Monday, January 11, 2010

Two questions missed.

ChronBlog business columnist Loren Steffy (oft-criticized by local business attorney Tom Kirkendall) brings up the topic of bonuses and charity at Wall Street financial firms and, as is his wont, fails to ask the proper questions.

For those of you wondering, these are the proper questions:
1. Are people who accept contractually agreed-upon bonuses "greedy"?
2. Is forced giving really "charity"?
The reason these questions are important is also two-fold:
1. In our rush to cast "blame" for the recent bubble-pop, Americans have bought into the ideal that the ground-level investors and traders were "greedy". What this has done is create a ready-made set of financial bad-guys directly out of central casting. What it hasn't done is allowed us to fully examine the mistakes that got us here, or to punish companies (through bankruptcy and other market mechanisms) that instituted a foolish, although not necessarily evil, bonus structure.
2. As more and more companies look to charities as tax-havens, the obvious downside is that there is a movement afoot to strip away the tax benefits from charitable contributions. While its true that, to a certain extent, some of the groups (Progressives) who wish to see this happen also would be quite happy to see private charity give-way to (other)taxpayer funded largess, not all of it is. And many poor and needy will suffer if these donations (whatever their motivation) go away.

I had similar question problems with Steffy's Anti-Citibank B(C)S argument. It's not that Citi was acting in an eeevil manner, but that they had a binding contract that could have been severed had they been allowed to go down the traditional bankruptcy path. Instead those in power chose this public-private Frankenstein's monster of a bailout that left all the old agreements in place, and avoiding any real economic consequences from them.

In the short-term, this financial bailout might have saved the financial sector, but it did it no favors by removing the consequences from their decisions. In lieu of financial punishment people such as Steffy are left with some misguided sense of moral outrage, which is far less exacting and far more likely to lead to punishments that don't fit the crime. (Assuming there was a crime committed in the first place. An idea with which I, excepting certain obvious cases where fraud was involved, disagree)

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