Bonuses and Mexican Trucks

March 21st, 2009

Charles Krauthammer’s column in The Washington Post yesterday was typically succinct on two major issues the Obama Administration and Congress are busily making a mess of — the AIG bonuses and NAFTA-required provisions for Mexican trucks to operate in the U.S.

The column begins:

A $14 trillion economy hangs by a thread composed of (a) a comically cynical, pitchfork-wielding Congress, (b) a hopelessly understaffed, stumbling Obama administration, and (c) $165 million.

Krauthammer continued on the AIG bonus kerfuffle:

That’s $165 million in bonus money handed out to AIG debt manipulators who may be the only ones who know how to defuse the bomb they themselves built. Now, in the scheme of things, $165 million is a rounding error. It amounts to less than 1/18,500 of the $3.1 trillion federal budget. It’s less than one-tenth of 1 percent of the bailout money given to AIG alone. If Bill Gates were to pay these AIG bonuses every year for the next 100 years, he’d still be left with more than half his personal fortune.

For this we are going to poison the well for any further financial rescues, face the prospect of letting AIG go under (which would make the Lehman Brothers collapse look trivial) and risk a run on the entire world financial system?

And there is such a thing as law. The way to break a contract legally is Chapter 11. Short of that, a contract is a contract. The AIG bonuses were agreed to before the government takeover and are perfectly legal. Is the rule now that when public anger is kindled, Congress will summarily cancel contracts?

Even worse are the clever schemes being cooked up in Congress to retrieve the money by means of some retroactive confiscatory tax. The common law is pretty clear about the impermissibility of ex post facto legislation and bills of attainder. They also happen to be specifically prohibited by the Constitution. We’re going to overturn that for $165 million? …

Obama has been strangely passive about this single greatest threat to the country. In his address to Congress and his budget, he’s been far more interested in his grand program for reshaping the American social contract in health care, energy and education.

Obama delegates to Geithner plans for a bailout — and Geithner (thus far) delivers nothing. Obama delegates to Nancy Pelosi and her congressional grandees the writing of all things fiscal — and gets a $787 billion stimulus package that is a wish list of liberal social spending, followed by a $410 billion omnibus spending bill festooned with pork and political paybacks.

And on the NAFTA-required provision for Mexican trucks to operate in the U.S.:

That bill, we now discover, contains, among other depth charges, a Teamster-supported provision inserted by Sen. Byron Dorgan that terminates a Bush-era demonstration project to allow some Mexican trucks onto American highways, as required under NAFTA.

If you thought the AIG hysteria was a display of populist cynicism directed at a relative triviality, consider this: There are more than 6.5 million trucks in the United States. The program Congress terminated allowed 97 Mexican trucks to roam among them. Ninety-seven! Shutting them out not only undermines NAFTA. It caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade coming out of 40 states.

The very last thing we need now is American protectionism. It is guaranteed to start a world trade war. A deeply wounded world economy needs two things to recover: (1) vigorous U.S. government action to loosen credit by detoxifying the zombie banks and insolvent insurers, and (2) avoidance of a trade war.

Free trade is the one area where the world indisputably turns to Washington for leadership. What does it see? Grandstanding, parochialism, petty payoffs to truckers and a rush to mindless populism. Over what? Over 97 Mexican trucks — and bonus money that comes to what the Yankees are paying for CC Sabathia’s left arm.

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6 Responses to “Bonuses and Mexican Trucks”

  1. Kevin |

    Krauthammer: That’s $165 million in bonus money handed out to AIG debt manipulators who may be the only ones who know how to defuse the bomb they themselves built.

    He echoes an arguement I’ve heard elsewhere (from conservatives). Here’s what I want to know: Short of inventing a time machine, how could they possibly defuse it?

    My understanding is that they came up with the “credit default swap” scheme. How those functioned and how they were used/traded is pretty straight forward and very widely understood.

    The bomb went off already. What Krauthammer is apparently suggesting is a modern version of trying to put Humpty Dumpty back together.

    It’s ludicrous as far as I can discern. But I’d be happy to be disabused of this notion if someone can give an even remotely plausible way in which these overpaid con artist’s knowledge could conceivably undo the damage done.

  2. Tom |

    My understanding of the AIG mess is it centers on AIG Financial Products. The head of Financial Products is long gone, as are other senior executives. The argument is that the senior executives AIG is most concerned about retaining either know what happened or were there when it happened. Seems logical that the most knowledgeable people are the ones who stand some chance of improving things. Think of it, perhaps, as hiring the hacker who penetrated your IT system to secure it.

    Krauthammer makes other points that are much more important. Concern about abrogating contracts, passing tax laws aimed at a few specific people, confusion and lack of focus in the Administration, too much attention being paid to a very small amount of money (relative to the total), etc. I think he’s right.

    The original constitutional problem was that the 90 percent tax bill amounted to a bill of attainder, which is prohibited. From what I’m reading now, the bill that may eventually come out may be cleverly enough crafted to avoid that constitutional obstacle, or at least make it less blatant. The question then will be if the President will sign it. I hope he, at least, understands that this is not the right thing to do.

    If they get away with it this time, Kevin, who will be the next victims? Will we ever again be able to feel confident in having a contract, or will we have to hope that politicians don’t decide to cancel it and pass a punitive special tax against us?

    The Mexican trucks issue is, I suspect, just one of many cow patties lurking in the bailout bill. They’ll keep floating to the top. Remember that this humongous bill bypassed the normal procedures and was rushed to a vote before many, if any, members of Congress actually read it.

  3. Kevin |

    The hacker analogy doesn’t work. Such hackers have highly specialized knowledge which very few others have – thus the rationale for hiring them. If their tricks were widely known then there would be no reason not to just throw their butts in jail and throw away the key.

    The problem with the credit default swaps isn’t that nobody else understood them – they were actually very simple in concept and execution. The problem was that almost everyone using them ignored the potential risks, aided and abetted by their own short-term greed. Indeed, short-term greed was the point of the scheme.

    President Obama has made it clear that he disagrees with the 90% tax and I would be very surprised if he signed such legislation should it ever get that far. I personally doubt that it’ll make it out of Congress.

    Also, it’s important to keep in mind that Congress is focused on the relatively “small amount of money” because the American people are. Such is the nature of a Representative Republic. Congress Critters who don’t pay attention to what the public is angry about do so at their own very real political risk. Given the alternatives, that’s as it should be, IMHO.

    Secretary Geithner not having most of his principle deputies confirmed and in place is a problem that needs to be addressed ASAP.

  4. doris |

    The problem with these mexican trucks is they are totally dangerous. These trucks are not up to inspection in any way, falling apart and extremely dangerous to fellow travelers. As we know, more than 97 are coming across, a WHOLE BUNCH MORE, THESE TRUCKS MUST BE PREVENTED FROM COMING INTO THE U.S. because they are overloaded, falling apart, tires coming apart and no one inspects them, not even us, due to their agreement. I have seen these trucks and believe me, they are death machines and I don’t want to be behind or beside them when they fly apart, do you? Say, well inspect them, but we can’t seem to get our proverbial crap together, on doing anything productive at the border. It won’t happen, your family and friends will have to die on these highways to prevent it. Hopefully, not a lot of us.

  5. Tom |

    Fact is, the small number of trucks operating under this program are as safe or safer than U.S. trucks. You can read about the results of huge numbers of truck inspections here.

    You might see older Mexican trucks in poor condition just on the U.S. side at the border crossing areas, where they’re permitted to bring trailers and cargo across but can go no further.

    The cancellation of this very limited pilot program is nothing more than Democrats pandering to the Teamsters Union. To risk starting a highly damaging trade war with Mexico, our third-largest trading partner, is irresponsible.

  6. doris |

    Balderdash, Tom, you’ve been lied to!!!!!! I have seen them near our home and on Houston news, being checked by the highway patrol, and coming up terribly illegal, really. The teamsters are correct, and why on earth would anyone want to allow the Mexican trucks to come over here and undercut our prices and do it because they are working on maypops and using illegals for very little pay???? Plus, the disrepair of the trucks is deplorable, you have been misinformed and on purpose, so the rest of the world will think the trucks are safe, not so. Saw it with my own eyes.

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