The Obama administration has some pretty lame justifications for more taxes. Take its continued push for new taxes on banks. Treasury Secretary Timothy F. Geithner told the House Ways and Means Committee on Wednesday that the tax should be passed because it will help recoup the “outrageous” bonuses for AIG employees.
There’s no question that $100 million in AIG bonuses has stirred up populist anger. But Mr. Geithner’s chastising of AIG for its bonuses borders on the surreal, for it was he who, as president of the Federal Reserve Bank of New York, oversaw the AIG bailout. He was the one in a position to do what any lender of last resort could do - negotiate concessions from AIG in exchange for the dole-out. However, Mr. Geithner chose not to do that. Now, afterward, he blasts the company for continuing its normal bonus policy. Mr. Geithner is obviously either a hypocrite - attacking AIG now for bonuses that didn’t bother him earlier - or is plainly incompetent.
The extensive bailout of AIG was a mistake in the first place, but trying to correct things afterward simply does not work. Cutting bonuses today could scare away top executives who might be crucial for the firm in getting its financial house in order. Besides, AIG’s financial crash was due to just one small part of the company, and most of the company was doing quite well. The “outrageous” bonuses to which Mr. Geithner referred cover jobs across the whole firm, whether they experienced financial problems or not. It would be counterproductive to punish executives who were doing a good job or executives who are coming on board to turn things around.
“Like it or not, we have to have a financial system that is healthy and functioning,” President Obama told Senate Democrats on Wednesday. He might even believe it, which isn’t saying much. Other than some die-hard leftist radicals, most people want a “healthy and functioning” financial system. Actions speak louder than words, though.
The Obama administration is using the Treasury secretary’s mishandling of the AIG bailout as an excuse to start a class-warfare blame game with bankers as the bad guys. Imposing a tax across the entire banking industry for the perceived wrongs of one insurance company is what should be considered outrageous in this debate.