Pearlstein: Outrage Over AIG

Acting with lightning speed, the Democratic-led House has approved a bill to slap punishing taxes on big employee bonuses from firms bailed out by taxpayers. Video by AP
Steven Pearlstein
Washington Post Columnist
Friday, March 20, 2009; 12:00 PM

Washington Post columnist Steven Pearlstein was online Friday, March 20 at 12 p.m. ET to discuss the outrage over AIG.

Read today's column: Let's Put Down The Pitchforks.

The transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.


Mount Rainier, Md.: Steven, Yes, we are all collectively to blame. Even me, though my record of paying my credit cards in full every month is better then many. And yes, as Charles Krauthammer put it today, the $165M in AIG bonuses is small potatoes in terms of the wealth lost and the money needed to keep the economy afloat. I'll agree with you on that.

Problem is, no one in Washington seems to be willing to haul Wall Street in, read them the riot act, and make it stick. The salvation of the economy, like it or not, will be at the hands of Treasury and the Fed, but only if the banks, brokerage firms, hedge funds, and the like all cooperate. So far what we're seeing is them taking tax payer dollars, and continuing to look out for their own short term self interest instead of the long term good of the nation. They are almost daring us to force them into collapse.

Given all that, what do we as a nation do?

Steven Pearlstein: We read them the riot act, we make it clear that the old ways of doing things are no longer acceptable, we throw a few of them in jail and we impose a tough new regulatory regime. But we don't send signals that we intend to nationalize the entire financial sector and subject every spending judgment in every company to congressional and press scrutiny. See the difference?


Laurel, Md.: I'm probably missing something crucial here, so I'm trusting you to put me straight.

Credit Default Swaps seem to be a large driver of the current economic mess. Companies insured assets they didn't own, and the insurers took on much more obligation than they could ever pay, because they assumed they would never have to. It was, in many ways, the world's largest Ponzi scheme.

What happens if the government declares all CDS null and void. No more premiums owed, no payout made. Some cushioning would have to be provided by taxpayers, and some companies would be hurt more than others, but it seems to me the companies most heavily involved in these devices should be those that bear the brunt of the shakeout.

This is what common sense tells me, but I know it's more complicated than that, and I'm missing something. Please help me out, and thanks for not only remaining the voice of reason, but for consistently explaining these complex issues in language an engaged layman can understand.

Steven Pearlstein: Look, some investors tried to hedge their risks by entering into credit default swaps, and some people thought it was a good gamble to take the other side of those bets. The volume of oustanding CDS is enormous, and the best thing to do is to let the winners of these bets win and the losers lose, and worry about the few instances in which the demise of the losers would bring the whole system to a crashing halt. In those instances, the government has to step in and make good on those contracts. Its unfair. Its a lousy precedent. But its what we need to do. There are lots of counterparies who will lose and can absorb those losses and there is no reason for the government to get in the middle of those transactions.


Bonn, Germany: Exactly what is the purpose of bonus payments in the finance sector? I understand that bonus payments are in order if a company shows a profit at the end of the year. That's profit sharing and ought to be more common. But a bonus as an entitlement? A bonus even if the company goes bankrupt? Let there be no doubt: Many of those who received a federal bailout are in fact bankrupt.

Steven Pearlstein: Part of the problem here is semantic. To most of us, bonus means a payment above and beyond a market-rate base salary to reward extraordinary performance by the individual, the group or the company at large. But on Wall Street, its not just that. It is a form of variable pay that is in lieu of a market-rate base salary. As such, just because a person or a group or a company has a bad year, it doesn't mean that the bonus should be zero. It means it should be a whole lot less than last year. You wouldn't ask a salesman to give up his commissions because he had a bad year, or the company lost money. By the same logic, it is an oversimplification to say that all bonuses should be eliminated at hedge funds and investment banks that lose money. A lot of these people may have had nothing to do with the bad decisions that caused the problems -- in fact, they may be the ones continuing to generate profits. So this kind of broad brush tarring of all bonuses for eveyone in a financial institution is really rather dumb.


Columbia, Md.: Enough is enough. The only way to punish the evil-doing financiers is to take back their bonuses and all the federal bail-out money they've received. So what if the economy collapses! We have suffered enough. It is time to suffer some more to teach those rich folks who won't suffer nearly as much as us a lesson they might not forget. So pardon me while I torch my house and poke myself with a pitchfork to teach them that lesson! Rah!

Steven Pearlstein: I hope you're being facetious.


new york: HI Steven:

I read your column about fairness. Here's my question: what about patriotism?

Is it really so out of line to ask these cosseted thugs (who are, if I read the news correctly, threatening to sabotage the system if they don't get their bonuses, in full?) to sacrifice some of their money so that the country can recover?

You've got troops coming back from Iraq, many of whom won't have much to come back to, especially now. Then you've got Geithner and his banker pals, most of whom would suffer minor financial inconvenience at the very worst, in foregoing their bonuses and outrageous salaries.

So let's forget fairness. What about patriotism?

Steven Pearlstein: Its not out of line to try to get the money back from cossetted thugs. But make sure you are getting the thugs, and not their innocent colleagues.


Tampa, Fla.: I just read that I as a taxpayer just bought 1 trillion dollars of "toxic assets". What did I buy? Did I buy houses and mortgages? Did I buy "credit default swaps"-whatever they are?

Steven Pearlstein: You probably bought packages of mortgages, most of them in good order, but a few too many that weren't. You also bought them at a discount to reflect those problems. Was it enough of a discount? Time will tell.


Washington, D.C.: Am I the only one who thinks these retention payments are perfectly acceptable and that retroactively breaking these agreements is morally reprehensible?

At some point in the past, these employees were given a deal, stick around and help fix this company and we'll give you a bonus payment to compensate for your lowered future earnings potential. That bonus factored into their decisions to stay where they were versus looking for another job (any employee could see where AIG was heading and could plan on leaving before things got worse). Forcing them to give up this bonus now, after they've stayed, is cheating them out of their rightfully agreed upon compensation agreement.

You wouldn't hire a contractor, agree to an estimate, and then decide after he's done the work that conditions have changed and therefore you aren't going to pay him.

The fact that they make ten, or even a hundred times what that contractor makes doesn't change the underlying fairness of it.

Steven Pearlstein: I think it is quite fair to ask them to give back a big chunk of the bonuses, considering the changed circumstances. A few hundred thousand dollars should be enough. Better yet, renegotiate the bonuses so that base pay is higher and bonuses a whole lot lower, with some incentive pay for the quality of their work.


Boogeyman, The Closet: Steven, please help me understand deflation. Most economists view it akin to the end of times, with prices and wages spiraling hopelessly downward. But if falling prices were an incentive not to invest, nobody in the past twenty years would have bought a computer, cell phone, or tv. But we have, in astonishing amounts, even as we know that next month we could get the same product at a lower price. What am I missing here? If it's just a matter of scale (massive deflation versus mild deflation) I don't think some folks are being honest in their explanations.

Steven Pearlstein: Investing is different than consuming. You don't want to invest in an asset that will effectively decline in value, that's obvious. But you might want to invest in a gizmo whose price will drop if you think the cost/pain of waiting is greater than the amount the price would drop during the wait. So, if waiting an extra three months will get me 50 percent off the cost of a $2,000 flat screeen TV, I would probably wait. But it the decline will only be 5 percent during that period, I might want to get my TV in time to watch the NCAA playoffs.


Fort Worth, Tex.: Hi Steven, In your column today you point out that getting private investment back into the system is really the end goal. But don't the Fed's and government's actions work against that? If I can get a safe cheap deal buying up the US debt (which is more of an option now than before) why would I want to invest in private business? To me it looks like we're telling private investment to take a back seat until we (the government) sorts this thing out.

Steven Pearlstein: You'd want to invest in a business rather than Treasuries because you think the upside potential is much greater and you can earn 10 percent on your investment rather than 4 percent. Risk-reward.


Cart before the Horse?: Steve

It has always been my opinion that you have the cart before the horse. You say that in order to get the economy going again, we have to get the credit markets functioning. Since I know little about economics I will take that as a given. But, credit is based on contracts and contracts are based on trust.

Few Americans, if any, have any trust or faith in AIG, Wall St., failed banks, to do the right thing. This uproar over AIG illustrates the point. So, if you are serious about saving the economy then some will need to be held responsible, bonuses will need to be withheld, and the banks will need to be proved they can be trusted by doing the right thing.

Until that happens, nothing else will succeed and ultimately the economy will collapse despite interventions because of the lack of trust.

Steven Pearlstein: Those "responsible" for AIG's failure are gone -- or should be. But there are thousands of employees who remain, and the question is, What is a reasonable amount of compensation to keep the best ones in their jobs and doing what needs to be done? Now I agree the bonuses offered last year, before the government came on the scene, are no longer appropriate and need to be renegotiated. But let's to that, and not contort the tax laws of the US and set a bad precedent and scare off private capital by imposing confiscatory tax regimes on a selective group of people, many of whom are not responsible for the failure of these institutions.


ny, ny: Saying that we, the consumers are partly responsible for the financial mess, is equivalent to a patient, having had surgery,and having the wrong limb amputated, and then blaming the patient for letting the Doctor do it...!!!!

Steven Pearlstein: No its not. Nice try.


Pittsburgh, Pa.: Mr. Pearlstein: It seems the House and Senate reactions to AIG bonuses have been a side show - somewhat entertaining but worthless. The $186 million in bonuses paid to AIG employees is nothing compared to the devastation American Express has wreaked on millions of American consumers by pulling back or canceling credit limits. It's a ticking time bomb: every time AmEx lowers one's credit limit, it increases that person's debt-to-available-credit ratio, so AmEx has single-handedly turned millions of people with great credit scores into credit risks who can't get a loan. To make it worse, the higher ratio of debt to available credit caused by AmEx starts a chain reaction - other banks see the higher ratio and reduce their credit limits, which further weakens the shocked consumer's scores. The AIG bonuses have not harmed the average American, but the repercussions of having AmEx pull the rug out from millions of Americans' credit ratings and scores will be huge; AmEx cardholders whose limits have been cut should check their credit scores and review the destruction. In your opinion, who's worse: AIG which used bailout money to reward those who were causes of the global financial crisis, or American Express, using tax dollars to destroy individual Americans?


Steven Pearlstein: Maybe the way credit scores are kept should be changed to reflect this fact.


Until the very last.....: ...paragraph, I was in agreement with today's column.

Our lesson is to write legislation to limit future bonuses for bailout recipients.

We are missing the chance to make progress on other elements of the economy, and the unfilled Treasury slots.

There is responsibility for Americans to live within their means.

But where was the business acumen to limit/deny credit? These folks were supposed to be experts, since they made credit decisions all day, every day.

But they weren't. They were focused on the next quarter's numbers, instead of the return on long-term investments.

Who pooh-poohed government regulation and oversight of financial institutions? Who kept interest rates low? Who got gobs of cash (financials) with no accountability, versus those who presented plans, got loans and renegotiated contracts (GM, Chrysler, and the UAW)? (I know no one in the auto industry.)

Even bartenders are liable to cut off tipsy patrons, or be responsible for their auto crashes.

I would like to be a brain surgeon, but there are plenty of people along the way to deny me access to an operating room.

Steven Pearlstein: Nice try, but that's not a fair analogy either.


New York, N.Y.: Hi Steven-- With respect, I think you're missing a point about all the outrage out there. Speaking for myself, I'm having to balance spending a couple thousand out of pocket on a needed operation to correct a painful condition (crappy insurance, high deductible), versus keeping every penny banked in anticipation of a certain layoff in a month or two (and no job out there to replace the one I lose). And I consider myself lucky, given other peoples' circumstances. It's a little hard to feel confident in Geithner and Summers, or trusting in the system they've always been part of, when they're so solicitous of bankers' obscene compensation and seem perfectly content to let the rest of us slip off the end of the earth. It's actually not a question of fairness at all, for many; it's a question of personal survival. Look around you: everyone involved in these recent hearings, on both sides of the gavel, will always have their nice houses and nice jobs and nice cars to drive. For millions of Americans (and millions more, apparently), life as they have known it is over. Over! Frankly, I think your lectures on fairness are a tad bit misplaced.

Steven Pearlstein: It's not a zero sum game. If every AIG bonus were cancelled, it wouldn't help you get your operation. The fact that you don't have adequate health insurance is an outrage. The bonuses -- not as big of an outrage. But the two aren't necessarily related.


Rochester, Minn.: Dear Steven,

First, I have really been missing your chats the past couple of weeks. Second, I emailed this article to a number of people in the hope that everyone will take a deep breath and let reason take over again. My question is whether Tim Geithner is being unjustly dragged over the coals. My feeling is that he should be cut some slack given the complexity of the problems and that he has only been in the position two months. Or has he really been screwing up. It seems impossible to know from where we are down here.

Steven Pearlstein: We need to give Tim some slack, I agree. We'd never treat a general on the front line of a battle this way, and we shouldn't treat the treasury secretary on the front line of a financial crisis this way. He needs to lead and we need to follow, at least until we have enough evidence that he's leading us in the wrong direction. So far, we don't have any such evidence.


Sic Semper Tyrannus: Steve

I don't think you get it.

(1) If I did my job as poorly as the Wall Street types do, I wouldn't get a bonus. I wouldn't even have a job.

(2) Don't peddle the line that there is no one else who can handle these complex transactions. Many have been laid off on Wall Street. I'm willing to bet they will do the job, and do it well, for a fraction of the money paid to AIG.

(3) Though I agree that we are all responsible for the mess, it was AIG,, and its lobbyists who obstructed every attempt to reign Wall Street excesses for years.

(4) The wealthy of this country have had a free rid for nearly 30 years. Paying low taxes, etc.

(5) Finally, this is a democracy. If a few heads need to roll, then let them roll (figuratively). It will focus the attention of the survivors like nothing else.

I've been following your columns for the past several months and you come across as an apologist for the entire financial community.

Steven Pearlstein: I don't know how you could have read my columns for the last several months and thought I came off as an apologist for the financial community. You've not been reading very carefully.


Powhatan, Va.: A real worry? Yeah...AIG executives taking that bailout was just the worst PR moment in recent memory. A real WHAT ARE YOU THINKING??? However, here is my concern. Will the "torch and pitchfork" mentality we are seeing drive the best CEOs away from working with TARP/BAILOUT companies? A brain-drain, if you will. Thus, the much needed companies in peril will be left with B team execs. Thoughts?

Steven Pearlstein: In Wednesday's column, I chided the Wall Street types for not understanding that we are in a crisis, we're all in it together, and therefore they need to change their ways (including compensation, bonuses). But that admonition cuts both ways. We angry taxpayers and consumers also have to remember that we are in a crisis and we're all in this together, and that means the people still working in the financial services industry. We need to work with them to get out of this mess, not chop off all of their heads. To repeat: we're all in this together.


St. Cloud, Minn.: Are there influential people either in Congress or among those who advise Congress who understand the very sensible points you are making in your column today? There seems to be a real possibility that Congress could end up making a bad situation worse.

Steven Pearlstein: Unfortunately, true. I'm hoping Obama can see this for the leadership moment that it is and step in to calm things down a bit.


Richmond, Va.: I believe several entities "too big to fail" will indeed fail within the next 18 months. I believe the DOW will retreat significantly while oil approaches $100 and unemployment 20 %. In other words, I don't think the pitchforks are out yet. More Madoff and AIG bonus stories will stoke the anger. I don't think President Obama can truly begin any economic leadership without this populist anger. The anger will be both healthy and dangerous, seemingly an oxymoron.

Steven Pearlstein: You're right -- a bit of it is a good thing, too much not so good.


Sonoma, CA: Dear Mr. Pearlstein: I know that there is considerable sqawking about the legislation against bonus & retention payments to employees at firms accepting bailout funds but doesn't this fly in the face of the fact that a company that is in financial crisis usually does not have the funds to pay these bonuses? This seems pretty simple. If your firm is in trouble why would any employee expect a bonus? Simply Astounded

Steven Pearlstein: Again, as I said, that's the normal notion of bonus, but not necessarily reflective of the way compensation is structured on Wall Street. Did you know that most of the people getting "bonuses" have little or no base salary?


Nashville, TN: As a taxpayer, I am now a stockholder that owns 80% of AIG I am voting to fire the entire management.

Are you going to deny me that right, and if so on what basis.

Thanks for your reply.

Steven Pearlstein: We already FIRED the entire management team. So what do you want to do -- fire the new management team just because you're still angry?


James (Arlington, VA): Steven, in regards to your comment on 'Unfortunately, the price of righteous indignation is a wave of foreclosures, a further decline in home values...'

Many of us are getting really sick of 'experts' talking about putting a floor under home values, stopping home values from further declining, etc. This is the worst thing to do...keeping housing assets artificially inflated

I have many friends, including myself, that could buy a home or condo but that refused to overpay by absurd amounts for a house or condo because they were extremely over-valued and prices were mostly speculation in this area.

The only way people like myself and others are going to purchase a house or condo is if those prices come back down to levels comparable to pre-subprime days with some inflation adjusted. No one in their right mind who values their money is going to spend $350K for a condo in arlington or dc or $450K+ for a 1940s fixer upper when 7 years ago they were going for 1/2 of that.

I just find it amazing that someone like you that should know better then promoting putting a floor under assets that are over-valued and inflated and those assets are exactly the reason were in this mess. Let the housing market correct and those with money will come back in..but not before.

Steven Pearlstein: I have NEVER said I want to put a floor under home prices. In fact, I've specifically criticized proposals to do that. What I do say, however, is that its not a good idea to turn that necessary market adjustment into a vicious downward spiral that will send prices well below what is a reasonable price, relative to incomes and other assets. And that is exactly what would happen if lots of houses were foreclosued upon and auctions all at the same time.


Shepherdstown, W.V.: AIG (which is not alone in this) evidently operates under the Max Bialystock Model: Plan to fail and make money. Poor Max and partner Bloom succeeded though and ended up in jail; so much for success.

Mr. Pearlstein, for the business dimwits out here: Why were bonuses ever even on the table?

Where I come from you lose money, you take a pay cut, someone loses their job. What are we missing out here in the real world?


Steven Pearlstein: Somebody a year ago saw that people were fleeing AIG and decided that the company would be better off to try to bribe them to stay to keep the ship afloat. Maybe that was the right decision, maybe it was wrong, but hat's a judgment call. As I pointed out, these bonuses are not the kind of bonuses you have in your mind.I agree they are no longer needed to be so large. I agree the company no longer has that kind of money to pay them. But let's please understand what's going on here.


Waldport, Ore.: Please explain why these guys who contributed to the demise of AIG are obscene bonuses. Retention? I think NOT!!!

Steven Pearlstein: You don't know they made the decisions that lead to the demise. Most of the top people who did have been fired (although some got obscene payments under their contracts). These are people who executed trades and contracts, on orders from somebody else. You can fire them. But you'd still have to hire somebody else who is less familiar with the actual contracts. Maybe that would be cheaper, or maybe not. But you and I don't know that, so its hard to get outraged over something like that.


Silver Spring: Steve - you did a quick turnaround from earlier in the week, but I agree with you.

I don't like the idea of Congress writing tax rules at such a narrow class. That same hand is the one that wrote tax rules so hedge fund traders wouldn't pay income on their income -opps income from capital gains. When they start making these exceptions you never know what coming down the road and it may not be what you think!

I am inclined to agree with Siedman, who earlier in the week suggested it would have been better to have moved more slowly and for the gov't to have taken it over. Right now we have AIG working things out with our money in their culture/organization which includes crazy bonuses.

I doubt that is a pleasant place to work and I'm sure those guys are probably busting their butts doing their work -- even if it seems like the money is obscene.

If we want gov't money to operate under gov't rules and pay then better for the gov't to be running it.

Steven Pearlstein: These companies are still private companies. They don't have government pay scales and rules about how to operate. And I doubt it is in the longterm interst of the taxpayers that they become government bureaucracies.


Re: Rochester: Tim Geithner has hardly been on the sidelines until this administration took over. He has had as much input into the direction the Fed took and Goldman Saks as anyone else. Do I think he deserves to be fired, no. But he definitely seems to have to be watched because I find his motivation completely untrustworthy.

Steven Pearlstein: No.


St. Paul: The bonus program was approved by the Board of Directors, a body that has a fiduciary responsibility to ensure the owner's (stockholder) interests are being well served by management. It is the Board that should be held accountable for AIG bonuses because that is one of the Board's many responsibilities.

In summary: The root cause of this mess: Boards of Directors failed to do their job.

Steven Pearlstein: That's part of the story, certainly.


Sic Semper Bonus: These were not bonuses. Stop calling them that. The whole reason people hate them is because they're being called bonuses. A bonus is generally given for performance. These payments were given for staying in a job for a specified length of time. Call them retention payments, because that is what they are.

Steven Pearlstein: Deal.


Toronto, ON: It seems to me that it's only now that Americans are waking up to the fact that they've been living in a kleptocracy for years. Why did it take so long to realize this?

Steven Pearlstein: Because we're not Canadian!


Bonuses: One other thing to add regarding bonuses: These were retention bonuses. Retention bonuses are intended to keep an employee at the company until a specific milestone is reached. A retention bonus does not mean that the employee is obligated to work for a company indefinitely.

So I have no problem with ex-employees receiving these bonuses, provided the milestone(s) outlined in the bonus was/were met.

While it may be in a politician's best interest to muddy the waters, I think the media could have done a better idea not only explaining how these bonuses typically work, as well as let the public know that the people inside the Beltway knew about them months ago.

Steven Pearlstein: I think you are right.


Raleigh, NC: You were a bit flip in your discussion of deflation. Deflation is much worse than inflation. In deflation, not only do assets decrease in value but the real interest rate skyrockets so no borrowing is done. This can create a cycle in which unemployment can increase dramatically.

Steven Pearlstein: True enough.


Denver, Colorado: Hi Steven, I enjoy you articles.

Why, do you think, have we NOT seen anyone brought up on criminal charges at AIG, Fanny, etc.?


Steven Pearlstein: AIG, actually, they have, although not relating specifically to the things that lead to the failure of the company. Remember, just making bad business decisions is not criminal. What may be criminal is betting the company on some outcome and then not disclosing that bet to the shareholders.


Anonymous: How about a national lottery where people buy 2 dollar tickets to win a foreclosed house? Wouldn't that defray a lot of our bailout costs, as well as put people in homes that are eyesores if kept boarded up, reducing every neighbor's home value? And make it where only people who file tax returns can enter the lottery. GOOD IDEA?

Steven Pearlstein: Hey, good idea!


Washington, D.C.: I want to comment on something you wrote in Wednesday's column, which also echoes themes from your earlier writing:

"But it surely speaks volumes that other Wall Street players still think it not just their right but their duty to their investors to try to take advantage of AIG's weakness, even if it is the taxpayers who will suffer."

That statement shows a profound mis-understanding of how American capitalism works and the roles of the private and public sectors. The primary duty of any corporation is to its shareholders; corporations exist only for the benefit of shareholders. Any executive who did not maximize profits for shareholders should expect to be fired for malfeasance and possibly sued for breach of fiduciary duty.

Corporations have a duty to taxpayers and society only to the extent it is in the interest of the shareholders. The role of government is to insure that when the private sector acts in its own interest it does not do so at too great a cost to society.

What is increasingly clear is that while AIG and the banks failed at acting in the interest of their shareholders, the government failed even more massively at protecting the public interest. First it failed by allowing financial institutions to become too large to fail. Then it failed by shoveling bailout dollars out the door with no strings attached. That we are just now finding out that we wished we might have attached some strings before sending off nearly a trillion dollars speaks to incompetence -- and perhaps cronyism -- of the worst kind.

Steven Pearlstein: I simply don't agree. During a crisis, I don't think private profit-maximizing firms should be trying to hire away AIG employees so they can use their inside information to make trades that make them money at the expense of taxpayers who own AIG. Its not patriotic. Its not reflective of the reality that we're all in this together. Its the equivalent of war profiteering. I don't buy your notion of market fundamentalism: it is not true that in all instances, everyone seeking their own best interest produces the best outcome for society.


Severna Park, MD: Liddy thought the AIG bonuses were justified. Having worked for a company that imploded, I think his judgment was probably sound. The villains leave before the crash. The remaining stalwarts are trying to fix it, to do good.

Shouldn't Obama either fire Liddy or support him rather than micromanaging him? Obama seems to be leading the mob.

Why don't you and other journalists do more to educate the ignorant mob on Capital Hill? I thought your Pitchfork column was far too balanced and even handed to be effective.

Steven Pearlstein: Well, you know, its a tough balancing act. What else can I say?


Silver Spring: Steve--Excellent column this morning. As a lifelong Democrat who works in the financial services industry, I am embarrassed by Congress' bizarre and vengeful reaction to the bonus issue. It's even worse that Limbaugh is closer to a realistic view than most of your colleagues.

My question is why hasn't there been any focus on AIG's list of counterparties that they published on Monday (when everybody was paying attention to this silly bonus issue)? Scores of billions of dollars of cash going overwhelmingly to foreign banks, such as SocGen getting $12B. Why shouldn't the French be bailing them out? Billions more going to Goldman when Goldman's current and former executives designing the TARP? Isn't the press at fault for not covering the real story?

Steven Pearlstein: Yes, that is a bigger story, if for no other reason than it involved a heck of a lot more money. I dealt with that a bit in the Wednesday column, suggesting that Liddy should have offered those guys less than 100 cents on the dollar and dared them to refuse the offer. It would have been a better way to spread the pain a bit.


Reston, VA: "I think it is quite fair to ask them to give back a big chunk of the bonuses, considering the changed circumstances"

Asking is one thing, the federal government forcing them is something else entirely, don't you think?

Especially if doing so violates the Constitution, as some legal scholars think it does.

Steven Pearlstein: Yes. I'd even pressure them. But going the legislative route is not a good idea. And as you point out, it may be a bill of attainder specifically prohibited by the constitution.


False Outrage, DC: Where have you been? We missed you! :-)

Steven Pearlstein: California. On assignment, mostly.


Chicago, Ill.: I have a slightly different view on the bonuses for the AIG traders. I think a lot of people don't understand that you can't unwind a book that big all at once, unless you want to lose a lot of money and move the markets in a major way. And the payments really are a retention bonus. Those traders could easily leave AIG, go down the street to competitor who would love to get some information on just how much exposure AIG has in these products. And if that happens, that's going to cost AIG and the feds a lot more money than what they would've paid out in retention payments to the staff.

Steven Pearlstein: Thanks for that. And we're out of time today. Sorry I had to leave some comments unanswered. Hope to "see" you all next week.


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