...but it won't bring back the economy.
The "national rage" at bonuses paid to AIG executives (and other companies that have received billions in government TARP funding) "reflects our dangerous mood, and also says we have no idea what is important," says mortgage broker and syndicated columnist Lou Barnes.
Writing for the New York Times, Joe Nocera makes the same point.
"By week’s end, I was more depressed about the financial crisis than I’ve been since last September," he says. "Back then, the issue was the disintegration of the financial system, as the Lehman bankruptcy set off a terrible chain reaction. Now I’m worried that the political response is making the crisis worse."
Legislation passed by the House Thursday, HR 1586, would impose a 90 percent tax on bonuses granted to employees earning more than $250,000 at companies receiving at least $5 billion in TARP funds. Citi, JPMorgan, BofA, Goldman Sachs Group Inc., Morgan Stanley, PNC Financial Services Group Inc. and U.S. Bancorp all fall under that umbrella, the Wall Street Journal reports.
Rep. Barney Frank, D-Mass. the chairman of the powerful House Financial Services Committee, says he also wants Federal Housing Finance Agency Director James Lockhart to cancel retention bonuses for executives at Fannie Mae and Freddie Mac.
Barnes takes a position not unlike that of the leaders of some of the companies themselves -- that in the grand scheme of things, the AIG bonuses are chump change, and if the government moves to take them away, it "will freeze efforts at repair."
Here's how Citigroup CEO Vikram Pandit put it in a memo to employees:
"The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees."
Pandit said the executives who got Citi into trouble are gone, and those who remain must be encouraged to stay.
BofA CEO Ken Lewis fired off a similar memo further explaining the rationale for such thinking. Taking away bonuses has "the potential to damage the ability of the government to engineer a financial recovery," Lewis said, because if investors and private sector companies "believe that the rules can change quickly and indiscriminately, they will be unwilling to participate."
That was presumably what Treasury officials were thinking when they asked Senate Banking Committee Chairman Chris Dodd, D-Conn., to dilute language in last month's economic stimulus bill that would have created restrictions on bonuses at companies receiving TARP funds (see CNN story).
For Fannie and Freddie, Lockhart said, the loss of "key personnel" would be "devastating to the companies and to the government's efforts to stabilize the housing system" (Freddie Mac just lost its new government-approved CEO, former U.S. Bancorp executive David Moffett, after only six months).
Lockhart noted that four of Freddie Mac's top paid executives and seven of the top eight at Fannie Mae have left since August -- and are not getting retention payments.
Although people have a right to be angry, Barnes says the real target of that anger should be the boards of directors of companies like AIG, Citi, Merrill, Bear, Lehman, WaMu, Countrywide, who were supposed to "protect stockholders and ride herd on CEOs."
You have to be pretty angry not to see Barnes' larger point -- that Congress won't really be solving much of anything if it does take away "retention bonuses," and might even make things worse.
But it will be interesting to see whether the 93 House members who voted against HR 1586 (six Democrats, 87 Republicans) can make that case to constituents who have lost their jobs, their homes and perhaps a good deal of their retirement savings.
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