Gorging on Misery


Published November 20, 2008, issue of November 28, 2008.
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It’s been a busy time for the New York State attorney general, Andrew Cuomo. As the chief law officer in the home state of the financial industry, he is the first responder when there’s trouble on Wall Street. His office has a lengthy record of policing the bankers and brokers when the federal government can’t or won’t.

It’s not surprising, then, that Cuomo has set out to chase down the bad guys in the financial crisis raging out of control worldwide. What is surprising is the mildness of his response. It appears that for all the colossal damage the titans of finance have wreaked on businesses, homes and families, they may not have broken any laws. So Cuomo is reduced to pleading for some semblance of good citizenship.

Cuomo rolled out his big guns November 17, with a public appeal to Citigroup, the banking and finance giant, not to pay its usual lavish bonuses to senior executives this year. Citi is one of nine banks that shared a $125 billion payout from the controversial $700 billion bailout plan that Congress approved in October. Citigroup, after pocketing the money, announced that it was sacking some 50,000 employees to cut costs, hardly a way to halt a recession. Cuomo, calling the layoffs “sad and disturbing,” pointed out that as “Citigroup suffers, so too do investors, employees, and taxpayers.”

“After four consecutive quarterly losses,” he wrote, “it seems only fair that top executives should shoulder their fair share of these difficult economic times.” That’s telling them.

The next day, Cuomo took on an even bigger foe: American International Group, the country’s biggest commercial insurer. AIG has received more than $150 billion in bailout funds so far. The first $80 billion emergency loan was approved in September. Shortly afterward, we learned that the company reportedly spent more than $800,000 this year, while it was sinking, on parties and vacations for executives.

In October, under pressure from Cuomo, AIG agreed to freeze a $19 million bonus to former CEO Martin Sullivan, who left last June as the company was spiraling into disaster. The firm also agreed not to reward other executives with early payouts from a $600 million deferred compensation fund — a device that holds part of an executive’s pay until after retirement, when taxes are lower.

But on November 17, the same day that Cuomo was scolding Citigroup, AIG announced plans to give its executives more than $500 million from a different fund. The next day, Cuomo cracked the whip. In a sternly worded letter to AIG’s new CEO, he asked, “Please inform my office as soon as possible” what sorts of raises and bonuses the company was planning for its executives this year.

There was, it should be noted, a veiled threat in the letter. “As you know,” Cuomo wrote, “I believe AIG’s decision has significant legal ramifications.” He was probably referring to a condition in the bailout program that companies not pay bonuses from government funds. But as Cuomo knows, money is fungible.

It “seems hard to imagine,” Cuomo wrote, that AIG would decide to “pay significant bonuses or give raises to its executives” after being saved from collapse by the taxpayers.

Actually, what’s hard to imagine is that our public officials should have to ask for basic decency. At a time of national and international crisis, when millions stand to lose their homes and jobs because of gross mismanagement, it simply should not be possible for the authors of the catastrophe to take public money intended for emergency recovery and stick it in their pockets in broad daylight.

It’s hard to imagine that this sort of behavior is legal. If the government can dictate who may marry whom, it certainly could find ways to determine who may or may not gorge on others’ misery.

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