It’s a little bit difficult to know exactly how to phrase a post about the AIG suggesting that people need a bit more perspective about this that doesn’t come across as mere apologetics for the AIGsters and for screwups at the Fed, at Treasury, and at the White House. But read what Noam Scheiber has to say about this. Or note Ezra Klein’s observation about quantitative easing:

News of Bernanke’s “money from helicopters” maneuver is below the fold on the Wall Street Journal’s front page (though they do have a good roundup of expert reactions elsewhere on the site). Same goes for The Washington Post. Everyone, however, has continuing, above-the-fold coverage of AIG’s bonuses, which are about one-ten thousandth monetary value of the Fed’s move.

And it’s not just that the money is different in scale. The big macro moves out of the White House, the Fed, and the Treasury Department—the stimulus, the TALF, quantitative easing, the “stress tests”—are all important determinants of whether or not we’ll recover from this recession in a timely manner. Things like the administration’s health care and budget proposals are important determinants of social justice in the United States. The AIG bonuses are largely irrelevant to the recovery issue, and while important as a social justice matter they’re primarily of symbolic social justice importance. It’s good that people are outraged by this—it’s outrageous! And it’s good that in response to the outrage the government is now working to correct the problem. That’s the media-political-outrage cycle at its best. But it’s not healthy to just go ’round and ’round in circles over this issue endlessly. If 18 months from now the economy’s still shrinking and unemployment’s at 15 percent, nobody’s going to feel particularly happy about the fact that we stuck it to some scumbags from AIG back in early ’09.

If there’s something the administration deserves criticism for, it’s the fact that most observers think their public-private partnership for bank recapitalization can’t work. If you want to talk about latter-day conservative populists being hypocrites, talk about their stances on the tax provisions in the budget. That’s the big stuff that’s still in play. On the bonuses, the politicians have heard people’s outrage and now seem determined to avoid future such blow-ups. It’s fine.

Eric Rauchway offers some some slices of New Deal history that seem relevant to the current debate over AIG. First, Jesse Jones, head of the Reconstruction Finance Corporation, from his memoir Fifty Billion Dollars (which was a ton in the thirties!):

The RFC acquired voting control of Maryland Casualty in April, 1934, when we first bought preferred stock in the Company. At that time we sent Silliman Evans to Baltimore to take the presidency of the company and Edward G. Lowry, Jr., of our legal department, to be its vice president and special counsel, each being elected as director. Mr. Evans later became chairman of the board…. When we got into the company, the situation was so much worse than had been represented that we felt it necessary to replace the management.

And this from James Olson’s book Saving Capitalism:

For political reasons, Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.

The RFC doesn’t get a ton of discussion today, but I think there’s plenty of evidence that its activities were more important to the 1933-36 growth spurt than was that era’s rather modest fiscal expansion. Basically the idea was to set up a public agency that could make the loans that the banking system couldn’t or wouldn’t do. Today’s TALF, run as a Fed/Treasury partnership, is designed to serve a similar function but works quite differently and has mechanisms in place designed to make it less political—and, not coincidentally, more business-friendly.

Is it really true that only the AIG employees who made the mess at AIG can clean up the mess at AIG? That doesn’t sound right to me. And Simon Johnson has his doubts as well:

Simon Johnson, a former chief economist at the International Monetary Fund, has pointed out that in financial crises, bankers often exaggerate the difficulty of cleaning up their mess. They do so partly to justify their own continued importance and also to fight off calls for a government takeover of banks. In reality, Mr. Johnson says, the mechanics of cleaning up hobbled banks turned out to be fairly straightforward during other recent crises, like the Asian one in the ’90s.

I’m not sure the situation is exactly the same, since my understanding is that AIG wrote more “custom” products. At the same time, it’s clear that the incentives point in favor of dissembling about their own indispensability. And at the end of the day, while we have no real way of knowing whether Matt Yglesias or Duncan Black or Simon Johnson would do a good job of handling CDS contracts for AIG, we know for a fact that the people currently in those jobs haven’t done well. What’s more, surely it would be possible to rehire or retain a few AIGsters to help out if that became necessary without paying out lavish bonuses. In general, we’re in the midst of a buyer’s market for paid employment.

I thought Senator Chuck Grassley’s initial impulse to suggest that AIG-folk ought to kill themselves, samurai-style, was a bit over the top. But there was a ray of truth in what he was saying. And I think he found the way, saying that there’s a need for some personal responsibility and contrition among the masters of the universe who destroyed the global economy:

In the case of the Japanese, you know, they do one of two things. They either go commit suicide or they take a deep bow and say apologies and then sometimes resign. But they take full responsibility. And we’re not hearing that.

And obviously, I don’t want anyone to kill themselves because I don’t believe in that sort of thing. But I do believe that when you have done bad for your company, for your stockholders, and eventually for the taxpayer…you ought to say I’m sorry.

Right. We’ve somehow managed to construct something of a post-shame society, in which elites have convinced themselves that the rational agent model of human behavior is not just a useful modeling tool, but an ethical guidebook. There’s something to be said for the idea of a sense of honor and personal responsibility. You’d like to see a story in a newspaper somewhere about some Wall Streeter whose lost a lot of money over the past 18 months and is saying “you know what, I lost a lot of money over the past 18 months but I’m still a lot better off than most people are, and unlike a lot of those people I never really did much of anything to earn this wealth — that’s why I’m giving what I have left to the local soup kitchen.” Do I expect everyone to act like that? No, that’s not realistic. But I think that in a healthy society, you see some consideration of issues of honor and duty and moral responsibility and certainly Americans of more humble means don’t strike me as being nearly as taken with the “greed is good” personal ethic.

That said, turning attention back to Grassley, the man’s a United States Senator. He’s in a position to not only offer commentary on passing events, but to change the structure of American public policy. He could, for example, show his outrage at greedy elites by supporting a budget that undoes the pro-rich-people Bush tax code to finance tax cuts for working people and expansion of health care coverage. Thus far, though, he seems content to stick with his pro-rich policy agenda.