Wednesday, March 18, 2009

The AIG Bonuses: A Bit of Perspective

Everybody’s outraged at AIG. Press Secretary Robert Gibbs said that he was outraged at least thirteen times in his Tuesday briefing. Budget director Peter Orszag thought that the “outrage was visceral.” John Boehner agreed that the situation was “outrageous,” and argued that the American people are “justifiably” outraged too.

President Obama is doing everything he can. He gave Timothy Geithner a vote of confidence, saying that he has “been making all the right moves.” He has promised to try to find a way to get the bonus money back, which sounds hard since AIG depends on the federal government for its survival. And the checks have been cashed, which makes getting the money back even harder.

(Amusingly, Obama nobly said “I’ll take responsibility,” immediately before saying “we didn’t grant those contracts.”)

And nobody in the White House seems to know just how those bonuses were awarded, or when the White House became aware of them. Geithner claims to have learned of the bonuses March 10, and says he informed the president March 12. (The bonuses went out the following day). But the Treasury Department was notified ten days before, meaning that Geithner is either incompetent or lying.

And nobody knows exactly why the bonuses were authorized. Chris Dodd admitted (after initially denying it) to inserting language that allowed the payouts into Obama’s stimulus package. But he claimed to have put it in at the request of the Treasury Department.

So according to Dodd, Geithner and the Treasury are the bad guys here. Geithner says that it’s all Dodd’s fault. Whatever the truth, someone is undeniably guilty of…

(stop reading now if you are easily outraged)

…allowing a corporation to pay its own employees. (Shock!!!) AIG did nothing wrong. Giving out those bonuses was the appropriate thing to do—in fact, it was the only right and moral thing to do. It is possible that Dodd’s amendment sets a dangerous precedent—but in the present instance, the effects were perfectly legitimate. Nobody should be apologizing, and Dodd shouldn’t have had to lie.

As far as I can see, the outrage over the bonuses exists solely because AIG is effectively government owned. Apparently, this fact means that underperforming employees contracts become null and void. These bonuses weren’t spur of the moment, unearned giveaways. They were a part of the contracts of the employees concerned. Those bonuses were planned years in advance. Should the government have forced AIG to break its contract with these people and renege on what it owed them?

But assume that the bonuses weren’t planned; that AIG CEO Edward Liddy had just paid them out as a reward for a job well done. Is even that such a bad thing? There are effective workers in every company, even failing ones like AIG. Should the federal government decide not to compensate them?

Pretend that GM was taken over by the government (that’s not exactly hard to imagine). Would the government ever dream of stopping the company from paying bonuses to its auto workers? Of course not, and anyone who even suggested such a measure would be painted as a hard-hearted villain.

The situations are perfectly analogous. The only difference: the AIG people lived in nice apartments instead of small ones, and wore power suits instead of overalls, and listened to The Arcade Fire instead of Bruce Springsteen.

This kind of class warfare is destructive, and should stop. People who work in an official are not morally inferior to people who work in a factory. Wall Street people earn big bonuses because they are, for the most part, worth it. No corporation failed because of big bonuses. This is class warfare, plain and simple.

Republicans shouldn’t have anything to do with it. They will, of course, because most normal Americans are outraged, and want to see heads roll. With luck, Republicans hope to tarnish the Obama Administration, and do their best to ensure that Chris Dodd’s name is mud. They’ve got a good chance of succeeding—all based on outrage over a “crime” that is no crime at all, but perfectly justified and right.

It shouldn’t have come to this.


At March 19, 2009 at 5:52 AM , Blogger Beth said...

The outrage is creating a mob rule situation, and if we allow them to get their way and break contracts, then the rule of law is meaningless.

At March 19, 2009 at 6:17 AM , Blogger Name: Soapboxgod said...

"...allowing a corporation to pay its own employees. (Shock!!!) AIG did nothing wrong. Giving out those bonuses was the appropriate thing to do—in fact, it was the only right and moral thing to do."

Of course it was. And yet, I'm not seeing anyone from a leadership position in the Republican party assert as much. Instead it's the same tired tactics of politicking in going after the Democrats for not plainly seeing that these bonuses were in there.

Who the hell is going to step up and say:

"The proper role of government is UPHOLD contract you idiots. Our job is not to bailout companies and it is not to rewrite existing contract."

This whole thing is such an obvious setup (I mean how the hell does code pink get in there???) that it literally made me sick yesterday.

Oh how I loooooaathe my own government and what it has become.

At March 19, 2009 at 7:33 AM , Blogger Beth said...

I do have a legal question though for my Soapster friend, since I know he is in the business. If AIG did not get bailout money and therefore did not have the money to pay the bonuses, how could they have made good on the contracts? Or would the employees be able to sue them regardless, and what good would that have done since they could never pay? I assume they would have had to declare bankruptcy as their only way to break the contract, yes? And why do companies even have contracts that do not have tied to them their solvency as a condition of payment? To me, that is a sign of bad judgment on the company's part not to include that in the contract, which to me is proof of why they should have been allowed to fail.

At March 19, 2009 at 7:41 AM , Blogger Name: Soapboxgod said...

They may not have had any "money" per se but supposing they went into bankruptcy and were going to restructure, certainly they have assets be they buildings or what have you. So, there is some degree of capital there. And these "bonuses" were retention bonuses which were given as those respective recipients wound down those various business departments (thus putting themselves out of work) and subsequently in doing so maximized assets.

Ironically enough though, had they gone into bankruptcy, it's likely those very contracts would have been nullified or written down to a much smaller number.

At March 22, 2009 at 3:50 PM , Blogger BB-Idaho said...

The AIG 'retention' contract may be read in its entirety here pretty nice arrangement. (and there is no clause which states if you fail miserably in your job and need to bailed out, those funds cannot be used to fulfill the contract.) I've never seen a bonus system which was NOT based on contribution to profitability, but then, I never was in the banking business....

At March 23, 2009 at 4:37 AM , Blogger Beth said...

My husband is a financial analyst for a commerical real estate company BB, and some people in his company get bonuses for things that have no bearing on profit. So even as they had to cut people's salaries, they contractually had to pay these bonuses.

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