David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).


A Lynch Mob!
March 21, 2009

“Let’s go hang ‘em.”

American history is replete with examples of lynch mobs taking control of a situation and inflicting injustice. In the end most lynch mobs have dealt harmful blows to society. Congressional action to punish AIG employees over the bonus issue is already seeding that outcome.

Members of the US House of Representatives who voted for this bill said they were reacting to the anger of their constituents. In failing to show leadership they have just undermined the entire structure designed to repair the financial system.

Specifically the House did the following:

1. They licensed the abrogation of contracts. Their message is simply that it makes no difference what rules we put into effect now; we can and will change them so you cannot depend on them. Global businesses take heed: Your previous judgment about the sanctity of US law has been rendered faulty by our political leadership.

2. They passed retroactive taxation. Their message is that, whatever you plan with regard to the federal tax code, do not assume consistency and do not build any reliability about your government into your decision making. We, in Congress, can reverse our laws and confiscate your results.

3. They made the tax punitive. A 90% tax on something is like taking all of it. The chairman (Rangel) of the House taxation committee actually admitted that by taxing the 90% he was leaving the remainder for the states. In other words, states are now encouraged to engage in the same form of behavior.

Sure citizens are outraged over the $165 million in bonus payments to AIG staff. But they should direct their outrage at the Congress and not threaten the employees or their families with personal injury. The Congress authorized these payments; Dodd, Geithner, and Obama Administration personnel admitted that. Remember, the law passed without giving anyone the chance to testify in public hearings and without allowing comment on the draft legislation. When the law originally went through the Congress, the House leadership suppressed amendments. This Barney Frank and Nancy Pelosi-led House is especially guilty of ignoring the rule of law. They are now guilty of encouraging the rule of lynch mob.

The result of this House action is already damaging. The federal regulator of Fannie Mae and Freddie Mac has shown the courage to ask that this law not be advanced in the Senate. We expect to hear more from those federal personalities who have the strength to speak up and oppose this House-approved proposal.

But depending on the Senate to soften the law or depending on the US Supreme Court to overturn it is a dangerous strategy. Some Congressmen admitted privately that they voted in favor because of constituent pressure, even though they were really opposed to the concept. They voted “yes” because they were relying on the Senate or the courts to say “no.”

Some damage is already done. Firms that were gearing up to participate in the federal program to be announced this coming week are considering withdrawal. They fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation. The House has undermined the so-called public-private partnership designed to help restore financing of consumer items like automobiles and credit cards. We expect that the participation in the program to be announced this coming week will be tepid at best.

At Cumberland, we are advising institutional clients to take great care when engaging in any form of activity with the federal government. Simply put: a lynch mob can turn on you in a second and cannot be trusted. The risk is now very high.

Other firms that are already acting with TARP monies, or other federal monies for that matter, are seeking ways to deleverage and exit. In the entrepreneurial and risk-taking business and financial community the universal response to this act by Congress is outrage and distrust and disgust.

So far President Obama is silent on this lynch-mob approach. He has yet to declare himself against it.

Obama needs to be reminded of a parallel in history. A century ago a man named Leo Frank was lynched in Georgia for a murder he did not commit. Local politicians supported the lynch mob; those courageous politicians that opposed it were voted down. Frank was an innocent victim. His subsequent posthumous pardon did not undo the harm.

A century later a man named Barney Frank brags about the earmarks he obtained for his Congressional district (see his website). This modern Frank foments the modern-day version of a lynch mob. The House of Representatives and the Financial Services Committee under the leadership of Barney Frank have made the first day of spring, 2009 a sad day for America. They suppressed the rule of law; they chose the rule of the lynch mob; they are now going to have to live with that result.

When the citizens of America realize what the House has done, they may redirect the lynch mob against the Congress. That is coming next. As Yogi Berra said: “This ain’t over till it’s over.”


We fly to Europe in a few hours and will chair the Global Interdependence Center delegation at the Paris conference next week (see www.interdependence.org ). Meetings will include central bankers, global investors, and businessmen. Our private roundtable will now also address this House action and what it means for US policy and American markets. Current scheduling from Paris includes CNBC on Monday at 10 AM New York time and again on CNBC on Tuesday morning at 5 AM New York time.

David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok@cumber.com

Category: BP Cafe

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “A Lynch Mob!”

  1. gloppie says:

    where is the sign-up sheet ?

  2. sourcethree says:

    well said – this entire episode is tragic

    “In failing to show leadership…”
    “They are now guilty of encouraging the rule of lynch mob.”

    It all starts with the president – he’s given no signal that Congress needs to reign its behavior in and actually encourages them by fueling the fire with his own periodic statements about the greedy bankers, justice, penalties and such – the president needs to be above the fray, keep his emotion out of it and think of the consequences of the actions being not only spoken about, but put into law

    in that context, I see it this way:
    Bernanke went on 60 minutes and addressed the nation – followed that up with one of the most aggressive moves by a Fed Chairman ever
    Obama went on Leno and cracked a joke about handicapped people
    – when will Obama realize that being prez isn’t just a series of campaign-like photo ops? – apparently, he won’t realize the seriousness of the situation we’re in until we actually reach Depression II – get with the program!

    Obama is truly showing how ‘green’ he is, and I don’t mean his energy policy – he continually comes out with plans or statements that are of a more extreme view then has to reel them back toward reality when it becomes clear they won’t work/have consequences that he initially didn’t contemplate or ignored (Gitmo closing, budget, etc.) – we need a leader with clarity of a workable vision, especially given the myriad of problems we’re facing today – he doesn’t have a lot of time to work the kinks out, so to speak

    it is truly amazing – we have the Fed and the Treasury trying to get the banks and the economy back on their feet, and then the Congress and the President sabotaging their actions toward this end at every turn – what a battle – nobody wins

  3. some_guy_in_a_cube says:

    David, it should come as no surprise that at a time in our history when they need to step up, our dysfunctional government is off in the weeds. Our government has been dysfunctional for a long, long time.

    Those looking to the Beltway Mob to save the day are going to be deeply disappointed.

    Cash is king, until trust is restored.

  4. Taylor says:

    “Obama needs to be reminded of a parallel in history. A century ago a man named Leo Frank was lynched in Georgia for a murder he did not commit. ”

    Whatever the merits or otherwise of the Congressional action, I find this comparison, frankly, obscene.

  5. sourcethree says:


  6. fenner says:

    Rarely do I disagree with you. You’re simplifying here far too much. AIG should be considered a bankrupt company that has been artificially propped up by US tax dollars. In order to determine whether Congress is right to abrogate bonus contracts, you should study where in the creditor pecking order million dollar bonuses find themselves in the event of bankruptcy. What judge would have egregiously high payouts such as that over and above senior debt, let alone the common share holder? To get all huffy about abrogated contracts when the “legal” situation of AIG was altered when they accepted taxpayer money is almost ludicrous.

  7. johnbougearel says:


    You know, this really begets what is deserved. The menage a trois of AIG, the govt and govt-sponsored banksters conspiring to lie in the same bed together is not a pretty sight to behold. And we see that it is a relationship that does not work.

    This govt has been far too permissive to date with AIG and the govt-sponsored banksters. The govt has acted no differently than a permissive overprotective parent throughout this whole farcical charade. We have a govt without balls. They failed to hold AIG and the banksters et.al and accountable for their reckless irresponsible behaviors back in September/October. They failed to let insolvent institutions fail and suffer the consequences of their bad behaviors.

    And so now we have the overly permissive coddling parent that has to get punitive with their kids because they don’t know how to hold their children accountable. Now both the parent and the children suffer. If these punitive retroactive taxation laws somehow do undermine the so-called public-private parternship, because the whining bratty children can’t trust what mommy and daddy will do next if they misbehave ~ WELL THREE CHEERS FOR THAT!

    That public partnership that subsidizes the banksters and their sure to be newly formed private enterprises to buy back their own trash at 80-90% subsidized rates is about the worst possible outcome for the taxpayers and investors seeking transparency, who only want these shitty assets to clear at market prices so confidence in the financial system can be restored.

    What will commercial banksters gain by this? They get to sell their old trash at mark to make believe prices to their own institutional clients at 15 cents on the dollar firesale prices, because the govt/taxpayer will fund the other 85% of the make believe marks the banksters give them. I am sure this three way menage a trois will entail significant conflicts of interests since their aren’t any Chinese walls left standing.

    How could the public/private menage a trois be helpful or fair for the economy and the American public in any shape or form?

    Everyone in America ought to rightfully appreciate the irony on the power struggle between the govt/parent and bankster/whining brats. In fact, the govt is hardly being punitive enough. Not by any stretch of the imagination.

    And how dare the institutional clients take the moral high ground and santimoniously express outrage , distrust and disgust by Congress? Why, because they won’t be able to fully exploit this public/private parternship as they would like, which is no more than the same great transfer of wealth that Paulson has been seeking since he came up with his lame-brained M-LEC? Don’t cry for me Argentina! If anyone is going to take the sanctimonious high ground it has to be from those who fall outside of the financially illiterate Congress and crooks on Wall Street.

    And as for the misfortunate Leo Frank who politicians lynched for a crime he did not commit ~ guess what? These were the same type of ball-less politicians 100 years ago that we in general have in office today. Like then, we have far too few courageous politicians willing to make the hard choices, the right decisions. Nothing has changed but the names.

    And let us not forget that the banksters have been lobbying the past 30 years or more to suppress the rule of law regarding bank regulations. None of this spat would be taking place right now had not the banksters lobbied to tear down the chinese walls set up in 1933 prevent precisely what has happened happen.

    The proper and right decision that lawmakers need to make is to put the bad banks into recievership, shit-can the corrupt managements, get rid of the crappy assets, and recap the banks by making the bank bondholders take a 40% haircut so that when their balance sheets continue to rot over the next 18 months they can ride out the storm.

    Until then, the lawmakers and banksters can go on fucking themselves and the taxpayers. But they could do us all a big favor and take it behind closed doors rather than displaying this public exhibition. We the people do not need to see or hear about any of this spew. In fact, could you shut them all up, they are downright annoying?

  8. ruick says:

    so the congressmen listened to their constituents for once?? how dare they!! democracy has failed (worked) for us!

  9. Kyle says:

    1. Oh no, abrogation of contracts!!! Are there any contracts which are set in stone? People reneg on the terms of contracts all the time. I never sanctified US law, and I hope no one else does either. Think of all the bullshit laws we have on the books in this country. Speed limits, drug possession laws, 21 drinking age just to name a few.

    2. I agree, retroactive taxation is a bad thing, this law is yet another undeserving of sanctification.

    3. Punitive. It’s bad because it’s retroactive, not punitive. The architects of this disaster deserve nothing less than hell’s eternal flames. So I wouldn’t worry about whether it’s too punitive, but whether it’s targeting the right people.

    “Sure citizens are outraged over the $165 million in bonus payments to AIG staff. But they should direct their outrage at the Congress and not threaten the employees or their families with personal injury.”

    I agree fully with this. I’m not so angry about the bonuses. I am angry that AIG is suing the government for back taxes. But yes, I have already directed my outrage at congress, most of them deserve to rot in hell just as much as the AIG execs.

    Congress has been fully corrupted by monied interests over the last 20 years. They passed laws allowing banks to create nearly infinite amounts of money. The banks gave it to whomever they deemed (credit)worthy, mostly themselves, and now we are living with the fallout. The Treasury, Fed, Congress, and the entire banking system are all complicit in this, and the poor are paying the highest price.

    “Other firms that are already acting with TARP monies, or other federal monies for that matter, are seeking ways to deleverage and exit.”

    How is this a bad thing? Maybe if we had a few lynchings they would stop blackmailing us with this “systemic risk” nonsense. It’s only systemic if they say it is. They are the system, they make the rules. Just because they have a piece of paper claiming that if X goes bankrupt then Y owes Z $500 billion doesn’t mean taxpayers or anyone really has to pay it. If we just cancel all these CDSs, will the world really end?

    Good luck avoiding the lynch mobs in Paris.

  10. moham says:

    “They licensed the abrogation of contracts”…

    Are you suggesting the House of Reps create an environment where Big Business honor their contracts even when it is not necessarily in their immediate interest?

    Now THAT would be something, wouldn’t it? Whoever heard of such a thing…I need to go ponder this for awhile…

  11. YY says:

    I normally respect David’s commentary. But…
    he really does not get it this time and obviously did not think through his writing (from title to content).

    It is one thing to think that congress has been impulsive and angry instead of thoughtful and another to describe it as a lynch.

    Needless to say, Congress makes the laws, and there are quite a few irrational laws on the books.

    AIG should have been lynched back in 2008 the first time they showed up begging, then their brilliant employees would have been on unemployment roll keeping warm burning their paper contracts on bonuses.

    This episode is showing us how large the disconnect is between Wall st and Main Street (or between airheads and common sense).

    Instead of the financial industry saying mea culpa they have an incredible Chutzpa to threaten the landlord and ask for protection-money instead.

    I have a feeling that some big names are ready to fall in the next few months, it is long overdo.

  12. matthew_t_hummel says:

    I understand the anger of the sentiment. However, I will say this – what’s to stop Congress next time from deciding any of us are making too much money? I beleive this to be an extraordinarily dangerous precedent to set and that we do not want to see what is on the other side of this Rubicon.

  13. freejack says:

    “At Cumberland, we are advising institutional clients to take great care when engaging in any form of activity with the federal government”

    Oh no. Anything but that.

    Why that could result in the government directly providing services once more instead of, as per the tenents of “The Washington Consensus”, privatizing them to the closest corporate political donor.

    Can you imagine entire industries turning down the chance to suckle at the public teat because of the ‘danger’ involved?

    No? Me neither. But we can dream can’t we?

  14. dimitris says:


    Minor correction: The banksters’ trash recycling operation taxpayer screw rate seems to have been set at 97%, not 90%:


    Now, where did I put my pitchfork…

  15. deanscamaro says:

    Well said. Just because the elected officials blew it by letting this slide by does not mean these financial a__holes should be allowed to get away with moral depravity. We will, hopefully vote the elected officials out of office who didn’t do their jobs. The contracts for bonuses are still in place; just because they are being taxed for unreasonable payments didn’t throw the contracts out.

    “In the entrepreneurial and risk-taking business and financial community the universal response to this act by Congress is outrage and distrust and disgust.”

    And we are supposed to feel bad because of their outrage, distrust and disgust????? Try operating above-board and the public won’t be incensed.

  16. dunnage says:

    The Leo Frank reference is disgusting. As far as Congress, how do you plan on lowering their approval ratings? Can your institutional customers trust one another? How are their various sets of books looking? Hell, if they have a solid balance sheet, I’d recommend they take 20 – 40 billion from the government whenever they can get their virtuous hands upon the cash. Be nice to have, do you not agree? As far as Obama, he’s given you a 100% Wall Street Treasury — may want to ask your institutional customers what it is that they want besides cash.

  17. jandroid says:

    David –

    Normally I enjoy your commentary, but give me a break. if you want to talk about a lynch mob, what about the lynch mob paid for by the finance industry that tore apart our regulations over the preceding 10-15 years leading to this catastrophe so they could make insane “profits”. I agree that we should be angry at Congress (dems/repubs alike) for failing to show leadership, but not because of this tax. Instead its failure of true leadership in the recent past to stand up to this deregulation nightmare neutering our regulatory bodies and laws. Also, I don’t need to focus my anger solely on Congress. I have plenty of anger to go around. I’m sure some of the traders that have the potential to lose their “bonuses” did well enough over the past several years while they were creating this toxic waste. My outrage with the bonuses is based on the fact that we are now being asked to pay a bonus to someone who is cleaning up a mess that they made. They should feel lucky to have a job. If the fed hadn’t stepped in, AIG would have ceased to exist and I can almost guarantee no bonuses for AIG employees. In my opinion, this is just the tip of the iceberg. Commentary like this shows just how out of touch folks in the Financial Services industry can be from reality. This makes you look like an apologist for AIG.

  18. Vega says:

    Gimme a break. STOP WHINING ABOUT NOT GETTING A BONUS. They’re lucky they still have JOBS. Fucking-A, get real KOTOK. Abrogation? What the fuck are you talking about? THESE GUYS ARE CROOKS, THEY KNOW IT. So they blow a $300B hole in their balance sheet and it should by all rights be nestled at the bottom of whatever next to Fredo, yet it’s okay for ME and MY KIDS and EVERYONE ELSE WHO PAYS TAXES TO PAY THEM A BONUS AND PAY OFF THEIR COUNTERPARTIES.

    Hey, the terms of the contract CHANGED when your company BLEW UP. Unfuckingbelievable. And I have MANY friends who work on the sell-side who are pissed they won’t get bonuses and my patience listening to them is now GONE. STFU. You want a bonus? MAKE SOME MONEY, FIND PRIVATE INVESTORS TO FUND THE LEFT SIDE OF YOUR BALANCE SHEET, FIND SOMEONE BESIDES THE GOV’T TO GUARANTEE ALL THAT DEBT YOU NEED TO ROLL.

    Bunch of jerks.

    Here’s the deal: the rules have changed, amigos. Govvy stuck its BIG FAT ASS in and saved Citi, BAC, WB, BSC, WM, and who else I can’t remember. The rules of BUSINESS have been abrogated. So suck it monkeys, stop your bitching NO BONUS FOR YOU.

  19. turnbee says:

    I guess comments only get through if you bash this piece (and bankers)?
    is that the rule?
    my comments keep getting vaporized by wordpress or something

  20. wngoju says:

    I agree with fenner, above, and others who say this post is wrong-headed. Balancing the sanctity of legal agreements against vast, obvious, egregious, “clear and present” harm done to society, IMO egregious harm is the area requiring our attention. Remember Lincoln and Habius Corpus.

  21. GeorgeNYC says:

    A true plutocratic rant! I admire the almost starry eyed exhortation of principals! I thought that the entire point of believing in free markets was that they were “principle neutral” in a way. I mean otherwise you might have to start thinking about other, less convenient “principles” such as human rights and all that other “lefty-liberal” things like the right to health care, housing, etc.

    As a lawyer, my initial response was to think this bill was unconstitutional. However, here is an excellent analysis that pretty much puts any of that sort of statement to rest.


    Is the law punitive? You bet. It is even “confiscatory.” Quelle Horreur!

    However, I think the “principle” is quite simple and quite clear.

    We were told that these entities posed “systemic” risk. (particularly AIG). Ummm. “Systemic” I believe has a root of “system.” I mean we are not bailing out these companies because we LIKE them. Nor even became we NEED. them in particular. Rather we were told, in extremely urgent tones, that their failure poses a risk to the ENTIRE financial system.

    No stepping back for a moment. I am sure that everyone knows that BANKRUPTCY basically ABROGATES all contracts. I mean maybe the clients of Cumberland Advisors still believe in debtor’s prisons and things like that but surprisingly our society no longer puts people in jail simply because they are broke. Again Quelle Horreur.

    Now, the natural result of a company or individual that fails to pay its bills is…that’s right INSOLVENCY!

    So. Put simply. AIG would have gone into bankruptcy! it would have stopped functioning. Kaput! Finito! Finished! All of the debtors would have then, through the bankruptcy process, have basically sold off the assets and fought over the remaining stuff.

    Now. All of the employees. Guess what happens to them? They go home. They are fired. They maybe get their last paycheck. No bonuses. Nothing. Nada. Not a t’ing.

    Unfortunately, that also really guts the concern over “abrogation” of contracts.

    Now. let’s go over this one more time. Why did we “save” this company? Not because we LIKE it or NEED it or even WANT it but because we were told that if it went down then EVERYTHING would come to an end.

    So all of this nonsense about YOU BOUGHT IT YOU OWN IT is just nonsense. WE THE PEOPLE do not want to go into the insurance business. This is not some tinpot dictator taking over the oil refineries and mismanaging them.

    No we did it because we were told that LIFE AS WE KNOW it would come to and end. Well. OK. Maybe just the Financial SYSTEM. There’s that word again. SYSTEM.

    THAT MEANS EVERY SINGLE ONE OF YOU AND YOUR CLIENTS. There. I said it. You can tell me until your blue in the face that YOU did not take any government money. So what. We did it to save the SYSTEM. That includes every single financial person out there. All the advisors and brokers and traders and everyone else.

    So. You see. You can try to wheel out the morality card. The OH MY GOD the horreur of it all card!

    Save that for stuff that really matters like Darfur or starving babies.

    Now it may be that the best way forward is to resume our previous plutocratic feeding frenzy. I doubt it, but hey, anything s possible. But until the time that we have really figured everything out and decided how to go forward, pretty much all bets are off in terms of what “rights” you may have as a participant in the financial system. If the government needs to confiscate all of your “bonuses” in order to pay off this mess. Well, Guess what? – the government gets to do that. That means EVERYONE. Not just AIG. That is the “fair” thing to do. Why should I shoulder the burden of your mistakes. (I know. I know. It wasn’t you. It was someone else. Of course.).

    Yes its not “fair” or “moral” or even “rational” at some level. You are absolutely within your rights to speak out about your feelings of injustice. Maybe you can convince the public that your way is the right way. Things sure looked good for the market cheerleaders and those who agonize over contract rights back when times were good. Oh. But look what a mess you have made. I think you should consider yourself lucky if the tide just ends with a confiscatory tax. I think when everyone really understands exactly the type of looting that has occurred and is occurring right now that will seem to be a polite response.

    Now I know. As all plutocrats claim. You have worked hard to gain your position. You have built something valuable. (or so it seems). It’s just not fair!! Well, I say! Hooray for the market! It can destroy wealth as much as it can make it. Only when our elites are crushed will it be possible to build a truly just society in this country.Only when you can see past the abstractions that give your life false meaning. Only when you realize that this is truly your creation as much as Goldman’s or the Treasury Department of the Gov’mnt. Only when you realize that your smug screed above is the true failure of leadership will it finally dawn on you where the real problem lies.

  22. turnbee says:

    Barry R – wtf?

    I find it almost suspicious that every single post here is against David’s position/article, while the 5 comments on the WSJ article that the comrade above was so kind to point out are actually against this tax (or at least think it is unconstitutional)

    I’ve tried to post a comment in favor of David’s piece, but they seem to just vanish

    are you censoring the posts?

  23. turnbee,

    there’s been a outbreak of that, recently..
    though, this point: matthew_t_hummel Says:

    March 21st, 2009 at 3:24 pm
    I understand the anger of the sentiment. However, I will say this – what’s to stop Congress next time from deciding any of us are making too much money? I beleive this to be an extraordinarily dangerous precedent to set and that we do not want to see what is on the other side of this Rubicon.

    I tend to concur with..

    past that, AIG, et al. are Insolvent/BK, they should go pound sand..

  24. turnbee says:

    thanks MarkEHoffer

    thanks for the info, Ididn’t think BR would be doing that, but it just seemed strange

    regarding the missing posts, I guess the gov’t finally went after the pay of the computer hamster behind the operations of this site and in it’s infinite wisdom just realized it wasn’t worth working if it wasn’t going to get paid…

  25. Dow says:

    Well said jandroid. Thank you.

  26. turnbee,

    those are interesting links, BR/TBP had broached those similiarities last year..

    and the thread, here..

  27. JoWriter says:

    Bougereal – “whining bratty children can’t trust what mommy and daddy will do next”

    I think this metaphor is off the mark. Agree that there are whining bratty children, but think the methphorical counterparty should be a teacher. Now consider what happens when the teacher changes the rules to punish the whiny bratty children. Great, right?

    What happens, and this is my great fear, when the teacher turns in frustration, thinking another segment of the class has misbehaved, and lashes out at the good students sitting quietly at their desks with hands folded?

    So, the 90% tax on those bonuses can have very bad consequences and certainly does have major elements of a lynch mob. I know this because my very own ‘conservative” congressman, Greg Walden (R.-Oreg.), voted for the tax, as well as both bailouts, as well as the stimulus package. I think these guys are out of control and have completely lost touch with reality. They are reacting out of fear, not rational consideration of what would be the best steps to take to remedy our dire situation with the least collateral damage.

  28. Lunch Meat says:

    As long as they lynching is bloodless and metaphorical, I personally have no problem throwing good, rich red meat. As Warren Buffett says, there is a class war going on his country and his side has been winning. This may be an overreaction to some degree, but it is also a necessary part of the corrective process.

  29. dps says:

    “We fly to Europe in a few hours and will chair the Global Interdependence Center delegation at the Paris conference next week (see http://www.interdependence.org ). Meetings will include central bankers, global investors, and businessmen. Our private roundtable will now also address this House action and what it means for US policy and American markets. Current scheduling from Paris includes CNBC on Monday at 10 AM New York time and again on CNBC on Tuesday morning at 5 AM New York time.”

    Talk about hubris, I wonder whose side all these guys will be on?

  30. wunsacon says:

    These jackasses at AIG hold the financial system hostage and you (David Kotok, sourcethree, et al) want to defend excessive compensation AT TAXPAYER EXPENSE for abysmal performance? Americans are losing their jobs left and right, on Wall Street and Main Street. If these bums don’t like it, they should definitely “walk” and find another job. There are a thousand people looking to replace them.

    David and sourcethree, sorry but you seem to be defending an Wall Street’s entitlement mentality. It’s a sick society, where greed and short-term thinking generated incalculable losses and threatened the whole system. The AIG bonuses are part of the problem. And, indeed, you seem to be part of the problem. As dps points out, David’s sales pitch at the end suggests David is part of the Wall Street establishment. That establishment is in need of some more of that good old creative destruction.

  31. wunsacon says:

    I just noticed the Leo Frank reference and am, too, similarly disgusted.

  32. usphoenix says:

    How very interesting.

    Perhaps there’s this wake-up call.

    Our form of government is not functioning too very well. Well, the fat cats are lounging, while everyone else gets “hind teat”.

    The House of Representatives is not only an anachronism, it is a canker sore that won’t heal.

  33. noland says:

    The plutocracy has been steadily junking the rule of law for the last few years. Now they cry stability!

    Did the years of systemic swindle give us stability? Ha!

    We should go back 10 years and take everything back over $500k a year from anyone in the finanical sector, income and capital gain, as reparations.

    That being said the tax the House passed is just a stunt to defuse the anger of the masses.

  34. d4winds says:

    “They licensed the abrogation of contracts.”
    Yep. They have the done same to far greater extent with the auto workers. Oh, the second is a bankruptcy, prepackaged or otherwise, you say? Yep, and AIG isn’t?

    “They passed retroactive taxation. Their message is that, whatever you plan with regard to the federal tax code, do not assume consistency …”
    I’m sure not opposed to retroactive tax give-aways, however–like reducing the capital gains tax.

    “They made the tax punitive. A 90% tax on something is like taking all of it.”

    How is it “punitive” to pay someone 0%-10% of a positive amount when the proper payment is an extremely negative amount? You really have your facts mixed up.

  35. Moss says:

    All points are out of context and as such are merely opinionated narrative.
    You forgot to mention that AIG is bankrupt and if allowed to fail all contracts can be voided.

    After that minor point is cleared up the other points are moot.

    Relying on Congress is not the preferred approach.
    Did u forget that the F@&%king financial system failed!

    Let me repeat…….. the Financial System FAILED!!!!!!!!!!!!! Not a single institution, the whole system. Come on, you can say that 10 times …. Systemic Failure, Systemic failure, Systemic failure.
    All hyperbole needs to be tempered by that fact.

  36. sourcethree says:

    wunsacon –

    I obviously can’t speak for David Kotok, but I’m not defending what AIG did at all – just saying that this doesn’t seem to be the best way to handle this situation as it can have major disruptive consequences much broader in scope (that appears to be David’s message too)
    – one can emotionally judge in a fit of rage what is right or wrong and miss all of the unintended consequences that will result, or one can take a few days (as the Senate is doing) to think it over to come up with a better plan that has much fewer unwanted repercussions

    this is way bigger than “everyone vs. AIG”, or in some cases, “everyone vs. the big bad bankers”

    our Congress needs to chill out, stop for a second and think – that wasn’t a ‘crisis’ bill that the House had to pass in 24 hours or their window of opportunity would have passed by – i.e., there was no need to push it through in a single day without the ‘rigorous’ process of debate

    people making the link that *all* employees should be punished because *all* the firms are have acted negligently is absurd – its like punishing all the retail workers because their companies went bankrupt (hint, their companies are going bankrupt because we’re in a recession/depression, not because they did anything wrong) – same thing with airlines, auto cos., and most of these banks that ‘Moss’ says have failed

    I also think there is a misunderstading of just what a bonus is on Wall St., which now that they’re talking 90% tax for compensation of $250k or more, means far more people than just the executives or high-risk-taking traders, etc. will be crunched

    to give it some perspective – lets say you’re a salesman in another industry – be it of xerox machines, sheet metal, whatever – name your product – you get a portion of your pay in salary – you get a portion of your pay in commission – the total makes up your compensation – even if you perform poorly, you still get some commission for whatever sales you generated – but your total comp will be way down to reflect your weak performance for the year – ITS THE SAME ON WALL ST., but substitute “bonus” for “commission” – the problem is, most of main street only gets a salary and then maybe a christmas token bonus of some sort – so they see the word ‘bonus’ as equivalent to ‘gift’, not ‘compensation’ – but taking away bonuses on Wall St. (or taxing them to death) is literally the same as not paying them for the work that they did, and most of the workers haven’t done anything wrong, other than be employed at these firms

    the reason why Wall St. firms structure their pay this way? – so that in bad years, they can truly restrict the total compensation – if everyone on Wall St. got a high salary, and a tiny bonus, then the firms would only be able to save a tiny amount of money in lean years if they didn’t pay out bonuses – but the way its structured now, in lean year, they can really whack the bonus figure down, thus keeping keen control on overall compensation – yes, the bonus figure will still *look* big for the industry, but its only because of this pay structure
    - forcing companies to permanently pay less in bonuses just means they’ll pay more in salary, which means they’ll have less control over their expenses in the future and more banks will run into trouble in economic downturns of any significant magnitude

    there’s a good argument to be made for limiting excessive compensation at the firms that received TARP money – but defining ‘excessive’ and applying any changes in a way that maintains the rule of law without trashing our Constitution requires more than a knee-jerk bill passed in the blink of an eye
    (never mind the fact that what the House wants would actually be completely counter to fiscal and monetary policy that are actually trying to nurse the banks back to health to get the economy re-started)

    in the end, with proper regulation, banks won’t be able to take the excessive risks they’ve been taking – thus, profitability will be down, and compensation will reflect that… and without gov’t intervention deciding the micro of how much people should get paid

  37. bruerr says:

    “Sure citizens are outraged over the $165 million in bonus payments to AIG staff. But they should direct their outrage at the Congress and not threaten the employees or their families with personal injury.”

    Kotok bases his statement on false supposition. The employees have NOT been threatened nor their families. It is an inaccuracy that relies on dishonest presentation and fictionalizing facts, which are not in evidence.

    The list of employees receiving potentially over sized bonuses (without justification), inside a corporation that is NOT profitable, has remained confidential. Such a list has been held in private by the corporations, and to date is still privately held.

    The ruling last week, explained such employees who benefit by bonuses paid out of a corporation that is NOT profitable, shall not be entitled to any special protections. It was determined there was no risk associated with making public information public, because no one had presented actual evidence that anyone on the list had been threatened. Since the list has been held privately, the argument that the public has been threatening people on the list is false. The public could not have threatened anyone, because only corporate insiders have had access to the list. If anyone has been threatened it was by a corporate insider who has authorized the threatening of persons on the list, to make it appear the threat came from the public, when in fact, the public has not had access to the list of beneficiaries.

    It was only a hearsay type argument, not a factual argument. The supporters of bonus paid out by a corporation that is NOT profitable, have made up this argument. They have simply fictionalized the idea, and presumed to offer the fiction, falsely, as fact.

    Kotok himself, knows that the only way for current employees on the list, to have been threatened prior to the ruling, is if the employer had released the list, which the employer claims, they did NOT do.

    Kotok’s write up suffers from this integral fictionalization and indulgence to present false information, mixed with events that have happened.

    I say we hang the bastard.

  38. Mannwich says:

    Your pals at the country club are proud of you, Mr. Kotok.

  39. bruerr says:

    Since no person on the list could have been threatened, because the list has been held privately, one has to wonder who is really … “seeding that outcome?”

    Trying to act as an instigator …

    Using deceptive half truths to make a point … Suggestive … half truths…

    Mr. Kotok, fomenting discontent so soon in the new administration? I should have thought a Wharton graduate would have waited at least a year ….

  40. dunnage says:

    Contracts are broken at leisure. Don’t they have a class on Airline Bankruptcy at Wharton? You guys should be glad that Congress is looking at $163million , Red Herring Special. That’s what they’ll be talking about around the world: give trillions and chase pennies.

    Oh, and your right wing Supreme Court: Aren’t they the folks that allowed Eminent Domain to take good homes to build a mall? They’ll protect you.