The bailout backlash problem

posted at 11:36 am on March 16, 2009 by Ed Morrissey

The New York Times writes carefully today about a growing concern in the White House over a backlash on its bailouts for private industry.  Adam Nagourney notes that a rising populist anger against financial institutions and leaders make the subsidies fraught with political peril.  He fails to note, however, the people who spent the last two years stoking all of that populist anger:

The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda.

The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger. …

Beyond that, a shifting political mood challenges Mr. Obama’s political skills, as he seeks to acknowledge the anger without becoming a target of it. A central question for Mr. Obama is whether his cool style — “in a time of crisis, we cannot afford to govern out of anger,” he said in his address to Congress last month — will prove effective when the country may be feeling more emotional.

Even as Mr. Summers was denouncing A.I.G. for the bonuses, he suggested that there was little if anything the government could do to stop them, seconding the conclusion of Treasury Secretary Timothy F. Geithner. But even if their reasoning was legally sound, they also risked having the administration look ineffectual in the face of what Mr. Summers said was the worst financial abuse of the last 18 months, since the economy began turning down in earnest.

“Never underestimate the capacity of angry populism in times of economic stress,” said Robert Reich, a professor of public policy at the University of California, Berkeley, and labor secretary under President Bill Clinton. “A big challenge for President Obama will be to maintain a rational and tactical public discussion in the midst of this severe downturn. The desire for culprits at times like this is strong.”

Both Nagourney and Reich seem to have suffered from amnesia.  The angry populism in the electorate didn’t begin with the bailouts, or the economic crisis.  Democrats spent the last two years — really, the last six years — stoking that anger and attempting to turn it into electoral gold.

The turn towards populism began with John Edwards in the 2004 election, with his “Two Americas” nonsense.  He tried his best to gin up as much class-warfare anger as he could, and almost built it high enough to use half of a term in the Senate as a springboard to the White House, losing out to John Kerry in the 2004 primaries.  Kerry tried harnessing Edwards’ populism but fell short of the presidency.

In this past election, Edwards again tried his Two Americas schtick, but eventually both Barack Obama and Hillary Clinton stole his thunder.  Obama spent a lot of his time railing against high profits in the oil industry, for instance, as a means to gain support for windfall-profits taxes.  Obama made more successful use of populist anger against institutions of wealth and power than anyone since Jimmy Carter, winning a clear majority largely on the basis of his populist rhetoric in a time of economic crisis.

Now he’s worried that his partnership with his former targets will damage him politically.  Obama may be belatedly discovering some ancient wisdom: a rabble, once roused, is very difficult to un-rouse.  Provoking anger and class warfare is a dangerous game, one that usually burns the person who set the torch as much as anyone else.

Michelle has more on how that populist anger has begun to focus on Obama.  We can expect more of this as the economy sinks.  Just wait until people finally realize that class warfare is all Obama has in his arsenal.


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About these bonuses for the execs. . . To ask the question in the form of an analogy:

If the gov bailed out the Omni Hotel chain (or any other top flight hotel chain), would the gov then say, Now that we’ve bailed you out, you can no longer

*Have real plants in the lobby (fire your garden/plant person).
*Put chocolates, roses, etc. on the pillows.
*Offer complimentary breakfasts, drinks, happy hour discounts.
*Use bellhops. Luggage carts will be provided.
*Have an exercise facility.
*Have a swimming pool.

Etc. The government would be asking them to cut back to a Econolodge kind of hotel. If they cut back to that extent, then they are no longer a luxury hotel, and can no longer compete for that clientele. Call chocolates on the pillow extravagant, but hey, if that’s what business at that level looks like, then they need to be able to do it. If mongo bonuses for execs is what doing business at the level of AIG and its competition looks like, then how will AIG stay competitive if they can’t match them? Aren’t they being set up for failure under those restrictions?

smellthecoffee on March 16, 2009 at 1:27 PM

The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda.

It isn’t the banks and Wall St that I have anger towards. My anger is directed at those in government who didn’t let the market punish the banks and Wall St by letting them fail.

OBQuiet on March 16, 2009 at 1:30 PM

I am angry at AIG and the politicians. More so the politicians (Barney Frank, Chris Dodd, Maxine Waters, etc.) who allowed this whole thing to get out of control. I know AIG is a business, but it has now received a bailout and should have a little bit of shame about paying out big bonuses after getting tax payers money.

jcheney on March 16, 2009 at 12:48 PM

The bonuses are contractual. They can’t be rescinded without lawsuits. So other than that, I agree completely with the above quote which amounts to:

I am angry at the politicians. More so the politicians (Barney Frank, Chris Dodd, Maxine Waters, etc.) who allowed this whole thing to get out of control.

Christian Conservative on March 16, 2009 at 1:30 PM

Aren’t they being set up for failure under those restrictions?

smellthecoffee on March 16, 2009 at 1:27 PM

Yes, yes, and oh yeah, yes.

anniekc on March 16, 2009 at 1:31 PM

You know folks, most you haven’t got a clue about social security. In the 55 years I have worked, at a 5% interest rate and with my employer’s and at times my own, matching payments, I have contributed almost $600,000 to the government retirement safety net and medical programs. Actuarialy, if the old country girl doesn’t shoot me first, I could live another 20 years. If I saved the money in CDs instead of sending it to the redistributionists, I could be bringing home more than 150% – 200% of what the government is distributing to me, and when I croak, the Old Girl and kids would have $600K. My dad never got a penny, my sister got one year, my mother got 2 years.

I, by the way, I did without some things I would have liked to have and saved other funds that exceed what ss sends to me. I know I could be a good guy and give my ss to you, but f… you. I paid it, I earned it. If you want to go after somebody, go after the lawyers who are getting the grifters and undeserving the disability payments. Go after those politicians who give our contributions to others for votes. I can see how other senior citizens could be upset if their ss was eliminated or reduced.

Old Country Boy on March 16, 2009 at 12:41 PM

I agree they have no clue. These folks care only about numero uno. To them hardship is no cable TV for 4 hours or the internet is down. In fact I think the reason they are so indifferent to anything not related to themselves is most of them are spoiled rotten. It’s all I, I ,I ME, ME, ME, screw everyone else. We give many of them educations and advanced degrees and they come out of college like little robots….me me I I. I’m not impressed at all. We were wrong. We should have let them struggle like we did to earn our way. They are hollow in spirit and shortsighted in actions. We were the ones who sacrificed and slaved for them. We are the ones getting screwed…by them. Talk about a generation gap. We of our generation were all fools who believed in a better life for our kids. Now we watch them destroy themselves and everything we stood for in the pursuit of material wealth. They have no clue who built this thing we call the USA or why and could care less what happens to it. They cry woe is me I’ve lost on stocks and bonds after 25 years of straight growth. They will throw us under the bus to enrich themselves. Now they want to take our SS and because they want to get a return but not make the investment. Nothing is free no matter what you were led to believe young folks. Sadly it looks like you’ll get your wish and America will pass into history as a fond memory of what might have been until greed destroyed it all.

kanda on March 16, 2009 at 1:32 PM

I do wish that some industrious soul would take the link I gave on the oil speculation and make it work. You may have to go back to the original Steve Forbes or KOTV poating. I think the posters here will go postal when they read it.

Old Country Boy on March 16, 2009 at 1:40 PM

A central question for Mr. Obama is whether his cool style — “in a time of crisis, we cannot afford to govern out of anger,” he said in his address to Congress last month — will prove effective when the country may be feeling more emotional.

Uhhhhhh, does this mean that Mr. Nagourney is suggesting that America voted for Mr. “Cool Style” out of a sense of rationalism? Only now that people are beginning to pay attention to the agenda behind the paparazzi Wizard-of-Oz curtain they are “feeling more emotional”??????

Unreal.

DaveL on March 16, 2009 at 1:53 PM

I do wish that some industrious soul would take the link I gave on the oil speculation and make it work. You may have to go back to the original Steve Forbes or KOTV poating. I think the posters here will go postal when they read it.

Old Country Boy on March 16, 2009 at 1:40 PM

Glad to oblige.

Here is the link read it folks

kanda on March 16, 2009 at 2:02 PM

My guess is the readers hear will basically say that’s business. I doubt they will care unless they themselves lost money on the deal. Color me cynical.

kanda on March 16, 2009 at 2:06 PM

Isn’t this yet another point in favor of forcing these companies through bankruptcy? I’m not sure of how the contracts are structured, and I’m not sure that it matters, but at least the payments made would be heavily scrutinized in terms of who gets paid, when they get paid, and the amount they get paid.

Millions in payments to employees and Billions in payments to foreign banks. Again, what was the justification for bailing out AIG?

Neo-con Artist on March 16, 2009 at 3:00 PM

Out of the 8 million people in New York City, a little over 41,000 of them pay 50% of the taxes collected by the city. I’m willing to bet that a huge portion of the AIG people getting bonuses live/work in New York City. Is anybody caring what it would do to New York’s budget if that money was not paid out and thus available to tax?

They want to tax the rich more so they can pay for their programs, but then they also want to stop the rich from getting paid?

And as I pointed out in another comment, this outrage is like being mad at a friend for using 25 cents to buy a gumball after you loaned him $250.

Here’s when people are going to wake up to the futility of this class warfare: When their boss comes to them and says “I’m sorry, my taxes are going up so to keep this company’s profit level up, I’m going to have to let you go . . .”

PastorJon on March 16, 2009 at 3:55 PM

Out of the 8 million people in New York City, a little over 41,000 of them pay 50% of the taxes collected by the city. I’m willing to bet that a huge portion of the AIG people getting bonuses live/work in New York City. Is anybody caring what it would do to New York’s budget if that money was not paid out and thus available to tax?

They want to tax the rich more so they can pay for their programs, but then they also want to stop the rich from getting paid?

And as I pointed out in another comment, this outrage is like being mad at a friend for using 25 cents to buy a gumball after you loaned him $250.

Here’s when people are going to wake up to the futility of this class warfare: When their boss comes to them and says “I’m sorry, my taxes are going up so to keep this company’s profit level up, I’m going to have to let you go . . .”
PastorJon on March 16, 2009 at 3:55 PM

It’s a bad analogy Pastor Jon. I didn’t loan AIG anything. That company was failing. The Government decided to provide AIG with billions of dollars actually $160 Billion and still climbing in an attempt to save AIG from collapse. The company decided it should pay something like $165 million in bonus money to its empolyees. Where does the government get the vast majority of that money? Of course some will say loans. Well someone has to pay back the government loans and that someone is us, the US Taxpayer. The government should have written the bailout to preclude the bonus payments period or let the company go bankrupt. On any level the taxes paid on the $165 million pale by comparison to what it is costing the rest of us.

You call this class warfare? Who is kidding whom? Some corporate fat cats are ripping us off and laughing all the way to the bank. Should we be bitter about it. You betcha. They destroyed jobs and lives and our wealth. What about them you ask? That’s who they are paying out the bonuses too. I’ll tell you one thing if the big guys didn’t get their bonus they would not pay it to anyone else. You can bet after they lay off the workers they still pay themselves a bonus. It’s a ripoff even may be a crime. NYS Attorney General Andrew Cuomo is going after AIG this afternoon. I hope he puts them all in jail. We’ll see who gets the last laugh.
It not class warfare. Those companies stole from me and you and the rest of us. It’s justice we want…no It’s justice we demand!

kanda on March 16, 2009 at 4:23 PM

Isn’t this yet another point in favor of forcing these companies through bankruptcy? I’m not sure of how the contracts are structured, and I’m not sure that it matters, but at least the payments made would be heavily scrutinized in terms of who gets paid, when they get paid, and the amount they get paid.

Millions in payments to employees and Billions in payments to foreign banks. Again, what was the justification for bailing out AIG?

Neo-con Artist on March 16, 2009 at 3:00 PM

You make good points. Sadly I think after the US finally stops bailing AIG out, AIG will still going go bankrupt to get out of paying us back the money the government gave them. What a pickle we are in. Are we in for a penny in for a pound or do we just flush it and call it a day?

kanda on March 16, 2009 at 4:39 PM

Pastor Jon, there is no excuse for using even .25 of MY MONEY to give to bail out this failing business.

There are no strings attached. The government of the USA gave away billions for NOTHING, and the people that got the money can do whatever they want with it.

And the more Obama acts like he’s upset, the stupider he looks.

OwlorNothing on March 16, 2009 at 4:40 PM

Kanda, thanks for the link. I think you are probably right that readers will probably say that it’s that’s business and let it go. However this “that’s business” caused a lot of good people to pay $4.00 a gallon for gasoline then blame Bush or the oil companies. This “that’s business” led a lot of good people to stay at congress and protest with a drill now. Now that we know that the whole thing was part of a “that’s business” scheme to get rich off the rest of us, what will happen when we really do need to drill now? This little bout of avarice is a cry wolf that will hurt even worse next time. You know, those scurrlious b……., the Hunt brothers accomplished the same thing when they tried to corner the silver market under Carter. Carter got the blame for the failed economy, but it was those “that’s business” men that caused it all.

I believe that the Chinese have it right. When a capitalist business decision affects and hurts the rest of the economy and the Chinese reputation, it is a Capital crime. We tend to treat white collar crime as “that’s business” with a slap on the wrist at most. After all no one was hurt, particualrly those who lost their jobs and insurance, those businesses that closed because of expensive travel, those that could no longer buy food because it became too expensive.

Kanda, you are a wise person and probably right. That doesn’t make this any easier to swallow. Not all morons are on the left, the right has plenty of them that don’t know what is important. I wish Allapundit would take that link and run with it. I know Ed won’t; he is a true believer. My God, this is the reason everything has happened for the last year. We are now chasing phantoms, when we sould be hanging wall street witches.

Old Country Boy on March 16, 2009 at 5:35 PM

Old Country Boy on March 16, 2009 at 5:35 PM

A few years back when Enron died many people lost a lot of money they had invested. Many stockholders were employees who had only Enron stock as a cushion for what life would bring. They lost everything. The same is happening now to many honest men and women. We have no leaders who are bold and decisive. Sometimes we just need a decision even if it is wrong just to right the ship and set it on a course then guide it around the danger spots. An analogy to what we are doing now is like trying to bail out the titanic with a bucket after it hit the iceberg. It’s time for the liferafts and like the titanic we don’t seem to have enough so we continue with the buckets.

We have not heard yet the true extent of the longer term losses to retirement funds and other accounts from this latest crisis. How much was lost from the pension funds of corporate america or private ones. That is money needed to pay for retirement. When those funds fall below a certain level the a company must make up the difference. How will that affect the bottom line. How many jobs will that cost. What will that mean to the national economy. What about the dividend cuts the government is forcing on the companies taking the bank bailouts. Think of the widows and old couples invested in high grade financial securites that turned to junk overnight. They depend on those dividends to pay for food and shelter. It’s nice to worry about the fat cat corporate executives and how terrible it is they don’t get a bonus but who still they get their 7 figure salary. This isn’t over yet. This is a tremendous wealth drain going on worldwide. I hope the government can turn it around but it has never happened before in history. In America I feel the best we can hope for is the governement can buy time until corporate america can purge itself of the corruption and rebuild our economy on solid ground. It’s going to take years. Maybe even another great depression before we are successful unless we get control of it soon.
The clowns calling this class warfare have no clue as you pointed out earlier. Most of us here at hot air are capitalists or we would be on huffpo. We are sometimes like nero fiddling while rome burns. Many of us here have no issue until it hits them personally. That is the saddest fact of all. We only care about ourselves. It is time we admit the truth and get this fixed before we lose it all.

kanda on March 16, 2009 at 6:04 PM

. . .class warfare is all Obama has in his arsenal.

How about “. . .class warfare is all Obama has up his arsenal.”

Dr. Charles G. Waugh on March 16, 2009 at 7:12 PM

New posters may come to the conclusion that we are a cynical bunch here at Hotair. They would be right, but they should know that we come by our cynicism honestly. This young administration, bereft of any foresight, insight or maybe even hindsight, has stoked cynicism. Hell, it’s fed it like a hungry sumo at a buffet.
Every act of the messiah has been to calculated to entrench government control over some aspect of our private lives and businesses, weaken the foundational freedoms we thought were sacred and turn us into fearful, timid subjects of a “benevolent” god-king, meekly waiting for the next handout and praying it will be the solution to a disaster we don’t even recognize was of our own making.
I believe that many of us will refuse to go quietly. Without leadership, some will act rashly. I choose to wait for that leader, but I won’t wait forever. Letters and phone calls will hold off torches and pitchforks only so long.

SKYFOX on March 17, 2009 at 5:23 AM

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