Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

20 March 2009

Financial Judgment at Nuremberg


History repeats itself, but never exactly the same way. Remember the trials at Nuremberg? They decided whether Nazi leaders could escape guilt and punishment for starting history’s most destructive war and perpetrating history’s biggest genocide by claiming, “We were just following orders.”

Nuremberg’s answer, you may recall, was “no.” That ruling was a giant step toward international civilization and away from tangible barbarism justified by the abstraction of national sovereignty.

You also may recall that the chief architects of Nazi crimes were already immune from justice because they were dead at the time. Der fürhrer Adolf Hitler had killed himself in his bunker in Berlin before the Nazis’ surrender. So had Joseph Goebbels, the architect of the Holocaust. The men on trial at Nuremberg were lower-level leaders. They had “just taken orders” from these two, and their obedience was their “justification.”

If you want to know why ordinary Americans are ready to seize torches and pitchforks against AIG’s bonus takers, just think of Nuremberg. It’s a matter of accountability for colossal wrongs.

AIG CEO Edward Liddy’s testimony Wednesday was revealing on this point. Asked repeatedly to name those whom AIG has dismissed for perpetrating our current financial disaster, he could cite only one name: Joseph Cassano. Head of AIG’s derivatives unit, Cassano repeatedly assured all and sundry that his derivatives could not fail. AIG fired him a year ago, but he reportedly walked away with $315 million in pay and bonuses.

I know, I know. It trivializes World War II and the Holocaust to compare Cassano to Adolf Hitler, or even to lesser villains tried at Nuremberg. But if you’ll indulge my analogy for a few more moments, I have a point to make. The worldwide financial meltdown of which Cassano may have been chief architect has deeper similarities to the Nazis’ crimes.

Whenever gangs perpetrate great disaster on the rest of us, there is always a power struggle. Human conscience, decency and common sense survive and strive even within the most terrible gangs. The power struggle within the Nazi gang produced numerous attempts on Hitler’s life, the most famous of which was the subject of the recent hit movie Valkyrie.

The rarefied and far less violent world of global finance is no exception. A man named Joseph St. Denis—a mere AIG auditor—tried to warn others of the disastrous mis-valuation of derivatives on AIG’s books. Cassano contained him, and St.Denis had the integrity and good sense to resign. (Liddy mentioned him in testifying, although not by name.) But no one else, apparently, came forward to carry St. Denis’ torch, far less the bonus takers, who had everything to gain by keeping silent.

Individual conscience within gangs demands nourishment. Civilization cannot survive without it. Things like whistle-blower laws provide the carrots; civil and criminal sanctions provide the sticks.

That’s why Nuremberg was transcendently important. It taught us that individual conscience and intelligence matter. They matter especially in our modern age, when obscure institutions like AIG’s Financial Products Group exert unimaginable (and sometimes unforeseeable) leverage over everyday life everywhere. Nuremberg teaches that, no matter what the threats and blandishments of your gang, you must act like a human being—like Homo sapiens (which means “wise man”)—at all times. And if you don’t, you will be held accountable.

Half a millennium ago, Martin Luther tacked a manifesto to the church door, affirming the autonomy of every individual before God. Six decades ago, the Judges at Nuremberg took that principle a bit further. We all, they ruled, bear responsibility for our acts, not just to God, but to each other. And that responsibility transcends race, religion, nationhood, and national sovereignty.

Both Luther’s manifesto and the Nuremberg trials were seminal moments in human civilization. Both reduced the power of gangs. Both increased the importance of individual conscience and responsibility. It is curious that both occurred in the very same country, though under vastly different circumstances.

When 73 individuals walk away with $1 million or more each after helping to perpetrate what may be the second biggest financial catastrophe in human history, we all know what that means. They were no mere financial foot soldiers. You don’t earn $ 1 million or more for being a foot soldier: ask the folks in Afghanistan and Iraq.

Like the criminals tried at Nuremberg, the bonus takers were co-architects of or co-conspirators in the global catastrophe that their acts precipitated. Whether their acts were deliberate, like the Nazis’, or merely negligent doesn’t matter. They must bear responsibility and accountability for the results of their acts.

That’s why the House voted overwhelmingly to tax away their bonuses. That effort is bad tax policy. If applied retroactively to AIG’s bonus takers, it may be unconstitutional. House Ways & Means Chairman Charlie Rangel sagely warned against it.

But larger principles are at stake. The veneer of civilization is dangerously thin. It needs constant patching and reinforcement. World War II and the Holocaust taught us that. Periodic genocides like those in in Cambodia, Bosnia, Kosovo, Rwanda, Darfur and Congo give us useful refresher courses.

Assaults on civilization do not stop with bombs and guns. Financial depredation can do as much damage. It can even presage war. Some scholars believe that World War II and the Holocaust began with economic sanctions on Germany, the Weimar Republic’s resulting hyperinflatiom, and the Smoot-Hawley tariffs, which only made global financial matters worse.

There is no telling what might happen if we release the dogs of war today. Even now, the financial dogs are straining at their leashes. Voices here and abroad call for protectionism and building national walls. Many leaders who should know better refuse to pitch in to aid global recovery. One of the few bright spots—the U.S. bailing out shaky foreign firms through AIG—isn’t even recognized as a small light in the darkness.

Accountability will be served. It is just a question of when and how. After Pearl Harbor, the V-2 blitz of London, Warszaw, Stalingrad and Auschwitz, we had Dresden, Tokyo, Hiroshima and Nagasaki. In our nuclear age, collective reprisals like that could destroy civilization finally. The only effective antidote is the kind of individual accountability that Nuremberg demands.

So clawing back those bonuses is not just a matter of common sense and economic justice. It is not just a matter of fairness—making sure that we demand much from those to whom much is given. Far less is it a matter of the sanctity of contract. It is a matter of personal accountability on which civilization’s survival depends. In the world of finance, it is bringing al-Bashir to justice.

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