“A beggar’s mistake harms no one but the beggar. A king’s mistake, however, harms everyone but the king. Too often, the measure of power lies not in the number who obey your will, but in the number who will suffer your stupidity,” writes R. Scott Bakker in his latest novel, The Judging Eye.
Bakker’s proverb seems to apply to the current economic situation (climate, recession, downturn, depression, hiccup, what are we calling it again?) and especially the continuing outcry over AIG’s payment of $160 million in bonuses after accepting more than $170 billion in bailout money.
The king’s (AIG) mistake (insuring subprime mortgages) has harmed everyone (taxpayers) but the king. AIG is still in business, still handing out large bonuses, still muddling along without having to worry about bankruptcy because of what has so far been readily available bailout money from the federal government. AIG has suffered some harm, but its position as a “king” in the financial world enabled it to divert a good chunk of the harm from itself to “everyone”—the taxpayers.
In the terms of Bakker’s proverb, AIG’s power is measured in the number of people willing to suffer its stupidity. Recently, and especially this week, the number of people willing to suffer AIG’s stupidity appears to be rapidly decreasing, along with AIG’s power.
When members of the financial industry first turned to the federal government—the Federal Reserve and then Congress—for bailouts, one of their arguments was that the worldwide financial markets were too complex for laymen to understand and that the bailout money should be handed to the experts (the members of the financial industry) without restrictions or further delay. And seemingly, the government and the public were willing to suffer the stupidity inherent in the argument—we made the mess, but trust us, we know how to clean it up. After all, who does understand banks, insuring banks, subprime mortgages, securitizing mortgages, or the financial markets? The financial industry argued that it served a crucial role in the national economy and without the bailout, the financial industry would collapse with uncertain results. Certainly the experts on Wall Street must know better than the public and the government how to fix the problem, right?
Well, maybe not. More and more it appears that the experts didn’t really understand what was going on either, and maybe didn’t even really know what the bailout money could accomplish. But when your business is losing money, more money is always a good thing, and the experts were sure of that.
Compare the government and public response to the auto industry’s financial troubles with their response to the financial industry’s troubles. From the beginning, the government and the public were much less open to bailing out the domestic auto industry. Why? Don’t the domestic automakers serve an important role in the national economy? The auto industry employs tens of thousands at high wages, provides health care for even more, and actually makes something tangible that people use everyday.
And that was the problem for the auto industry—the public and the government understand the auto industry, or at least think they do, in a way that is completely different from their understanding of the financial industry.
The auto industry wasn’t mysterious. If the auto industry was in trouble, they just needed to make better cars, more hybrids, fewer gas guzzlers, be more like Toyota and Honda. Because the government and the public believed they understand the auto industry, they weren’t willing to suffer the stupidity of the auto industry that led to its economic woes. Accordingly, the auto industry didn’t have much power when it went in front of Congress asking for a bailout.
On the other hand, the financial industry was mysterious. No one really understood how it worked or what would happen if companies like AIG went under, so the government and the public were more willing to suffer the stupidity of the financial industry that led to its economic woes. Accordingly, the financial industry had more power than the auto industry and used that power to get more money with fewer restrictions when it went asking for a bailout.
Now, however, the government and the public are finally catching up to the financial industry. They may not understand how the entirety of the financial industry works. But they do know that performance bonuses should reward actual performance, as opposed to rewarding failure. And they know that the argument that the bonuses are needed to retain top talent doesn’t really work when the talent may or may not have left the company—without even getting to the question of should the company even want to retain the people that led it into this mess in the first place.
In short, the public and the government are less willing to suffer the stupidity of the financial industry than they were just a few months ago. Which I think is a good thing. This new willingness of the public and the government to ask questions and not suffer the stupidity of major industries—be it the financial industry, the auto industry, or others—moves major industries from their positions as “kings” who can redirect harm from themselves to everyone else to positions as “beggars” who must suffer the harm of their own mistakes.
*I worked for General Motors at the Janesville, Wisconsin assembly plant as a summer intern and as a maintenance engineer from 1999-2006.