Madness

No, not the seasonal celebration of collegiate team ability to put a ball into a netted basket. We refer rather to the sentiment so memorably ellucidated by Howard Beale in “Network:” “I’m mad as hell and I’m not going to take this any more!”

Bringing these references to mind is, of course, the ongoing spectacle occasioned by payment of outsized bonuses to many of the very same AIG worthies responsible for bringing the global financial house of cards down around their – and our ears. It develops that AIG, having been showered with $200 billion in an as-yet unsuccessful effort to keep it vaguely afloat, dispensed some $165 million in bonuses to 418 lucky employees. And former employees, as 52 of the recipients no longer grace AIG’s payroll, a fact which somewhat undercuts the rationalization of the bonuses as necessary to prevent the slow-motion train wreck that is AIG from doing further damage. Politicians of every stripe are lining up for their sound bites expressing outrage at this unconscionable perversion of something or other, vowing to take all steps necessary to rescind the bonuses while their recipients, in one of the more extreme scenarios, are encouraged to fall on their ceremonial swords. Presumably in full public view.

Well, we’re all mad as hell. Politicians have no monopoly on anger at how a tiny group of individuals gamed the system for their own pecuniary benefit while the supposed regulators, perhaps mesmerized by a 14,000 Dow and beguiled by the apparent endless success of a let-‘er-rip approach to market oversight ignored any and all signs of an impending catastrophe and even the too-rare expert warnings.

If outrage could be monetized, this crisis would be over by lunch. But as we sharpen our poleaxes and head off for the castle in search of retribution and the heads of those responsible for, or at least proximate to the problem, some caution might be advisable.

Among the redresses being loudly advocated, including by some who should know better (front and center, Representatives Maloney and Frank) is the ex post facto voiding of the contracts under which the bonuses were paid. Or the imposition of a confiscatory tax rate on the misbegotten gains. While perhaps momentarily satisfying, these steps and similar others run a serious risk of exacerbating the problem.

Consider. The U.S. Government, through whatever agency matters not, undertakes to invalidate a legal document on the basis of its having regrettable, unforeseen results. Or, displeased with the financial doings of one or more of its citizens, subjects them to retroactive taxes on some portion of their income arbitrarily deemed offensive.

You want madness? The quick result would be a total destruction of any confidence in any undertaking, financial or otherwise, more complex than immediate barter. The notion of, for example, “full faith and credit” would be supplanted by Humpty Dumpty’s rather more flexible: “When I use a word, it means just what I choose it to mean, neither more nor less.” By these lights, a $10,000 U.S. Treasury note could, on a bureaucratic whim, be revalued at $50. The wretched citizens of Zimbabwe are too experienced with this sort of economic chaos, and theirs is a situation no sane person would welcome. Confidence that the vast amount of U.S. debt the Chinese hold is critical to their continued willingness to do so, and their disposal thereof would make the current meltdown look like a pleasant picnic in the park in late spring.

Let’s hold off on the mindless rage. At least before lining up the firing squad, let’s make sure it’s not in a circular formation.