In President Obama’s 60 Minutes interview with Steve Kroft, he tried to explain why the AIG bonus scandal needs to lead to a better relationship between Wall Street and Main Street:
“You’ve got a piece of legislation that could affect tens of thousands of people. Some of these people probably had nothing to do with the financial crisis. And some of them probably deserve the bonuses that they got,” Kroft said. “I mean is that fair?”
“Well, that’s why we’re gonna have to take a look at this legislation carefully. Clearly, the AIG folks gettin’ those bonuses didn’t make sense. And one of the things that I have to do is to communicate to Wall Street that, given the current crisis that we’re in, they can’t expect help from taxpayers but they enjoy all the benefits that they enjoyed before the crisis happened. You get a sense that, in some institutions, that has not sunk in; that you can’t go back to the old way of doing business, certainly not on the taxpayers’ dime,” Obama said. “Now the flip side is that Main Street has to understand, unless we get these banks moving again, then we can’t get this economy to recover. And we don’t wanna cut off our nose to spite our face.”
It reminded me of (Federal Reserve Chairman) Ben Bernanke’s interview with 60 Minutes (from just the week before), when Bernanke explained why rescuing some badly-behaving Wall Street firms was for the good of not just Wall Street, but all of Main Street:
“You know, Mr. Chairman, there are so many people outside this building, across this country, who say, ‘To hell with them. They made bad bets. The wages of failure on Wall Street should be failure,’” [Scott] Pelley remarked.
“Let me give you an analogy, if I might,” Bernanke said. “If you have a neighbor, who smokes in bed. And he’s a risk to everybody. If suppose he sets fire to his house, and you might say to yourself, you know, ‘I’m not gonna call the fire department. Let his house burn down. It’s fine with me.’ But then, of course, but what if your house is made of wood? And it’s right next door to his house? What if the whole town is made of wood? Well, I think we’d all agree that the right thing to do is put out that fire first, and then say, ‘What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn’t happen in the future? How can we fire proof our houses?’ That’s where we are now. We have a fire going on.”
I think what Main Street’s skeptical about is whether sending the “fire department” (the federal government funded by (future) taxpayer dollars) to put out the badly-behaving neighbor’s fire will actually work to prevent the neighbor’s house, and one’s own house, from burning down. And then it’s sort of like after the fire caused by our naughty neighbor has caused our own house to burn down anyway, the insurance company (hah!–also the federal government funded by (future) taxpayer dollars) pays the naughty neighbor’s claim, but not our own.
That’s why the outrage over the AIG bonuses. Main Street just doesn’t see AIG as a “neighbor.” Or at least not as a good neighbor worthy of their kindness and generosity. And come to think of it, unfortunately even the part of Main Street that’s not the Detroit automotive industry doesn’t even see “Main Street Detroit” as their “good neighbor” worth saving for the good of all of Main Street USA. Although these days the AIG debacle is probably making the Detroit auto industry look as good as Mr. (Fred) Rogers in Mister Rogers’ Neighborhood.