Friday, March 20, 2009

Somewhere John Galt is Smiling

Courtesty of and Caroline Baum

So True.

Commentary by Caroline Baum

March 19 (Bloomberg) -- Somewhere John Galt is smiling.
The hero of Ayn Rand’s “Atlas Shrugged” is smiling because he’s seen it all before: the government’s intervention in the private sector; the constraints placed on business in the name of the people; the desperation on the part of government bureaucrats when they realize their leverage is limited; and -- this part is still fiction -- the decision on the part of business leaders to walk away from the enterprises they built.
That’s all I could think about when I read that American International Group Inc., recipient of $173 billion in taxpayer funds, was paying out $165 million in bonuses to employees of its financial-products group, the poster boy for risk and greed.
The Obama administration, Congress and the public are outraged taxpayer dollars are going to enrich the folks who got us into this mess. So am I.
Members of Congress want to blame Edward Liddy, the former chief executive officer of Allstate Corp., who was recruited by former Treasury Secretary Hank Paulson in September to steer AIG away from the shoals.
Liddy is paid $1 a year for his efforts. “My only stake is my reputation,” Liddy said in a March 16 open letter to Treasury Secretary Timothy Geithner.
His only crime, as far as I can tell, is inheriting compensation contracts providing for retention bonuses for certain AIG derivative traders, some of whom have left the company, and listening to lawyers on his options.
‘Directive 10-289’
Why should Liddy endure the public’s wrath for the sake of his reputation, which lawmakers will destroy in a heartbeat to save their own hides? isn’t an option just for homeowners who owe more on their mortgage than their house is worth.
In Rand’s magnum opus, the “men of the mind,” as she calls the nation’s producers, quit. Literally. They walk away from the mines, factories and businesses they built as the government tries to deprive them of their wealth through increased regulation and taxation. (Whether financial engineering constitutes production is an issue for another column.)
Rand’s men in Washington believe they’re entitled to the output of these minds and the material rewards, enacting an Equalization of Opportunity bill, which is really about equality of outcomes; a Railroad Unification Act, to prop up weak carriers and destroy competition; and ultimately, as the economy collapses, “Directive 10-289,” which makes it a crime to stop working.
The “looters,” as Rand calls them, fail to understand that the men of the mind may vote with their feet, refusing to work for the benefit of others.
Eerie Parallels
I’m not alone in noting the parallels in the government’s evolving response to the financial crisis. For a year I’ve been waiting for Paulson or Geithner to announce “the John Galt Plan to save the economy,” which is right out of Rand’s novel.
It wasn’t until the AIG bonus brouhaha broke last weekend and I watched government officials flailing to contain the fallout that I realized the government is losing its leverage. Or maybe it never had any leverage to begin with.
Let me explain. The government has been propping up teetering financial institutions, including AIG, Citigroup and Bank of America, creating the illusion that the banks need the government.
The government doesn’t care about these institutions. It cares about the stability of the financial system: the totality, not the parts.
Congress can refuse to allocate more money to institutions in which it already owns a share (80 percent in the case of AIG). It can levy a tax on the AIG bonus payments or withhold them from the next $30 billion cash infusion, although who would notice? And it can install new management.
Reardon Steel
Why hasn’t the government put in its own people already? Maybe no one wants the job.
The government needs Liddy and Citigroup’s Vikram Pandit and Bank of America’s Ken Lewis to continue working to restore their firms to prosperity in the same way the looters in Rand’s novel need Hank Reardon and Francisco d’Anconia and Dagny Taggart, respectively, to run their steel mills, copper mines and railroad.
From their perches as chairmen of the House Financial Services Committee and Senate Banking Committee, respectively, Democrats Barney Frank and Chris Dodd fulminate about the lack of regulation and about inflated CEO compensation. For Dodd, it’s a good opportunity to deflect attention from his sweetheart mortgages from former Countrywide CEO Angelo Mozilo and his questionable real estate deal in Ireland.
All that’s left for life to imitate art completely is for these CEOs to quit. Let Barney Frank and Chris Dodd run AIG. Let’s see how they fare.
Fact Versus Fiction
The government needs these companies to survive -- and buy back the government’s ownership stake -- more than they need the government. Most of these CEOs are already wealthy. They don’t need a job working for the government, which is what running a bank amounts to today.
What’s in it for them? One dollar of compensation? Their reputations? The house on the lake looks more appealing by the day.
Is anyone surprised sales of “Atlas Shrugged” have spiked in recent months as reality comes to resemble Rand’s fiction?
(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

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