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Tax on AIG bonuses: Congress shouldn't confuse pandering with policymaking

David Greising

March 20, 2009

I didn't like the AIG bonuses. You didn't like the bonuses. Even AIG Chief Executive Edward Liddy didn't like the bonuses. Add up the outrage, though, and it still doesn't mean there oughta be a law.

It is a mistake to confuse pandering with policymaking, but that hardly stopped Congress on Thursday, when the House voted to impose a 90 percent tax on bonuses paid to recipients of federal bailout money. The main target: the $165 million paid to some 400 people at American International Group whose trading in junk mortgages and other financial arcana wrecked the insurance giant and helped imperil the economy.

Congress could not achieve a bipartisan consensus while passing President Barack Obama's nearly $800 billion stimulus package, bailing out Detroit or helping struggling homeowners. But on the AIG bonuses, House Republicans clenched fists alongside House Democrats and voted a tax big enough to make the bonuses disappear.

This sort of disruptive micro-meddling is exactly what goes wrong when government gets too involved in the economy. The House action is the public-policy equivalent of removing a sliver with a monkey wrench.

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The madness is just getting going. Next up: The drama over Treasury Secretary Timothy Geithner.

Geithner has been Treasury secretary for all of—what?—52 days now.

That's the time it has taken for Geithner to fall from being the "essential man" to dangling by a thread. Before, he was the person so uniquely qualified to save the economy that Obama and Congress overlooked his tax problems and gave him the job. Today, the knee-jerks say, he has failed and will have to go.

There is no doubt Geithner has disappointed. On his first major policy address, way back in February, the stock market tanked practically from the moment he drew breath. On the AIG bonus issue, he was inexplicably out of the loop.

It was a gross mistake, for example, to rely on the Federal Reserve to deal directly with AIG. Fed Chairman Ben Bernanke apparently failed to relay news of Liddy's outrageous decision to pay bonuses to the AIG saboteurs. But Geithner did get the news in time to express his ire to Liddy, and the AIG chief cut the checks regardless.

Obama correctly noted Wednesday that no Treasury secretary has taken office at a tougher time since Alexander Hamilton had to design the U.S. financial system while struggling to pay Revolutionary War debt. And Hamilton didn't have to deal with cable news networks broadcasting the stock market ticker whenever he spoke in public.

Obama did Geithner few favors, though, by hiring the larger-than-life former Treasury Secretary Larry Summers to serve both as an economic adviser and public face of the economic team. It's hard for Geithner to be chief of the economy when Summers takes face time on the Sunday talk shows.

With all the hubbub, it's easy to lose sight of the fact that Geithner helped push the Obama stimulus plan through Congress. He designed an effective mortgage relief plan. The auto bailout is proceeding, and a re-regulation of the financial markets is in progress.

Even a Treasury secretary gets to make only one first impression, but first impressions can mislead. Perhaps Geithner is stronger than his unfortunate start. And the risk of disruption and delay if he were ousted is far greater than the risk of giving him time to prove himself.

The furor over Geithner is a distraction that could delay the recovery that everyone wants to see.

dgreising@tribune.com