This was supposed to be a financial blog. I still have full intentions of eventually writing about the world of finance and investing. For now though, just like everyone else, I am really caught up in the political and moral debates that have consumed the national headlines over the past few weeks. Yes, that’s right I’m still talking about the AIG bonuses.
I’d like to start with the Constitution of the Unites States of America. Here is an excerpt from Article 1, section 9 of the U.S. Constitution:
Article 1 – The Legislative Branch
Section 9 – Limits on Congress
“No bill of attainder or ex post facto law shall be passed.”
Okay, what the hell does that mean? I think some definitions are in order. First, the term “bill of attainder” means a bill that has a negative effect on a single person or group. Second, the term “ex post facto” means formulated, enacted, or operating retroactively.
I’m no expert in constitutional law. In fact, I don’t know a damn thing about constitutional law or law in general. But it would seem this clause says that congress can not pass any bill or law that singles out a single person or group of people for the purpose of punishment and congress can not pass a law that operates retroactively.
In the spirit of Article 1, section 9, it would seem to me that the bill that was introduced and passed by the house of representatives yesterday is unconstitutional. It should be mentioned that this is not law yet. It must be passed by the Senate and signed by president Obama. Maybe the Senate won’t pass the bill and maybe, if the Senate does pass the bill, President Obama won’t sign the bill. After all, President Obama is an expert in constitutional law, right? I know…dream on.
I’m sure legal experts that are much more well versed than I, will argue that the above constitutional clause refers only to criminal law and therefore does not apply to the bill that was passed by the house of representatives. The spirit of the law seems to indicate that congress can not pass laws that are meant to hurt a single person or group of people. That makes sense.
The one positive aspect of this bill, was that at least law makers had the common sense to not impose this new 90% tax on lower income earners. Anyone who works for a company that received more than $5 billion in TARP money from the government and makes more than $250,000 ($125,000 for a married person filing as single) is subject to a 90% tax on any bonus payments received. Nonetheless, the bill is still not the right way to solve the moral issues surrounding the greed and ego that got our country into this mess. Nor will this legislation reverse excessive pay to Wall Street executives. Trust me, they will find away around this law.
Today, the CEOs of Citigroup, Bank of America and JP Morgan all made statements denouncing the new bill. Probably even more telling was James Lockhart (director of the Federal Housing Finance Agency), who defended the retention bonuses that were given to employees of Freddie Mac and Fannie Mae.
I know It is a hard pill to swallow. We the tax payers have given countless billions to financial institution to save them and to save the entire financial system. It seems like a slap in the face that our tax dollars would go to pay bonuses to some of the same people who caused the problem. I understand that argument. But the simple fact is that it is much more complicated. If these financial institutions are not afforded the leeway to compensate and incentivize employees to stay on and continue to work to strengthen their respective companies, or in the case of AIG to wind down the company, then the companies will surely fail and all of the billions of dollars that we have spent to help these financial institutions will be completely lost. Just like most businesses in this country, the most valuable assets these financial institutions possess come up the elevators every morning at 8AM and leave every day at 5PM. We have to stop fighting over this issue and concentrate on the bigger picture.
My fear is that we are in the beginning stages of a class warfare in our country. It is probably fair to say that the disparity between the have’s and have-not’s in this country is greater now than ever before. Most middle and lower income tax payers will simply view bonus payouts to employees of TARP supported banks and financial firms as simply unfair and a fleecing of their tax dollars. While this opinion is understandable, it is not well thought out and fails to consider the big picture. I hope our leaders in Washington D.C., will begin to understand this and stop their political grandstanding. In the meantime, let the witch hunt continue.
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