Mr. President, I wish to speak briefly to the issue that has been very much on the minds of the American public over the last several days, and that is the bonuses paid to folks who work with AIG, the insurance company that has been the…
Mr. President, I wish to speak briefly to the issue that has been very much on the minds of the American public over the last several days, and that is the bonuses paid to folks who work with AIG, the insurance company that has been the recipient of taxpayer money under the so-called TARP legislation.
A lot of times when Congress acts in haste, it makes mistakes, and one of the concerns I have about the bill we will be taking up is the question of whether we have adequately thought through the exact remedy we want to impose here in order to get the bonus money back. The House of Representatives acted very quickly and passed a very onerous tax bill that would claw this money back. The Senate has a bill that has been written by the chairman and ranking member of the Finance Committee that would be even broader in the sense that it would both tax the company itself as well as the individuals who receive the bonuses. There are a lot of concerns that have been raised over the weekend about both of these approaches. I have urged a little bit of caution here so we don't do the wrong thing again.
One of the reasons we are in the position we are in is because Congress acted in haste. In fact, when the bill was passed that allowed these bonuses, I don't think very many--if any--of our colleagues knew it was in the legislation. After the fact, we learned that the authorization for the bonuses was in the legislation. But when we act quickly and we don't really know what we are doing, we can make mistakes.
I have suggested there be a hearing in the Senate to answer a lot of the questions the public has been asking. Now, the first question is, Exactly who are these bonuses paid to and why? Is it necessary that these people receive the bonuses in order for the Government to protect its interests in the company it now owns a substantial part of--AIG? Has some of the money been given back? Will more of the money be given back? Is it fair to impose a tax retroactively? In other words, after people have earned the money based upon an expectation that the money will be taxed at regular rates, is there now going to be an extra tax imposed on top of that simply because we don't like what was done? Will it withstand constitutional muster? And perhaps most importantly, how about the Secretary of the Treasury engaging in the authority, which I understand he possesses under the stimulus bill that we passed earlier, to act in the public interest to claw that money back? In other words, is it even necessary for Congress to amend the IRS Code in order for the Secretary of the Treasury to be able to get that money back?
Clearly, this could have all been avoided had the Government asked AIG to renegotiate the contracts when it gave AIG about $30 billion 3 weeks ago. The Government was in a position to say: One of the conditions for receiving this so-called TARP money is that you will renegotiate the contracts that provide bonuses for your employees. We could have done that at that time. But it wasn't done, so now we have to figure out the right way to deal with this.
The other reason I am urging caution was expressed by the President in a ``60 Minutes'' interview that was on television last night. Here is how he answered a question about the constitutionality of this proposed tax law. I am now quoting the President:
Well, I think that as a general proposition you don't want
to be passing laws that are just targeting a handful of
individuals. You want to pass laws that have some broad
applicability. And as a general proposition, I think you
certainly don't want to use the Tax Code to punish people.
I think the President is right about exactly what he said there, and that is one of the reasons there is some doubt about whether this law's constitutionality would be upheld and another reason I think we would be wise to hold hearings. But there is yet another reason, and that has to do with whether the private businesses that have been helped by the so-called TARP legislation will want to continue to receive this money or continue to participate in the public-private partnerships that
have been established by the Government if there is a possibility there is going to be retroactive punitive legislation imposed upon them or their employees.
So one of the things I would like to do is to make sure that in expressing our outrage--and every one of us is outraged about this--we do it in a way that is constructive and not destructive to the very program the President has created to try to help these struggling companies get back on their feet so that they can lend credit to everybody else who needs credit in our country.
There is a significant view that if the folks participating in this program come to believe that the Government--Congress--can at any time come in and impose a new tax on them, they are going to want to get out of these programs rather than participate in them. In fact, there have been strongly expressed views that these banks will try to repay the TARP funds quickly--prematurely, in effect--in order to get out from underneath the Government's potential further involvement in their businesses. Of course, by paying the money back, they reduce their ability to loan money to the rest of us. Obviously, the whole point in giving them the TARP funds in the first place was to give them more liquidity so that they would have the money to lend to businesses, to families, and others throughout America.
Mr. President, I ask unanimous consent to have printed in the Record following my remarks a couple of statements that make this point very clearly. One is an editorial that was in the Washington Post on Friday, March 20, and the other is a very interesting article by Ian Bremmer and Sean West that was printed in the Friday Wall Street Journal.
Mr. President, the ``Washington Gone Wild'' editorial in the Washington Post makes the argument I just made. They use the words ``shortsighted,'' ``opportunistic,'' and ``irresponsible,'' and liken this to the actions of a mob to get even with people rather than stopping to think about what it is going to do to the President's TARP program. And that is what I wish to talk about.
I voted for both the first and second TARP. There were only six Republicans in the Senate who supported that second program, and I did it because I believed it was important for the President and the Secretary of the Treasury to have the necessary funding to help these institutions. We are going to destroy that program if the participants in the program come to believe that, out of spite, Congress, reacting to an angry electorate, will simply come down and pass new tax obligations on the employees of these companies in the future. They are going to be very weary of participating.
As the Washington Post editorial notes:
Elected officials have a responsibility to lead, not just
to pander; to weigh what makes sense for the country, not
just what feels good.
The point is, we now own a big share of this company and parts of some of these other companies, and we want to do what is in their best interest for our best interest and not simply punish them because we are angry that some folks got bonuses.
So I am going to urge my colleagues to take a deep breath here and talk to the administration, to hold a hearing and answer the questions that have been asked here and see whether there isn't a better way to achieve the same result. I just happen to believe that if the Secretary of the Treasury called these folks down to his office and said: You know, for the good of the country, you ought to give half or two-thirds of whatever it is back, and if we can save your company, you will be able to make that money back in no time with a healthy company, and if we don't, it is going to be bad for America--I would appeal to their patriotism. He could also talk to the executives at AIG and ask them to sit down with the same people to renegotiate the contracts. There are other ways, in other words, to accomplish the same result without doing violence to our Tax Code, to the concept of contracts, and that do not raise the question about the constitutionality of this action.
Mr. President, I urge my colleagues to hold a hearing on the bill. Do not bring this bill up before the Senate for a vote this week but discuss it with the administration and see if we can come up with a better solution and resolve this problem in a sensible way that will be good for America.
Exhibit 1
[From the Washington Post, Mar. 20, 2009]
Washington Gone Wild
``Shortsighted,'' ``opportunistic'' and ``irresponsible''
aptly describe the actions of those who fueled the debacle on
Wall Street. They are also apt descriptors for lawmakers more
focused on currying favor with a public outraged at the
bonuses handed out by bailed-out companies than on fixing the
fundamental and still potentially disastrous cracks in the
financial system. By changing the terms of a deal months
after it was entered into, Congress will show the government
to be an unreliable partner, further draining confidence from
the financial system and endangering long-term recovery.
Yesterday, the House had the feel of a mob scene, with
lawmaker after furious lawmaker vying for floor time to rail
against the $165 million in taxpayer-funded bonuses lavished
on employees of American International Group's disgraced
Financial Products division. House members rushed through a
bill to impose an effective tax rate of 90 percent on bonuses
paid to AIG employees and employees of other firms that
accepted at least $5 billion from the Troubled Assets Relief
Program--though when then-Treasury Secretary Henry M. Paulson
Jr. pressed many of those firms to take the funds last fall,
government interference in their compensation systems was not
part of the deal. The legislation, approved by a vote of 328
to 93, would affect employees who received bonuses on or
after Jan. 1 and whose household incomes exceed $250,000.
Late yesterday afternoon, lawmakers on the Senate Finance
Committee introduced their own, broader version of the bonus
clawback that would affect firms that accepted as little as
$100 million of government funds.
We understand that legislators are hearing from furious
constituents, and we understand why those voters are angry.
It is unquestionably galling that some of the employees who
crafted and pushed risky derivatives that wreaked financial
havoc worldwide should line their pockets with some of the
$173 billion in public funds meant to prop up the too-big-to-
fail insurance behemoth and its global business partners. The
bonus anger resonates, too, because of a larger sense many
voters have that the people who helped trigger this whole
economic mess are not the people paying the greatest price.
But elected officials have a responsibility to lead, not
just to pander; to weigh what makes sense for the country,
not just what feels good. The effective confiscation of
legally earned and contractually promised payments may well
be unconstitutional. It is almost certain to be unhelpful.
The bonuses paid at AIG represent less than one-tenth of 1
percent of the bailout provided so far; recouping those funds
will have no discernible fiscal effect. But it will help
drive away the best talent at the firm, and despite all the
glib messages of ``good riddance,'' that is a strange action
for an owner--and the American public now owns AIG--to take.
But the real damage goes well beyond any effect on AIG. The
economy continues to suffer from a shortage of credit. The
government needs financial institutions--including relatively
healthy ones--to take public funds that will then be lent to
responsible businesses and consumers. The Obama
administration reportedly intends in the next week or two to
announce the details of a ``private-public partnership'' to
buy troubled assets from ailing banks. The participation of
private hedge funds, investment banks and other firms will be
key to the plan's success. But what executive in his right
mind will enter into a deal if he or she believes the rules
can be changed six months or one year down the road purely on
the basis of polls and politicians' fears?
Rather than bringing reason to the debate, President Obama
has stoked the anger, and last night, the White House
commented favorably on the House action. Perhaps Mr. Obama
believes that only by lining up with an angry public now can
he persuade it, and Congress, to approve the hundreds of
billions more he will need to right the credit system. But he
might have expressed his sympathy with public anger over
irresponsible behavior in the financial sector while also
steering the government in a more constructive direction. The
absence of backbone on either end of Pennsylvania Avenue this
week could carry a steep price.
Exhibit 2
[From the Wall Street Journal, Mar. 20, 2009]
AIG and ``Political Risk''
(By Ian Bremmer and Sean West)
After quietly tolerating $170 billion in bailout money for
AIG, why have the public, Congress and the administration
suddenly blown up about a tiny fraction of that amount that
is being paid out in retention payments and bonuses? After
all, the AIG bailout channels U.S. taxpayer dollars to
foreign banks and even potentially covers hedge-fund profits.
The reason is one of political expediency: The bonuses
represent greed in the face of dire circumstances, which
resonates with Joe the TARP-funder. The public now has an
Enron-like target on which to unload its collective
frustration about the financial meltdown. While public
outrage is understandable, pandering to it jeopardizes the
administration's credentials in a sloppy attempt to score
populist points. This raises the political risk for all
investors in the U.S. (both domestic and foreign)
significantly.
The financial-sector rescue necessitates unpopular actions
that will only be politically worth it if the administration
actually solves the crisis. Until recently, the Obama
administration had taken pragmatic is slow actions that it
deemed necessary to fend off disaster, as opposed to pursuing
an ideological agenda in how it implements the bailout.
But this week, under pressure to show a strong hand and
positive results, the administration latched onto the AIG
bonus flap as an angle for curring populist favor. When it
became clear that the bonuses were going to be big news,
President Obama led the anti-AIG charge with instructions to
``pursue every legal avenue'' to get the money back. Never
mind that the administration was responsible for the TARP
provision that (sensibly, from a legal standpoint) exempted
pre-existing legal agreements from the bill's limits on
compensation. Mr. Obama now says he'd like to create a new
``resolution authority'' to deal with ``contracts that may be
inappropriate.'' Meanwhile, Congress seems poised to undo the
bonuses through special taxes--a move that in other
circumstances would clearly be labeled retroactive and
unfair.
It was not long ago that Mr. Obama assailed the Bush
administration for its dangerous expansion of executive power
during a complex crisis. The Obama administration's antics
around the AIG bonuses suggest a similar effort to use
political power to contort the law. But rather than doing so
for reasons of national security, this administration is
doing so to pander to an angry public. When the Obama
administration and Congress flex this kind of muscle, they
attach a new political-risk component to all contracts
negotiated in the shadow of the bailout.
That risk may scare potential investors away from bailout
recipients because they cannot trust our government's will in
the face of public outrage. It destroys our moral high ground
the next time Mr. Obama wants to criticize a foreign country
for ignoring the rule of law by nationalizing private assets
or repudiating international debt. It will certainly make Mr.
Obama's task much more difficult when he tries to sell the
public on his administration's ability to manage the rest of
the bailout, and when he tries to sell private firms on the
public-private partnership that will be needed to make the
recovery work.
The administration could have let Congress have its week of
grandstanding over bonuses, while issuing a public statement
acknowledging the bonuses as deplorable, but not important
enough to detract from the real work that lies ahead. The
tragedy here is the extraordinary amount of time that is
being wasted on this issue when the Treasury Department
remains understaffed, a detailed toxic-asset plan remains
perpetually forthcoming, and the economy continues to shed
jobs.
It's predictable that the administration and Congress would
rather abuse an easy target over something every voter can
get mad about than actually confront the hard issues of
managing the financial crisis, including progress on the
``stress test'' of banks and the restoration of normal credit
operations, establishing genuine oversight of the use of
bailout funds, and coordinating international efforts on
global economic stimulus and changes to financial-industry
regulations. That type of governing is far more troublesome,
as it involves making difficult decisions on complex topics
and communicating unpopular news to constituents.
This is a hallmark moment for the administration.
Congressional anger over AIG's bonuses foreshadows the battle
looming if and when the administration asks for more
financial-sector rescue funds. The administration may rightly
sense that failing to join hands with Congress and the public
in outrage over the bonuses would complicate release of those
funds. But Mr. Obama does not need to show solidarity by
diminishing confidence in the rule of law. That bit of
populism will cost the president far more in future
credibility than he stands to gain in present popularity.
Mr. President, I yield the floor, and I suggest the absence of a quorum.