The AIG Mob

“The first thing that would make me feel a little bit better towards them if they’d follow the Japanese model and come before the American people and take that deep bow and say I’m sorry, and then either do one of two things – resign, or go commit suicide.”

-Senator Charles Grassley

Last week, news of the AIG bonuses grabbed every headline, took on the full attention of Congress and the President, and dominated political dialogue.  Thousands protested the bonuses, even going so far as to launch death threats at the employees, and the scandal drew battle lines for class warfare. But why so much outrage? The bonus payment of $165 million was only 1/1,000 of the total amount burned up by AIG in the bailout. Most significantly, AIG used at least $20 billion of the bailout to pay European banks for credit default swaps–Americans expressed more outrage over $165 million paid to American workers than $20 billion paid to foreign banks.

That disconnect was simply the beginning of a firestorm that needs to be called to task. The AIG Bonusgate, as it is now being called, highlighted a deeply troubling trend toward American populism. Populism, broadly, is the idea that what is most popular is what should drive government action. In American politics, this often plays out as political pandering, where politicians starving for reelection and popularity rely on polls, rather than principle, to guide their action. This type of politics leads to irrational and emotional governance, the outputs of which resemble mob rule. The AIG story was a case in point.

Following the unveiling of the AIG bonuses, Congress and the President spent the remainder of the week excoriating Wall Street, casting judgment on AIG, and fanning the flame of outrage among the American people. On Wednesday, Congress summoned AIG’s volunteer CEO, Edward Liddy, and spent hours blaming him for the payouts, attacking his integrity, and lambasting the company. Mr. Liddy, they forgot, works for a salary of $1 dollar a year, and volunteered to lead the company out of the rubble following Wall Street’s collapse. He was appointed to the position by the government, long after AIG’s missteps, simply because he wanted to help unwind the AIG mess at the service of the country.

Meanwhile, thousands stormed the streets of Washington and Wall Street with protest signs too vulgar to repeat, promising vengeance on the AIG workers who had profited from taxpayer dollars. CNN played phone messages from angry citizens threatening to kill the employees’ families if they did not repay the bonuses. Tour companies organized bus trips to the employees’ New York homes so that people could vandalize, terrorize, and threaten the workers directly. All the while, in an effort to save face, politicians encouraged the outrage. 

Then, in a coup de grace of sorts, Congress forwarded a bill to tax the bonuses at 90%, and wrote legislation to review and limit all bonuses at all banks nationwide. This was the final blow. They threw away all precepts of contract law, breaking the contracts signed by AIG employees simply because of public outrage. They pushed aside Constitutional law, which expressly prohibits special taxes on private citizens, as well as government intervention in private contracts and enterprise. They began to embrace big brother government, demanding control and notice of all future bonus payments at financial institutions. These were dramatic measures that have been drowned out by public sentiment, but must be reconciled.

Was it worth it? Was $165 million worth violating the enduring and essential rights of private citizens, contracts, and the rule of law? Were the bonus payments so egregious as to threaten the very fabric of our financial system, challenge capitalism, and push down Wall Street? All this while ignoring the massive and pervasive government waste from President Obama’s stimulus, replete with pet projects and earmarked pork. Of course, this is not to dismiss the irresponsibility of AIG and its traders, nor to ignore the fact that these employees contributed to the economic downturn. But we must recognize the creeping danger of populism: Public emotion leads to extreme and unwarranted action.  

This is why our founders fought so hard to establish a Democratic Republic, not a pure democracy. Pure democracy, they wrote, fails for two basic reasons: 1. The majority have complete and unchecked power, and are therefore drawn to violate the rights of the minority for their own gain; 2. Emotion tends to overtake the public, and leads to mob rule, rather than just rule.

The question here is simple: How did last week’s events differ from what the founders warned so clearly of? The public was outraged, and the emotional response to government waste of taxpayer money is understandable. But that emotion seeped indiscriminately into our political leaders, who from both parties attacked Wall Street with venom and played on the fragile state of the American worker. They then violated the very law and Constitution meant to protect us from such irrational governance. We must be careful not to let emotion and populist rule govern us, or else we will quickly devolve from a Democratic Republic into a Democratic Mob.

-Matt Benchener from TruPolitics.net