,

Tim Burke

A lot of what I have to say in the following post echoes Paul Krugman’s column today.

There has been a chorus of tut-tutting in the punditocracy about the furor over the AIG bonuses, with many Very Serious People saying that we just have to get over it, that the bonuses are unimportant in the general scheme of things, that we have more serious issues to worry about.

A lot of this finger-wagging reminds me of the last group of Very Serious People who insisted that anyone who was against invading Iraq was a wild-eyed leftist dinosaur, that accepting the need for the invasion was a precondition of being a Very Serious Adult.

The scolds are even doing some of the same kind of willful misrepresentation and misconstrual of the arguments they’re dismissing.

Yes, I agree that there are grandstanders going after the AIG bonuses in nakedly and crudely political terms, who have no other point in mind. (Charles Rangel, for example.) But a lot of the concern about the bonuses is just using them to illustrate some larger concerns about the entirety of federal economic policy from the late Bush Administration to the early Obama administration. It’s not wrong to worry about a drop in the bucket when the bucket is under a roof with a ton of leaks in it.

Talking about the bonuses is a way to raise much deeper questions which virtually no one in Washington (or any of the Very Serious tut-tutters) seems prepared to discuss.

1) The management of AIG, investment firms, banks, and most of the financial sector got themselves into the mess they’re in, and thus the mess we’re in, by making consistently bad decisions guided consistently short-term sensibilities. They operated by thinking first, last and foremost about their own immediate gains. They’re in the mess that they’re in because they had no hesitation to rip off society at large in order to cover their own bad risks, because they did everything they could up to the limit of grey-area legality to cover their own asses at everyone else’s expense.

This is not because they’re uniquely evil human beings. It’s because that’s the omega state of financial capitalism at the moment, the way the entire institutional apparatus is structured. Most of these managers were doing what made sense in their businesses, their professional world. They were trained to do it, rewarded for it.

So where are the details about how those managers are changing the way they think and act? Where’s the guarantees that a more prudent, long-term manner of calculation has been established? What safeguards are being put into place to govern how they spend the funds they’re receiving? How is the structure of the business that nearly wrecked the global economy being changed by the people in those businesses?

When people complain about the AIG bonuses, this is largely what they’re asking: how do we know that these huge sums will be spent responsibly, given the evidence that the people who are doing the spending have been among the least responsible institutional actors in the entirety of our economic and social world over the last decade? There are no real assurances, no details, no safeguards coming from Geithner’s office, any more than there were from Paulson’s. There doesn’t even to be a political recognition of the need for such assurances: Geithner, like many of the Very Serious People, seems to feel that we need to let him get about his business, because there’s a world to save and only the people who really know the details can be given access to the plan.

Tell me why the people who made so many terrible mistakes, operating from so many flawed premises, with so short-sighted a view of the consequences, are now the people who can be trusted to correctly use the enormous resources flowing through their institutions.

2) President Obama concedes that part of the problem is a “culture of greed”. So, ok, it’s the culture, stupid. How do you change culture, how do you shift norms, how do you change everyday practices? Generally, by persuasion, by rhetoric, by modelling of norms, by shunning and mockery, by ritualizations of new habits. Only secondarily at best do you change culture by setting new rules or establishing new laws.

So when people rise to complain about the “culture of greed”, this is precisely what they’re up to: they’re trying to make it difficult to carry on with business as usual. They’re saying, “If you want to be CEO of one of these businesses, you’ll need to be mindful about the business first, the society second, and your own grabby need to have a six-bathroom mansion third.” This is how we collectively enforce an idea of public rectitude, of responsibility to society: by complaint, by popular anger, by using words to tar and feather the scoundrels. Does that kind of anger sometimes sop over onto targets who don’t deserve it? Yes. Does it sometimes involve profound ignorance about how things actually work in the institutions being targeted? Yes. Is it ripe for demagogic misuse? Sure. But despite those risks, the best way to really shift a pattern of normative behavior is through public attention to bad behavior, through hitting the reset button around what is considered moral, proper practice.

3) The anger at the AIG bonuses is being stoked by the lack of any ideas at all about the long-term reform of the financial sector, or the economy in general. This is Krugman’s point today: where’s the vision thing? Obama and Geithner have had virtually nothing to say about the medium-term future of any of the institutions that they’re trying to save. In Krugman’s view, that’s because they think those institutions are basically sound, and just need a bit of temporary propping up to be ok. Like Krugman, I think that’s completely wrong.

Tell us where we’re going in the longer run. Shareholder capitalism has become an utter joke at this point: tell me how we reform it so that when you buy shares of a company, you’re invested in that company and its long-term prospects, not just pushing all your chips in on red and watching the roulette wheel spin. Tell me how we get boards that represent those kinds of shareholders, and have fiduciary responsibilities to those long-term owners that are legally and morally binding, who are the skeptics who challenge CEOs and management, not collude with them. Tell me how we safeguard the aspects of this economy where the risks that businesses take are risks that we are all exposed to, so that those risks aren’t being taken without our willing consent. Tell me how we make sure that the biggest gamblers lose only their own chips, so they go home broke while the rest of us sleep secure at night when we don’t choose to gamble along with them.

Give us all a comprehensive blueprint for how you reform the whole damn thing and stop worrying about the delicate sensibilities of the people who robbed the system blind in the first place. If they want to hold the Dow Jones hostage, double-dare them to go ahead and shoot their hostage. 400 points up, 400 points down, it’s not what matters.

And if what Obama needs to do in order to get to that kind of reform is to get rid of Geithner or his economic team, fine. One of the other things that a lot of Obama voters expect from the President is that he won’t stick by his staff past the point at which they’ve made errors of judgment or action that are too grave to ignore. That’s the cronyism and naked political calculation of the last eight years (arguably, of much longer). “Change” means jettisoning that kind of calculation as well. Either Geithner will rise to the occasion and help craft a vision of reform that concedes that much of the system as it stands is broken, or the President will need a different advisor with different capabilities.

I get it. If I’m promised a pony and a rainbow by a politician when he or she is running for office, I shouldn’t expect much more than some horseshit and downpours after the election.

I’m an adult. I don’t expect magic solutions.

I do expect progress where delivering the goods is not about magic solutions or free lunches. Here are two areas where the current Administration is tilting towards failure for me.

1. Transparency on the economy in general and on bailouts in specific. Geithner is so far little different in his approach to this basic commitment than Hank Paulson. I do not buy that secrecy about the flow of resources into the financial system is a necessary precondition of the success of Administration policy. So far, in fact, every single disclosure about the joint Paulson-Geithner plan is showing that secrecy actually retards the effectiveness of government action. Either you understand that sunlight is cleansing as a basic matter of principle or you don’t. So far the Obama Administration is giving every sign that they don’t understand, and see transparency just as a buzz word.

2. Cutting back executive power to previous structural limits and boundaries. I’m so far deeply disappointed with the Administration’s approach to detention and other national security matters. What it increasingly looks like is that their strategy is to selectively engage in limited policy reforms while retaining the underlying infrastructure of Cheney’s claims about executive authority during a time of endless national emergency, e.g., to act like “enlightened unlimited executives” rather than to abjure the basic concept of limitless authority. Now if you’re one of those right-wing blatherers who had no problem with this concept when it was the Bush-Cheney Administration, kindly go stuff yourself, because you weren’t paying attention when we were pointing out the long-term structural danger this sort of claim posed. On the other hand, if you were worried about this sort of claim under the last Administration, every day that the Obama Administration fails to decisively dismantle it is more and more alarming.

I always tell my students to ask what seem like stupid or naive questions, since they’re often important or profound questions instead.

So let me ask a series of dumb questions about subprime mortgages. I understand somewhat the problems that bundling them into securities ended up causing, but I’m still puzzled about the basic idea of a subprime mortgage.

Let’s say you’re a lending institution back in the 1990s or early 2000s. You give customers who have very strong credit records generous interest-rate terms on mortgages or other loans because you recognize that they have very little chance of defaulting on the loan. Presumably you do this because you’re trying to attract those customers away from other institutions who would also like to have them as customers? These loans give you guaranteed long-term income, which makes you willing to shave your profit margin on each individual loan.

At some point, you run out of these customers. So you start thinking about customers whose incomes or credit situation makes them a bigger risk, because you don’t just want to sit upon deposits in your institutions, you want to make money with your money by loaning it out. Here’s where I get really confused, presuming that the previous paragraph isn’t already confused.

As the customer gets riskier and riskier, you make the terms of the loan more and more punitive, though you might sweeten the deal with favorable initial terms to entice the subprime customer into accepting the medium-term pain.

I guess the idea here is that you try to make as much profit as you can off the loan for as long as it lasts? Wasn’t it understood that the more punitive the terms of such a loan, the more likely it would be to cause a risky customer to default over the medium to long term?

If this was well understood by the institutions making subprime loans, weren’t they explicitly pursuing the ramping up of short-term profits off of subprime customers desperately trying to keep up with high interest rates with an equal understanding that many of these loans would default as a result in the medium-term? If so, I can only see one way that would make sense as a business strategy (leaving aside the moral nastiness), and that’s if you assumed that the lending institution would be able to get immediate value from reselling defaulted assets, e.g., that the value of housing and property would continue to go up indefinitely over the medium and long-term. E.g., you were deliberately squeezing customers who had few choices because of their risky profiles and then planning to make money again when they defaulted.

If it was not well understood that more demanding or punitive terms for loans to riskier customers would likely accelerate medium-term defaults, why wasn’t it well understood?

Are there any major American lending institutions out there that took the opposite approach, and looked for riskier customers with some long-term positive potential in order to offer them even more generous terms than they did prime customers in order to add to the base of loans producing secure if small long-term returns?

That’s something of the idea behind microlending, after all, but microfinance emphasizes social welfare returns as well as the financial health of the lending institution. E.g., that by improving social welfare as a whole, lenders create an increasingly positive economic environment for them to be lending profitably to a wider base of customers. Kind of the finance capital version of the Fordian bargain.

Am I missing something fundamental?

I had to run some errands this afternoon, and was in a bit of a hurry. Otherwise I think I would have stayed in the car and called in to NPR’s Talk of the Nation to disagree vigorously with Charles Calomiris, an economist at Columbia University, who argued that public anger with AIG bonuses is an unnecessary distraction and that there isn’t really a strong case for taking away the bonuses anyway.

Three basic things seemed wrong about Calomiris’ position on AIG.

1) Calomiris argued that the public, including himself, are too remote from the AIG situation to judge properly whether the bonuses are deserved or not, and as a result, it’s best to leave the matter in the hands of people within the company, as they know best. In particular, he pointed out, AIG’s current CEO wasn’t in charge when the company suffered its losses, and so his judgment isn’t tainted by that failure.

This is a bad and rather trite kind of defensive argument that can be used to defend virtually every kind of policy or action from public scrutiny. It’s true, of course. In the same way that if I was not present at the scene of a crime, or indeed, if I was not the criminal who did the deed, I don’t truly understand what happened. In fact, many of us don’t even understand our own actions, let alone the actions of others. If Calomiris means to be veering off into the kind of solipsism that makes one unable to judge anything at all, I guess he’s welcome to do so, but there’s no reason to talk about AIG as anything special if that’s the case. But if human beings are capable of making reasoned judgments from a distance, then the AIG case also doesn’t seem special. I think the public knows enough to know that the managers of the London unit deserve no bonuses. Surely some members of the U.S. government should know enough at this point, given that it now owns the company.

2) It’s not too surprising to find out that Calomiris is a fellow at the American Enterprise Institute. But I will be surprised if the day comes when he or anyone else at AEI adjust their general line to accomodate the implications of his remarks on AIG.

Calomiris argued that traders have small base compensation which is topped off by bonuses in order to incentivize them to make more money. Fine. He seemed to have a hard time closing the circle: the flip side of that system is accepting that risk has its consequences. I have no problem with the proposition that AIG’s many accidental counterparties should be saved from risks that they never agreed to or were aware of. I have my retirement funds in a money market account and have for some time precisely because I valued safety over what seemed to me to be enormous risks in other kinds of funds. (Not to brag, but it turns out I had a point.) If AIG’s catastrophic risks had rebounded upon me and others like me, that would upend the entire idea that there is a reasonable way to manage your investment risks in this economy: the 21st Century equivalent of a large empire letting trade caravans be ambushed at will by bandits.

But AIG’s traders should expect to suffer personally for the risks they took. That’s the whole point of accepting a compensation package with a small base salary and a large bonus potential. The moment Calomiris concedes that this is intended as an incentive to perform, he must accept that it exposes those who accept it to risk. He doesn’t, of course. Risk exposure and consequences are for peons. There’s no way to take him or anyone like him seriously unless they announce that they’ve rethought this whole exposure-to-risk thing completely and they concede that it’s a lousy way to run a society or a company.

3) Another apostasy that Calomiris should be confessing to, given his remarks, is a reconsideration of whether labor markets can be left on their own to judge the value or worth of individuals. He argued that you’ve got to leave AIG alone and pay the bonuses because there people there in the London unit who are just too valuable and if they’re denied their bonuses, they’ll probably walk. (Now who’s micromanaging?) Where’s the hard-nosed thinking about labor markets that capitalists are supposed to be so good at?

Let’s say you’re in the London unit of AIG, and you were one of the professionals who oversaw the credit-default swaps that killed your own company. I grant you have a valuable special expertise when it comes to unravelling your own failures, but what’s your market value in general? Let’s go over a few of the relevant points to consider before you quit in a huff and put your resume up on Monster.com: 1) your entire industry is in the toilet and you’ll be competing with thousands and thousands of other job-seekers and 2) your most recent and relevant professional experience is the destruction of your own company in a line of business that is now likely to be treated by global governments roughly the way that Rome treated Carthage. If you’ve got a long history in the business before you were working on credit-default swaps, you’re probably an expensive hire and your old experience is likely not too valuable in a rapidly changing world. If you’ve got a short history, you’ve got nothing else to show an employer that’s worth the trouble of hiring someone whose career now smells like a six-day old whale corpse in the summertime.

So you really want to quit when they don’t give you your bonus? Right now I’d say your only strong value is to the company you screwed up, so if I were you, I’d take whatever they’re offering and suck it up. I shouldn’t have to walk someone with Calomiris’ alleged expertise through this pretty basic bit of economic realpolitik.

——————
Sure, pissing about AIG’s bonuses is populist grandstanding on some level. Beneath the momentary gratification of looking for villains, however, there are some more serious principles at stake. If you’re the kind of person who argued that folks who take economic risks should accept the consequences and that labor markets dictate the value of skilled employees, you should be the first person throwing rotten tomatoes at bonus payments to any managers at any of the bailed-out companies. The companies themselves are the front lines where risk and markets are being tested. But people like Calomiris are in a great rush to punish the innocent bystanders who took few or incidental risks instead, all in the name of “making tough decisions”.