I’m not a big fan of the various bailouts but I think the initial ones put in place by Bush may have had some merit; at least they were directed at keeping the financial sector stable. The outrage against AIG bonuses and Congress’s attempt to “get them back” will only expedite the exodus of human capital out of the financial firms. The micromanaging of the firms for political points is going to do extreme harm to the financial system.
Excerpt from WSJ’s “Wall Street Shudders as Lawmakers Take AIm at the Industry Pay System”
“This is about vengeance, not about saving money,” said Alan Johnson, a New York compensation consultant. “The American people are furious, and Congress is terrified they won’t get re-elected. But it’s a shame. The best people will leave and the American taxpayer will pay” because the bill would make the firms more “unstable.”
Banks have thousands of employees who make more than $250,000 per household, the level at which the tax would take effect, pay experts say. Most major U.S. investment banks accepted federal bailout funds last fall.
If the bill becomes law, the flow of bankers and traders from U.S. banks to foreign firms, hedge funds and smaller boutique companies could accelerate, said people in the industry. The bill “creates an unfair advantage for any major player who is not subject” to the restrictions imposed on companies receiving federal funds, said Alan Guarino, a managing director at recruitment firm Korn/Ferry International.
A quote from a separate article:
But privately, there’s concern within the Obama administration that the angry political atmosphere now surrounding the federal bailout program will scare away private participants the government needs to help bolster the financial system.
…The administration worries that the appearance of unpredictability by Congress will give potential investors the view that the government program is too risky. Already, many banks are wary of participating in the government’s voluntary $250 billion capital-injection program. More than 200 banks have withdrawn their applications to receive government cash.
..George Pataki, the former New York governor, warned that New York could lose ground as a financial center if the bill passed. “It’s very disappointing that it passed the House, and I hope it doesn’t pass the Senate,” he said.
As Rush said today on his show: “If we’re going to tax 90% of the bonuses, why don’t we just tax 90% of all bailout money and just get it back? Why don’t we tax AIG 90% in general? Why don’t we tax Goldman Sachs 90% in general? ”
This is what politicization of this whole thing has done – and it’s been fueled by Obama’s rhetoric from day one.