On Tuesday the New York Times ran on its op-ed page the resignation letter written by Jake DeSantis, a vice president of AIG's infamous financial products division. DeSantis essentially argues that he had nothing to do with the credit default swaps that nearly brought down the company (and the world economy), and that since he agreed to work for a $1 salary plus his bonus, AIG CEO Edward Liddy should have stood up for him and "innocent" executives like him.
The lawyer in me (I should really say "recovering lawyer," since I haven't practiced in 15 years) understands his point. He contracted to work with his salary essentially being his bonus, and after fulfilling his obligations (he argues that it was a form of public service, but let's just stick to the idea that he served the company), the CEO is asking him to forgo his pay. It's an argument, in strictly letter-of-the-law terms, I could comfortably make to a judge or jury.
But as a person, I am not the least bit moved by DeSantis's point of view, because over the last several years, he has tremendously profited from a larger financial culture that is completely out of whack. Those working in the financial industry made untold sums of money from a bubble that was bound to burst, and they did so in an environment that rewarded risk with no consequences for failure.
In other words, DeSantis has become wealthy beyond his wildest dreams, with no worries about money for the rest of his life, at the expense of most Americans and the financial system as a whole, all by taking advantage of a set of rules that skewed in his favor. He profited from an industry that rejected decades of regulations and took crazy risks that a bubble could be sustained against all logic to the contrary, and that firm's could leverage themselves at unhealthy levels with no consequences. And now that some semblance of order is trying to be applied to the financial industry, with the bill being footed in billions of dollars by the American people, he has the audacity to complain that he is being treated unfairly? It's like someone finding a hole in the side of a bank vault and stopping by once a year to take millions of dollars from the structure, only to complain on the 15th trip when the hole has been sealed up.
DeSantis writes in his resignation letter that his bonus amounted to $742,006.40 after taxes. In the letter, he acknowledges that he and Liddy "have never met or spoken to each other," so it's clear that DeSantis was not at the most senior levels of management, which would lead one to believe that there are several (even many) other AIG employees at DeSantis's level, making this kind of money. All for a company that has required hundreds of billions of dollars from the U.S. government to survive.
My point in listing DeSantis's bloated salary isn't, as my friends on the right will probably immediately accuse me of doing, an effort to attack wealth or wealth creation. Rather, my quarrel with DeSantis's letter is that it represents an unwillingness to confront the culture that not only caused the current financial collapse, but that will prevent true recovery if it's not addressed.
It seems that those in the upper reaches of the financial industry would prefer to completely ignore the fact that a combination of greed, a system that encouraged risk for short-term profits without consequences, and a total absence of regulation has created a global financial meltdown. From unemployment, to a lack of available credit, to the plummeting of the stock market, the recklessness of financial institutions has created massive damage. The current administration has had to contend with the fallout from this damage, and there is no easy answer in sight.
You would think that those who created this mess would have some humility. But you would be wrong. DeSantis's letter is just one example. In a front-page New York Times article on Monday discussing the administration's attempts to get private equity firms and hedge funds to buy into Treasury secretary Timothy Geithner's new plan to purchase toxic assets from banks, the chief executive of a "major investment firm" is quoted as saying,
"The deal is good, but it's not worth it if I'm buying myself into a retroactive tax or a Congressional hearing."
The article notes that
"some executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of (AIG)."
When I read observations like these, I just cannot believe that these people are so blind as to what has happened to the financial industry in the last six months. I know these individuals profited from a bubble, but apparently they are also living in one. And it makes me feel like solving the current difficult problems will be even harder, because we are not learning the lessons of how we got here in the first place.
A plan to rescue the banks without addressing and changing the compensation culture on Wall Street is like treating a cancer patient's symptoms without eradicating the tumors. The relief will be only temporary.
As President Obama noted in his 60 Minutes interview on Sunday:
"You know, you look at how finance used to operate just 20 years ago, or 25 years ago. People, if you went into -- investment banking, you were making 20 times what a teacher made. You weren't making 200 times what a teacher made."
When the American public was outraged over the AIG bonuses last week, there was incredulity in some quarters. But while the bonuses are a drop in the bucket relative to the overall billions given to the company by the government, the distress and anger voiced by the American people was about more than just AIG. The rage comes from the fact that a small group of people in the financial industry (relative to the population as a whole) brought down the economy with their greed, and, more importantly, have failed to take any responsibility for their industry's role in the debacle. That was what the AIG bonuses stood for to a lot of people. There was outrage that the executives in this industry had not learned their lesson, that they wanted the gravy train to keep rolling, despite the calamity that had occurred.
Even if Geithner's plan rehabilitates the banks and restores a functioning financial system, it will be for naught if the same compensation-frenzied culture exists in the industry, since it will mean that it's only a matter of time before the system is threatened again. And based on the statements of the anonymous investment firm CEO quoted in the Times and DeSantis, it doesn't look like financial executives are ready to adjust their expectations, despite the damage caused by greed run amok.
That is why DeSantis's resignation letter failed to stir any sympathy in me. President's Obama's comment about the escalation of financial executive compensation is far more compelling. If DeSantis doesn't want to be a part of the solution, if he wants to hold onto a system in which it is reasonable to pay him (and, presumably, many others) $742,006.40 after taxes, by a company accepting hundreds of billions from the federal government, I can only come to the conclusion that he doesn't understand where we need to go. He is part of the problem, not the solution. Good riddance to him, and let the door hit him on the butt on the way out. DeSantis may have a valid contract, but it's a product of a corrupt system. And it's time for the system to change, if we truly want to rebuild the nation's financial institutions and economy.