"Politics is the Art of Looking for Trouble, Finding it Everywhere, Diagnosing it Incorrectly, and Applying the Wrong Remedies"

I watched with interest yesterday's congressional grilling of AIG Chairman Edward Liddy by Congress. He had been called in so that our congressmen could show their mock outrage at the fact that AIG had gone ahead and paid out retention bonuses to AIG employees despite the fact that it had received billions of dollars in bailout money.

I hesitated to watch, sensing in advance the huge cringe factor that would be involved in seeing all of these congressmen with their prepared statements of outrage, step up to the microphone for their 5 minutes of tv time. But I had read about Liddy, the 63 year old retired businessman, former President and CEO of Allstate, who was called out of retirement last September to step in and "fix" the mess which is AIG. With 38 years of business experience (and a salary of $1) I was interested to see how he would respond to what would inevitably be a barrage of insults and intellectually flimsy allegations by the congressmen. Let me preface by saying that I have no doubt that there were reasonable and substantial questions that could have been asked of Mr. Liddy. Unfortunately, this didn't happen, with a few minor exceptions.

Liddy began with a statement that basically explained that the bonuses that were paid out were all retention bonuses (as opposed to performance bonuses) and that AIG was contractually bound under law to go ahead and pay these. He added that had he been running the company during the time the bonus program was structured, he would not have approved this, but since it was formerly established, the decision had been made that "not paying them would create too much risk" of the company imploding, thus causing more pain to the American tax payer. He added that all decisions had been agreed upon by the Federal Reserve, and that he had been assured that the Treasury (including Geithner) had also been kept in the loop.

As he finished his brief statement, one could see the congressmen, eyes glazed by a lack of understanding, scribbling furiously to amend their notes. One by one, they either asked inept questions of Liddy or made trite proclamations. Rep. Hodes of N.H. said "AIG stood for arrogance, incompetence and greed." I had to turn my head at this point. How long had he worked on that nonsensical tidbit? What good did that do anyone? In front of him stood an intelligent, articulate man who had courageously stepped up to the plate in order to "serve his country" by stepping back in to a cesspool of a company. It was obvious that he was doing his best to make very complicated decisions that were not popular or politically-driven, but long-range efforts to clean up a mess. The one intelligent question that was asked (and I wish I could remember who asked it because he was a lone ranger) was why AIG couldn't decide to break the contracts, not pay the bonuses and dare the recipients to sue. I'm not an attorney, so I don't know the answer to that one. Mr. Liddy's stock response was that there was too much risk involved. He didn't specify if the risk was in losing the employees or being subject to legal ramifications.

In my very lay-person understanding of all of this, it seems that were are in very real danger of developing long-term policies to fit short-term political objectives. We now have a team of congressmen suggesting that "Wall Street pay be tied to long-term performance of firms." I think the better idea is one that was put forward in the Wall Street Journal. Let's tie the pay of the congressmen and legislators to their approval ratings...A 50% approval rating would mean 100% salary, 40% would bring 80% salary, and ....well, you get the picture.

Machiavelli's The Prince (2 references to this in 2 weeks...how surreal?) said that "Lofty ideas lead to bad government." Ayn Rand predicted (in Fountainhead and Atlas Shrugged) that we were headed towards inevitable economic disaster if we continued on a path towards socialism and a welfare state. Mr. Obama and team might be wise to study the past in order to save the future.

I've been trying to refrain the last few weeks from making any overtly political statements. I naively hope that despite my deep-seated fears, the Obama team will rally and produce results. I am not going to be like Rush Limbaugh and root for defeat, but it is also getting harder and harder to stand by quietly and cross my fingers...

So until tomorrow...when the weekend is in view, and I am not as serious....