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The AIG Tax


Responding to populist anger, lawmakers threaten to tax the s%*t out of bonus pool.

The saga of American International Group (AIG) reads like a bad rewrite of Alice In Wonderland.

US Treasury Secretary Timothy Geithner vows that Uncle Sam will recover executive bonuses paid by AIG after the company took federal bailout money.

No doubt it's a matter of public trust, or something. That's reassuring, coming from the guy who was forced to cough up $34,000 in unpaid back taxes and oversees the Internal Revenue Service.

Meanwhile, AIG CEO Edward Liddy says the company has a legal obligation to make the bonus payments. That's a reasonable argument, but one assumes that bonuses reward top performers a company wants to retain. Might the simple student note that AIG's recent performance hasn't been so hot?

Then there are the usual suspects in Congress, who now propose taxing the bonus recipients through the nose to recover the bonus payments.

So, here's the new standard: Congress can abrogate private contracts it doesn't like because a deal isn't a deal until Congress says it's a deal and furthermore it's never a deal if Congress doesn't like it after the fact.

Well, so much for the right of individuals to enter into contracts and, come to think of it, kiss the rule of law goodbye, too. If House Democrats are out to spook the markets, they're off to a good start.

Don't expect Republicans to have anything coherent to say about this mess because they're apparently betting Democrats will create a colossal screw-up and they'll be around to pick up the pieces in 2010. That's called something other than putting country above politics, but what? Maybe horse exhaust.

The possibilities created by AIG's ham-fisted approach to just about everything and Congress' desire to run the economy are endless. In the brave new world, private companies can continue to screw up royally while tapping the public till; Congress can fuss and fulminate; the general press can cover the flapdoodle as if it were meaningful; and the markets can go to hell because no one knows what the rules are and the rules keep changing.

It's hard to imagine that AIG has so little understanding of public relations. First, AIG spent $440,000 entertaining top executives after pocketing an $85 billion bailout from the Federal Reserve. This was quickly followed by an $86,000 hunting trip to England shortly after the company pocketed an additional $37.8 billion in loans funded by tax money. Now, AIG thanks the taxpayers for their generosity with a round of fat bonuses.

That's incredibly stupid for an ordinary company, but AIG isn't an ordinary company, public-relations gaffes aside. It sells credit default swaps, promising to insure other companies against default. At times, it seems that AIG was kept alive because no one knew the consequences of letting it fail. The impact of AIG's failure may be unthinkable - some have called it an "extinction-level event" in the financial markets.

But is trusting a key element of the market to PR buffoons any worse than trusting Congress to those who don't understand how the free market works? Couldn't AIG's top dogs forego their bonuses by mutual consent? Is it too much to ask that the lawyers in Congress respect the law, starting with contracts?

Apparently. So, recall this colloquy between Alice and Humpty Dumpty:

"When I use a word," Humpty Dumpty said, in a rather scornful tone, "it means just what I choose it to mean - neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master - that's all."

If that's too complex for the gentle souls at AIG and in Congress, perhaps they should ponder a basic question posed by Casey Stengel when he was manager of the hapless 1962 New York Mets:

"Can't nobody here play this game?
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No positions in stocks mentioned.
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