Madame Speaker, Meet CC Sabathia

For the price of new Yankee CC Sabathia's left arm, Nancy Pelosi and her cronies at COMINTERN--aka the U.S. House of Representatives--have taken a stand that really could threaten the end of capitalism as we've known it.  The U.S. and world financial foundations hang on the fate of the Earth-shattering sum of $165 million--a hell of a lot to pay for a rather flabby limb or well under one tenth of one percent of the total proposed federal expenditures aimed at rescuing AIG, depending on how you look at it.  A handful of former and current AIG executives looked at it as contractually-guaranteed money and took it without the appearance of giving it a second thought.  Meanwhile, Treasury officials looked on, either viewing the payouts as inevitable and a rounding error in the big picture or being utterly unaware of them, depending on whose version of events you believe.  Either way, it seems clear that all communications between the right hand and left hand of government were cut and the spin doctors were AWOL in a fuzzy little cloud of misperception regarding potential reactions of a hurting and angry citizenry at such payouts.

Was it right for these people to take the money and run?  Certainly not, according to popular morals, but the executives' track record in the morality and public trust departments is looking a tad skimpy, so it probably wasn't wise to expect them to Do the Right Thing and return the money with endless mea culpas.  Given the unsurprising fact that they didn't refuse or immediately refund their ill-gotten gains, the gut reaction of the public was understandable.  What was unforgivable was Congress's (similarly predictable) cover-my-ass fest in the wake of yet again failing the "Washington Post giggle test"--a Beltway-insider's term for public reaction to the headlines.  The public is supposed to get its hair on fire about the daily headlines, so that's nothing too surprising, either.  Theoretically, we pay our government representatives to keep cooler heads and more complete views of the big picture.  Unfortunately, Congress was keeping its head firmly in the sand, as usual.  As the scandal was beginning to break, Rep. Charles Rangel, eminent democrat of New York (Sabathia's new home, incidentally), firmly opposed levying retroactive taxes or taking other such hair-on-fire measures.  Days later, whose name appeared in sponsorship of a grossly reactionary and unconstitutional 90% retroactive tax proposal?  If you guessed the gentleman from New York, move to the head of the class.  Talk about Head-in-Cement-Syndrome: we also pay our representatives to have a working knowledge of the Constitution, which, had anyone bothered to read it (paging House Counsel...) expressly forbids ex post facto enforcement of legislation.  Long story short, Rangel flipped in about 48 hours from rightly pointing out that acceeding to public outrage with just such a measure would trample the Constitution and capitalism to tripping over himself and his colleagues to lob more mud on the already besmirched bonus takers.

Public outcry was, of course, justified--and then some--by the whole sorry affair.  So far, numbers and taxes have proved the bane of the 44th administration (see: Daschle, Tom; Richardson, Bill; et al).  True to form, nobody figured out in time or suggested loudly enought that some Americans might have a little bitty problem with those bonus payouts when the news broke.  Sure enough, the rest of America had something to say, and loudly.  The problem is that, no matter how unjustified the payments may appear, their legality is unquestionable.  Remember, we're still going through the aftershocks of the system as it was set up prior to the crisis, i.e. when bonus structures had not the slightest bearing on reality.  None of the executives outright stole the money from a contractual standpoint (there's that tricky constitutional bit again), so it can't really be taken away.  Those that remain in the employ of AIG are all on a salary of $1 per year, so they will doubtless require the bonus monies to feed their families just as CC Sabathia needs his $165 million to feed his--and he gets the whole sum.  Thus, in trying to steal it back (after reducing the AIG bailout by the same amount and hearing CEO Ed Liddy publicly call for the payments' return), Congress turned itself into the bad guy and proved that this congress (and administration, to a certain extent) is at least as willing to trample on the Constitution for its own ends as the last one.  Is there even any point in giving the money back to such a body?  Bear in mind that government spending and private consumption are both factors of GDP (Republican members tend to gloss over this in decrying the budget), and conspicuous consumption by former AIG executives who are really feeling their oats with bonus money in their pockets may in fact be more efficient in boosting the economy than government spending (we're not in the age of post-pork, post-partisan politics yet).

What, then, is the missing ingredient?  Why is everyone so angry with and distrustful of everyone else (the fundamental source of the credit crunch)?  Partisanship and pork are built into the system and aren't even necessarily bad--China and Russia have pretty well solved the problem of partisan bickering without creating enviable political representation.  Rather, I would agree with Michael Scheuer's hypothesis from his treatise on the War on Terror, Imperial Hubris.  While Scheuer is a former CIA analyst and his text concerns counterterrorist rather than economic policy, one of his central theses is that moral courage in government has been in a steepening decline since the end of WWII or thereabouts.  Cynicism and mistrust of government are understandable since no one believes that those in government mean what they say or that they have a coherent long-term plan.  That doesn't necessarily mean we need to usher in an era of "Fireside Twitters" from the First Blackberry, but a way must be found for reestablishing the trust between the represented and those representing them.  Unfortunately, the onus really lies on those in government in this case, and there are few if any glimmers of moral courage in government today.  For example, let's talk taxes: Obama is making an effort to create responsible and desperately-needed tax hikes in order to pay down the bugeoning deficit.  Bailout and stimulus may be odious, but they are also non-optional, so the deficit is only going to grow in the short term.  Long-term, there still isn't that much room to cut.  There was already a growing deficit before the crisis hit and all of those costs will still be there afterwards, likely massively inflated and joined by health care mandates, the ongoing costs of growing commitments in Afghanistan and the massive costs of withdrawal from Iraq (recently estimated to far exceed the cost of day-to-day operations in-country), environmental/ecological costs, and so forth.  The tax base is not about to increase commensurate to the growth of the deficit, which will still have to be paid for somehow (right??).  There's only one way to pay it down, and that is taxation.  They might be politically poisonous, but living in a never-never land in which we can always read our politicians' lips as saying "no new taxes" is now outright fantastical folly.

Moral courage on the part of government would entail coming clean with the American people about where we are (so far as we are able to know) and where we are going.  This need not involve any national security risk--simple honesty does not entail revealing closely-held state secrets.  Acknowledging that we are in dire straits economically is also not aiding and abetting the enemy, since it's been rather obvious to every semi-sentient human on the face of the globe for almost a year that all is not as it was with the American or world economy.  In fact, honesty may boost national security by enabling trust (and thus lending) to begin to thaw out and begin flowing again.  Taxes suck and no one wants to pay any more than they have to, but living beyond our means and abandoning the "have-nots" have proven to be at least as sucky.  If there is any lesson we must draw as a country from this crisis, it is that we must exercise personal responsibility over our own and our fellow citizens' lives.  This was a lesson learned the hard way by the children of the Great Depression, for many of whom living on credit or receiving bonuses just for sticking around (especially when you're taking huge risks with the long-term health of the country) remain anathema to this day.  Re-learning that lesson is going to be at least as painful and will require demonstrations of moral courage in spades.  Moral courage was on vacation in government as oversight and controls over the economy were loosened ever more, as well as in the private sector as no one proved able to resist the lure of the shiny new toys of packaged derivatives or massive fiscal irresponsibility even in relatively good times.  Racing to the bottom--epitomized by the creation, packaging, and selling of NINJA (No Income, No Job, no Assets) loans--out of sheer greed is one of the hallmarks of the moral cowardice that has held sway until now.  Who in his right mind and possessed of a shred of moral courage would loan their own money to someone without income, job, or assets, never mind none of the above?  Playing with other people's money proved too tempting, however, and now that we've been shown that it's not all just monopoly money after all, it is time for moral courage to stage a comeback.  That, more than any headline-reactionary posturing and ass-covering by Pelosi and her ilk, will put this country back on track to solvency and sound practice.  Look Madame Speaker, sometimes the GM overpays for a star pitcher who goes bust.  Yeah, you get burned, but you learn.  With way more resources than any GM in baseball (yes, even the Yankees'), it's time to acknowledge the screwup, let it go, and move on.  We've all seen how many championships the Yankees have won lately by chasing the most popular names with unbeatable resources while the GM's forced to do more with less have been going deeper and deeper into October.  Take a page out of the latter playbook and start spending wisely on the future rather than chasing the too-good-to-be-true flavor of the month.  Chances are, that will only bite you in the ass.  Right, A-Rod?