The mob turns ugly as AIG bonuses come under fire - 19-Mar-2009 - Generational Dynamics

Last month, on February 19, CNBC market reporter Rick Santelli unleashed a rant against President Obama's bailout plan. The video of the rant achieved "viral status," as it spread around the internet. It became so popular, that even White House Press Secretary Robert Gibbs felt forced to make disparaging comments about it.

Suddenly it became CNBC versus the White House, with other journalists taking sides.

Thus, two days later, I heard CNN's senior report John King say that Santelli made his rant because he was a Republican and wanted to score points against the President. With this ideological statement, both King and CNN completely missed the important story.

Santelli's rant was nothing new. He delivers rants all the time. Most of his rants are simply ignored and forgotten within five minutes after they're delivered.

Thus, the big story about this rant was not the rant itself, but the reaction to it. This was a first real sign of what's now being called "populist anger" at the President. This story was completely missed by CNN and by everyone else, as far as I know.

The populist anger has been growing, and has become palpable in the anger directed against bonuses contractually owed to executives at American International Group (AIG), which was first bailed out in September of last year. AIG has received $173 billion in bailouts, and says that it's contractually obligated to pay $165 million in bonuses.

The politicians in Washington were quick to jump on the bandwagon, with one Senator after another posturing for the cameras.

"I do want to comment on the news about executive bonuses at AIG. I think some of you have heard a little bit about this over the last few days. This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?

In the last six months, AIG has received substantial sums from the U.S. Treasury. And I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole. (Applause.) I want everybody to be clear that Secretary Geithner has been on the case. He's working to resolve this matter with the new CEO, Edward Liddy -- who, by the way, everybody needs to understand came on board after the contracts that led to these bonuses were agreed to last year.

But I think Mr. Liddy and certainly everybody involved needs to understand this is not just a matter of dollars and cents. It's about our fundamental values. All across the country, there are people who are working hard and meeting their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. ... And that is an ethic that we have to demand."

It was just a few days ago that Administration officials OK's a new bailout of AIG, and did nothing about the bonuses. But "populist anger" has grown so quickly that President Obama has suddenly that honoring existing employment contracts is an "outrage," and violates our "fundamental values."

Now, I don't think most of these people deserve bonuses either. I've been writing for years that there's plenty of circumstantial evidence of criminal activity. The main evidence is the sharp increase in the issuance and sale of mortgage-backed securities in 2007, at a time when it was obvious to everyone that these securities were becoming worthless.

But what bothers me about the AIG bonus imbroglio is that it's based on mob anger, rather than on anything reasonable. In fact, decisions are now being made increasingly by mob demands.

As I heard one pundit put it, President Obama is now "bouncing from outrage to outrage."

This is nothing new, and not surprising. It's the latest extension of the paralysis in Washington that's been increasing for several years.

I've been writing for years about the political bickering that's paralyzed Congress for several years, during both Republican and Democratic party control. This caused a certain amount of Schadenfreude two years ago, when political paralysis blocked a Congressional pay raise.

Many people believed that the paralysis was all in the past, after Obama won the election, and won a Democratic party majority in both branches of Congress. In fact, it's back in full force, and it's going to continue to get worse.

Not only that, but Obama's approval rating has been slipping steadily since he took office, and his disapproval rating has been growing.

My personal belief is that he brought a lot of this on himself by his smug, overconfident claims that all the world's ills would be cured the day after he took office. He made these claims of "change you can believe in" throughout the campaign, never explaining exactly what the change was, and even continued the inflated claims after the election was over. Now the public is living with the reality that nothing is changing, that the bickering is continuing, that the economy is getting worse all the time, and that the new Administration has made numerous missteps. Pundits who could find nothing about Obama to joke about in the past are now saying things like, "Obama is paying for the bailout by collecting unpaid taxes from people in his own cabinet."

Japan's Prime Minister Taro Aso took office in September, and saw his approval rating fall rapidly from 50% to 16% in four months. In the article I wrote at the time, I suggested that the same thing might well happen to Obama, thanks to his arrogance and his contempt for any opinion other than his own (e.g., "I'm guided by the facts, rather than ignoring them.").

In fact, Japan has had three Prime Ministers in a row who began with great hope and popularity, but whose approval ratings plummeted quickly when problems arose. Each of these Prime Ministers ended up with approval ratings lower than those of the previous Prime Minister. The same thing may happen to Obama with respect to President Bush's approval ratings.

This is not surprising. A constant theme of this web site is that the government of one country after another, among those who fought in WW II as a crisis war, has become paralyzed. I've discussed this about many countries, including Japan, Israel, Europe, China and France.

Increasing public anger

For several years, I've been warning readers to expect increased anger at criminal activities as the economy worsened. I repeated this warning in my "The outlook for 2009."

I made this statement because of parallels in history. I've quoted several sources in the past that indicated that it happened after the 1929 crash. And I saw it for myself when the Enron scandal broke in 2000 and 2001, when many people were calling for the CEO of EVERY corporation to be sent to jail.

One of the most vivid historical examples of what's going on today is the bankruptcy of the French Monarchy in 1789 that led to the French Revolution. In the Reign of Terror that followed, any person who was an aristocrat, a relative of an aristocrat, a friend of an aristocrat, a servant of an aristocrat, or even had a resemblance to an aristocrat, would be tried and quickly convicted and sentenced to the guillotine, where his head would quickly and efficiently be severed from the rest of his body.

The mortgage-backed securities of that day were "assignats," bonds that represented the value of real estate confiscated from the clergy. Like today's CDOs, the assignats became increasingly worthless, leading to the Reign of Terror.

Some people have suggested to me that the US could be headed for a new civil war, as the economy gets worse. Ironically, I recall my father telling me that the rioting was so bad in the 1930s that he thought that the US might not survive.

From the point of view of Generational Dynamics, there are no signs of a civil war at the present time. It's one thing to have political riots and demonstrations, it's quite another to have people go to kill their next door neighbors. A civil war requires a fault line based on differences in skin color, religions, geography, or something similar. The only fault line that's apparent these days is the one between "Yanks" and "Latinos," but any conflict across that fault line will be fallout of a new Mexican revolution.

But there will be increasing riots and demonstrations as the economy worsens. It will be harder and harder for Obama and the Washington politicians to get anything done except respond to the populist anger.

In June, 1930, eight months after the stock market crash, Congress passed the Smoot-Hawley Tariff Act. Almost every economist said that it was a very bad idea, but an angry public demanded it, thinking that it would protect American jobs by reducing imports.

Instead, it caused enormous economic hardship throughout the world, and in America as well as other countries retaliated. In Europe, it weakened the economy further, and led to the major banking crisis of 1931. And in Japan it shut down the silk industry and infuriated the Japanese people, who bombed Pearl Harbor several years later.

As I always say, Generational Dynamics studies the attitudes and behaviors of large masses of people, entire generations of people. It doesn't care about the attitudes and behaviors of individual people or politicians, except insofar as they reflect the attitudes of the masses of people.

Whether we're talking about the war in Darfur, Sudan, or the meltdown in Pakistan, we're seeing politicians increasingly lose control, and government actions increasing directed by mob action. The same thing is happening in the US.

In a sense, it's very exciting to read the news these days, because we're seeing the approach of some of the greatest events in human history. Unfortunately, these events will also be the most disastrous in human history. As part of these, we'll have to see if the AIG bonus story leads to anything.

Generational Dynamics Web Log for 19-Mar-2009
The mob turns ugly as AIG bonuses come under fire

Increasing public anger

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Generational Dynamics Web Log for 19-Mar-2009 The mob turns ugly as AIG bonuses come under fire

Increasing public anger

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Generational Dynamics Web Log for 19-Mar-2009
The mob turns ugly as AIG bonuses come under fire