More On Bonuses At AIG

From the WSJ:

“American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG’s collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running.

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit — whose woes caused massive losses at the giant insurer — are due on Sunday, and added “quite frankly, AIG’s hands are tied.”

Those payments are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. AIG, which was rescued in September as it faced potential bankruptcy, is also making over $600 million in retention payments to over 4,000 employees.

Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees.”

If you want to get really angry, consider that this division, whose members will be getting nearly half a billion dollars in bonuses for the remainder of 2008 and 2009, has about 370 employees. That’s well over a million dollars a person, to a group that lost over $40 billion (so far!), and bankrupted its parent company. Nice work if you can get it.

As far as I can tell from reading this explanation from AIG, and this letter from its CEO to Sec. Geithner, there are two issues. One is contractual: they promised their employees all this money back in the spring of 2008. To which I can only say: what sort of idiot would commit a company to paying a bonus to an employee even if that employee took down the company? And what sort of Treasury Secretary would commit the US to rescuing AIG without securing the authority to renegotiate those contracts?

The second, which is much harder to accept, is that no one but the idiots who put these trades together understands them well enough to unwind them. (See pp. 3-4 here.) When I say that this is hard to accept, I don’t mean that I don’t believe it. For all I know, it’s true. I just mean that I hate the thought of it: that the people who worked in this division, having wrecked their company, done serious damage to the world financial system, and required hundreds of billions of dollars of taxpayers’ money, might actually be in a position to extort even more.

And extortion is what it is (morally; I am not a lawyer, and I’m not trying to make a legal claim.) If I ran someone down in a car on a deserted road, it would take a lot of gall for me to ask him to pay me an exorbitant price to take him to the hospital since there’s no other car around. When you run someone down, taking him to the hospital is the least you can do, and payment shouldn’t so much as enter the picture.

Likewise, when you run the world financial system and the American taxpayer down, it takes a lot of gall to ask for not just a performance bonus, but a retention bonus as well. Any remotely decent person would stay and try to unwind the damage s/he had caused, if s/he was the only person who could do so, and would be content with his or her salary. (After all, it’s not as though people in financial services are generally underpaid.)

If the people in the AIG Financial Products felt this way, they could have made all these legal issues about contracts vanish by simply declining their bonuses. And they could solve the retention problem by agreeing to stay around as long as they’re needed, at their existing salaries. Instead, they are using our predicament to extract even more money for themselves. And that’s obscene.

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