We live in a freer-market society. For all the shortfalls of capitalism, we’ve embraced its upside- merit-based rewards, innovation, sustainable economic growth, government that relies on society for wealth creation, not society that relies on government for the same.

In the outrage over bonuses paid to executives at companies that received federal loans or investments- “the bailouts”- American politicians are leveling their potato guns and attempting to out-faux-populism each other by indicting the companies that they chose to bail out. They are wasting their time. They are manipulating American citizens who need actual market recovery, not theatrics. And they are damaging much more than simply AIG- they are corroding the concept of the market, merit-based reward system.


An oft deployed 2008 campaign slogan from right of center was that the Obama ticket represented some kind of Marxist Utopian nightmare- even now as the administration attempts to open a discussion about the best way to make sure Americans get adequate health care, the accusation of Socialism is as popular and uninformed as it was pre-November. Stating that it ought to be the responsibility of our nation to ensure the sick receive care is as fundamentally obvious as stating that it is the government’s responsibility to protect our citizens from attack by use of military force. Logic links these arguments together, and only a true Libertarian would be willing to deny them both. But faux Libertarians these days are as popular as faux Populists, and amazingly, despite all the scare about Socialism, you can’t shake a stick without hitting a faux Populist.

Which is why it is altogether bizarre that in spite of the is-it-or-is-it-not-Socialism debate about nationalizing banks or about health care, the Obama administration and both parties in congress have picked a hollow ideological battle with industry and demonized our “free” market entrepreneurs as villains. Komrad?

"It's almost like these guys should have gotten the Nobel Prize for evil," said White House Council of Economic Advisers member Austan Goolsbee. Senator Chuck Grassley [R–IA] said that AIG executives should “resign or go commit suicide”. Really?


If you want to talk about anger over the finance and housing industries digging a bottomless well of wealth by tunneling under the savings of regular Americans or hoodwinking others into crooked mortgages they couldn’t afford, ultimately imploding our economy from within, show me to the picket lines. I don’t need any more convincing, and I don’t think any Americans do either.

Exhibit pitfall of Capitalism 101: failure to regulate can be hazardous to your health. Wall Street goes gangbusters selling toxic debt, no one understands why and no one wants to ask because “a rising tide lifts all ships”. All of a sudden your house is worth less than what you’ve paid into your mortgage and your IRA has lost half its value. “Wall Street got greedy”, Tavis Smiley said on Meet the Press this week. Got greedy? What is the finance industry if other than a vocation for greed? It’s a business that makes money out of money. It’s the definition of greed. No shocker there.


But those are the crooks that ripped us off.

Maybe. These people get paid to manage risk for their stakeholders. If the market did well, do they deserve their bonuses? What if the market did terribly, and they were able to limit losses? Do they deserve bonuses then? I have no idea what the AIG contracts stipulated, and I couldn’t care less. When a company enters into an agreement with its employees, those employees are entitled to what they signed up for, unless it was illegal.

But the taxpayers bailed out AIG.

So what? The Fed bailed out AIG because AIG was considered an essential part of the apparatus that keeps credit and capital moving through our economy. Broadly speaking, it benefits the credit-seeking taxpayer but not necessarily the bailed-out companies to have been bailed out.

What is our endstate from the bailout- what change do we want to effect? What we want is for these companies (in which we taxpayers are now stakeholders, i.e. investors) to do well. We want to rebuild confidence in the financial industry. And Republicans and Democrats alike want Americans to loosen their grips on their wallets and push money back into the economy. To do that, we need the right mix of ingredients, and one of those ingredients is talent.


Right now we’ve got the heads of the biggest banks in America working for free despite the magnificently miserable nature and high risk of said job. We’ve got the heads of the car companies car-pooling to DC for hearings because some congressman thinks that day-long journey is worth the symbolism. We’ve got AIG executives getting death threats, along with recommended suicide from a US senator. We’ve got a bill passing the House yesterday (328-93) that will tax the AIG bonuses at 90%. Does any of this sound American to you?

Leadership is about making hard decisions and having the discipline to implement them effectively. AIG and its peers screwed up. If we wanted them to fail, we should have let them go bankrupt, and kept our tax dollars in the Fed. If we wanted them to succeed, then we should have had the willpower to forego this bogus Wall Street punishment catharsis and the wherewithal to recognize that they will need talented people to get them back on track- talent best engaged through free market, merit-based rewards.

Capitalism needs to be regulated. Not dismantled.


Further reading: Friedman at NYT Nocera at NYT