A casual observer reading only the title of this essay might conclude that the essay has to do with relations between the sexes. Anyone who knows the proprietor of Ezra’s essays with his seminarian background would dismiss that thought out of hand. But upon further consideration, this essay has to do with diddling. I do not pretend to be an expert on the difference between being screwed and being diddled. But as you read this essay, which I hope you will do, you will notice that the American taxpayer, as well as the American investor and, of course, the American government, are being diddled prodigiously. These three entities comprise the “screwees” in this essay.
During the week in which we were supposed to be honoring St. Patrick, it was announced by the American International Group (AIG) that it had paid something in excess of $165 million to employees of one of its units as bonuses and/or retention benefits. Curiously, the retention benefits did not work their magic because a high proportion of the executives rewarded with million dollar bonuses have departed from AIG. Well, you can’t win them all.
As it turns out, this group of AIG workers, which is supposed to be an insurance firm, was operating a hedge fund. The workers were dealing in default credit swaps, which I do not understand and which apparently no one else understands either. But when push came to shove, AIG had lost an enormous amount of money. The American government judged that organization to be too big to fail and so it proceeded to rescue it. Presumably some of the rescue funds were used to pay bonuses as well as the retention benefits to the hedge fund operators. I suppose this illustrates the point that when an international insurance firm begins to operate as a hedge fund which requires the American government to rescue it, there will be some “screwees.” Unfortunately, the “screwees” are the American taxpayers.
If I understand the hedge fund operators fairly correctly, they assured their investors that losses would be covered by AIG insurance. I am not entirely clear on this point but if that is the case, it means that those who wish to invest in hedge funds will go for broke. Again, if it is the American taxpayer picking up the bill, he is entitled to believe that he has been screwed.
In the final analysis, the $165 million or something thereabouts that was paid out in bonuses constitutes only 1% of the bailout money involved in the AIG case. That is very small consolation to the government, the investors, and the American taxpayers. But it is that amount that aroused the members of the House of Representatives to pass a bill last week.
The bill would require that anyone who received a bonus or retention award from AIG would be taxed at a rate of 90%. No one would ever mistake me for a jurist on the US Supreme Court but I will announce in advance that such a bill is unconstitutional on its face. But as I say, I have no voice in this matter because my job is simply to pay the taxes that will support the bonuses or retention payments.
The new Chairman of the American International Group is a gentleman named Liddy. He is working for $1 per year and says that he has no golden parachute. He is doing this as a patriotic duty and I tend to believe him. During the week when we were supposed to be honoring St. Patrick, Mr. Liddy appeared before the House of Representatives and was subjected to a cruel flogging by the Representatives making points back home. His defense was that the contracts for the bonuses and retention payments were signed long before he checked in to rescue AIG. He said that when the bonuses were paid, it was simply a matter of honoring the sanctity of contracts. Now here I am on much more solid ground.
For the better part of twenty years, I was involved in labor relations with the Bell System which no longer exists. It was an arm of AT&T. If a contract was not honored, the standard procedure was to file a grievance. If the grievance did not work things out, the case might go to arbitration. If that did not work out, the case would then be transferred to the court system where a penalty would be exacted. So while I have no sympathy for the people who screwed up, I understand Mr. Liddy’s position that he was honoring contracts. My guess is that in the final analysis, after all of the posturing has been done, this is where the matter will eventually wind up.
Well, I guess the moral of this story is “Do not become involved with an insurance agent who is also running a hedge fund.” If you are a taxpayer, you will eventually be screwed, to use a vulgar expression. If it makes you feel better to call yourself simply a “screwee,” I am certain that Mr. Liddy, the House of Representatives, and this old essayist will understand your feelings.
While we were being distracted by the AIG bonuses/retention payments, there were developments in the affair of Ruth and Bernie Madoff. As you are aware by this time, Bernie Madoff has been imprisoned following his guilty plea, and the judge says he will stay there until his sentencing in the middle of June. But that is only half of the story. Ruth Madoff, his wife, is making a vigorous effort to preserve the fortune and to call it her own. Apparently there are houses in Palm Beach and in France. There is also the apartment building where the Madoffs had a penthouse on Park Avenue in Manhattan. There is a matter of some $65 million which Mrs. Madoff contends belongs only to her. And then there is the ownership of the Madoff yacht.
Ruth Madoff contends that all of these things are her property and should not be involved in the proceeding against her husband Bernie. Bernie ran a ponzi scheme which operated for several years despite the fact that whistle blowers had told the Securities and Exchange Commission exactly what was going on. The SEC Chairman was a fellow named Cox who was formerly a Republican Congressman. He not only turned a deaf ear to the protests but buried his head in the sand as well. Now Cox is gone. But in the end it is the American government that has been screwed. It is clear that investors in Bernie’s ponzi scheme are active “screwees.” As far as I can tell, there is no movement that would require the American taxpayer to bail out the participants in Bernie’s ponzi scheme. For the time being, that makes me feel quite good.
Now back to Ruth Madoff’s proposition. In the end, it would seem to me as a non-investor in Bernie’s ponzi scheme that Ruth and her two sons will somehow or other become involved. Are we left to believe that all of this property, the yacht, the jewelry, and the large sums of cash were earned by Ruth as she sold subscriptions to the Ladies’ Home Journal in her apartment building? I suppose it goes to prove that where money is involved, as in this case, it may well be that Ruth is throwing Bernie under the bus for her own benefit. But in the end, old Bernie is going to spend the bulk or all of the rest of his life in prison and perhaps Ruth concludes, “What is there to lose?”
There is absolutely nothing in the saga of AIG or the affair of Bernie and Ruth Madoff to inspire us. It comes at a time when bad news abounds everywhere. But in the end the casual observer who read the title of this essay may have had some clear thinking when he wondered if the essay would be about relations between the sexes. But when the American taxpayer, the American investor, and the American government are being royally diddled, I believe that I am entitled to write an essay asking whether we are being elegantly, enormously, and enthusiastically screwed.
E. E. CARR
March 17, 2009
Essay 373
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Kevin’s commentary: Well, after publishing and categorizing three hundred and nineteen of Ezra’s Essays, it is now a rare occurrence that I have to come up with an entirely new tag to describe an essay. But here we are. On this day, the 12th of November, the “Outstanding Title” tag is born and will be retroactively applied to all qualifying essays which have already appeared on this site. This essay is also the first to receive a new tag for “money.”
The whole AIG thing was a gigantic mess. Unfortunately here we are barely four years later and again we have Tea Partiers and the like who are clamoring for as much deregulation as they can ask for while keeping a straight face.
At least there is some justice; Ruth lost everything and is now living with one of her children. Last report I can find she’s taking out her own garbage and not looking all too happy about it. So there’s that.