It might be tempting to dismiss the political frenzy in the United States over bonuses given to AIG executives as a flash in the pan. Much of the surface discussion is focussed on immediate issues. Who knew about the bonuses? Why were they not stopped in time? Did Timothy Geithner, who negotiated the AIG bailout drop the ball? The House of Representatives, in a controversial legislation, is trying to impose punitive taxes on bonuses given, recovering almost 95 per cent of the payout. There is a widespread view that this is more populism than considered intervention. Yet the fact that such legislation is on the cards is indicative of the depth of popular feeling on the issue. And the debates are opening up deep fissures in American society, particularly about finance capital.

Last week I was in Lansing, Michigan, a place where the effect of the downturn is deeply visible: over 12 per cent unemployment, out-migration, boarded-up houses and closing schools. Admittedly, Michigan’s woes stem from the decline of the American auto industry, something that predates the financial crisis. But even amongst a group of people that describe themselves as Republican supporters, there was real outrage at the bonuses. The outrage was in part due to the fact that there are very strict conditionalities on wages of workers in the bailout the auto industry got; but in their reckoning the financial fat cats got away.

The arguments being given for the bonuses are also denting the self-image of American capitalism. The language of incentives, rather than being an expression of common sense, has become a tool of ideological mystification. Incentives need to be given to retain talent in the financial companies. Without this talent, the problem of the financial companies will not be fixed. This argument is causing outrage in more ways than one. What is the measure of talent? In what sense are the very same people who are responsible for the financial crisis talented? People can understand the need to give incentives to retain talent when talent is scarce. But is talent in the financial sector so scarce, even in a time when thousands of people in the sector are being laid off?

... contd.