# Bonuses For AIG **URL:** \ **Category:** The BBQ Pit\ **Created:** [March 15, 2009, 6:11pm UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541 "2009-03-15T18:11:24Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 15, 2009, 11:50pm UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/41 "2009-03-15T23:50:45Z")
> [@fruitbat](#): > > Do you really know who these people who blew up our economy are? They are likely mild mannered math nerds who build computer models in attempts to understand what happens to a bundle of securities if variable x,y or z changes. They aren’t evil, as much as we would like to believe so. There is a heritage of models that attempt to account for movements in the markets and then abruptly fail. Nicholas Taleb has written some great books that talk about how this happens. > > So they should have known better. Other models had worked like theirs did intially, but tanked terribly when the unexpected happened. They miscalculated. I doubt anyone in the financial products division ever dreamed what would happen if their math was off. Other people then relied on that math to bundle securities and insure others. It seemed to work so they did it more. The system broke down and had terrible ripple effects, but not everything that happens in this world is explicable by making a division between good and evil. > > I think of it like a group of scientists who design a new drug. They do the standard tests and find out it works. Other people sell it the benefits to doctors and hospitals. They prescribe it to patients. It is only later that we discover that drug has unanticipated side effects. Everyone shares some of the responsibility, but no one set out to make a drug that killed people. We need to look at the system and the size and interreliance of the financial institutions. Blaming individuals for malice in making mistakes is not productive and obscures the real problem. You must be joking. It’s been understood for a while that Gaussian distributions can be decent descriptions of normal market behavior, but that every 5 years or so we get events (emergencies) that are not so well approximated. Technically, the kurtosis of these distributions are way beyond 3. But by necessity the data describing these extreme event tends to be spotty. After the failure of Long Term Capital Management in the 1990s, this should have been obvious. No, what’s going on is that bankers and financiers are not culpable if they make the same errors as everybody else. However, if they underperform the market by 1% in a good year, that can get you fired. So herd behavior is encouraged as is the taking on of massive systemic risk. After all, it’s the shareholders and taxpayers who will take the hit in the end, while the quants just walk away. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 15, 2009, 11:54pm UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/42 "2009-03-15T23:54:25Z")
I would like some sort of mechanism that assures that the least wealthy will be paid first, that the poor schmuck who’s dreams of a modestly comfortable retirement were rendered into toilet paper…_he’s_ the guy we bail out. If there is any left after that, we can disperse it amongst the investing class. After we tax the living shit out of it, of course. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 15, 2009, 11:54pm UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/43 "2009-03-15T23:54:48Z")
> [@elucidator](#): > > Oh, and just to clarify a term of art: “optimize locally”? Does that mean “I got mine, Jack”? Optimizing locally means putting the interest of your division above the interests of the firm as a whole. In practice it means taking on opaque risk: you hit your quarterly targets during good times and let somebody else clean up the mess when markets nosedive, as they do periodically. ---
**Author:** ![5\_time\_champ](https://avatars.discourse-cdn.com/v4/letter/5/278dde/32.png) [@5\_time\_champ](https://boards.straightdope.com/u/5_time_champ)\ **Post date:** [March 15, 2009, 11:59pm UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/44 "2009-03-15T23:59:07Z")
The rationale for withholding retention bonuses, i.e. payments for just showing up at work, is quite simple: AIG is functionally bankrupt. Let the incompetent fools in AIG’s Financial Products division threaten to sue for their bonuses. The Obama Administration can then just force AIG into bankruptcy. These bonus boobies certainly aren’t secured creditors; let them stand it line with everyone to get their money. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 16, 2009, 12:00am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/45 "2009-03-16T00:00:48Z")
> [@elucidator](#): > > I would like some sort of mechanism that assures that the least wealthy will be paid first, that the poor schmuck who’s dreams of a modestly comfortable retirement were rendered into toilet paper…_he’s_ the guy we bail out. If there is any left after that, we can disperse it amongst the investing class. After we tax the living shit out of it, of course. Well… I doubt whether such an effort would work out well. It’s understood for example that some people will maintain undiversified portfolios and place everything in the stock market or with crooks like Madoff. But that’s why we have social security and medicare. Heh. Remember how modern conservatives wanted to have social security invest in the stock market some years back? Where are they now? (There were some respectable proposals that involved a degree of equity investment, but there were also some rather blinkered arguments presented at the highest levels of government.) ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 16, 2009, 12:02am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/46 "2009-03-16T00:02:28Z")
> [@5\_time\_champ](#): > > The rationale for withholding retention bonuses, i.e. payments for just showing up at work, is quite simple: AIG is functionally bankrupt. Let the incompetent fools in AIG’s Financial Products division threaten to sue for their bonuses. The Obama Administration can then just force AIG into bankruptcy. These bonus boobies certainly aren’t secured creditors; let them stand it line with everyone to get their money. Ok, but first we have to somehow guarantee _some_ of AIG’s obligations to _some_ of its financial customers. Otherwise we would set off another crisis. ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [March 16, 2009, 12:15am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/47 "2009-03-16T00:15:13Z")
> [@fruitbat](#): > > Do you really know who these people who blew up our economy are? They are likely mild mannered math nerds who build computer models in attempts to understand what happens to a bundle of securities if variable x,y or z changes. They aren’t evil, as much as we would like to believe so. IME with sales people of any flavor, its far more likely someone figured out a way to game the bonus system in such a way that was not long term feasible. Then stood there with their hand out hoping to get their check before the house of cards collapsed on them. ---
**Author:** ![5\_time\_champ](https://avatars.discourse-cdn.com/v4/letter/5/278dde/32.png) [@5\_time\_champ](https://boards.straightdope.com/u/5_time_champ)\ **Post date:** [March 16, 2009, 12:15am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/48 "2009-03-16T00:15:48Z")
True, but I am getting damn sick and tired of “best and the brightest” pointing a gun at our heads, and saying “Bail me out, or I’ll shoot.” Maybe we should start playing hardball with them. Plenty of Republicans are saying “Let 'em crash” ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [March 16, 2009, 12:19am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/49 "2009-03-16T00:19:34Z")
> [@fruitbat](#): > > Do you really know who these people who blew up our economy are? They are likely mild mannered math nerds who build computer models in attempts to understand what happens to a bundle of securities if variable x,y or z changes. They aren’t evil, as much as we would like to believe so. There is a heritage of models that attempt to account for movements in the markets and then abruptly fail. Nicholas Taleb has written some great books that talk about how this happens. > > So they should have known better. Other models had worked like theirs did intially, but tanked terribly when the unexpected happened. They miscalculated. I doubt anyone in the financial products division ever dreamed what would happen if their math was off. Other people then relied on that math to bundle securities and insure others. It seemed to work so they did it more. The system broke down and had terrible ripple effects, but not everything that happens in this world is explicable by making a division between good and evil. > > I think of it like a group of scientists who design a new drug. They do the standard tests and find out it works. Other people sell it the benefits to doctors and hospitals. They prescribe it to patients. It is only later that we discover that drug has unanticipated side effects. Everyone shares some of the responsibility, but no one set out to make a drug that killed people. We need to look at the system and the size and interreliance of the financial institutions. Blaming individuals for malice in making mistakes is not productive and obscures the real problem. Running margins of 30 or 40 to 1 is not higher mathematics. It is exposed risk. Then selling swaps on the same products just elevated the risk a few more levels. It was greed with risk taking on a new scale. The problem was that people were allowed to risk their own money before. Now financial leaders shoot craps with the companies they worked for at stake. That is not the basis for a sound economy. The beauty is that the execs walk away rich and safe. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 16, 2009, 12:29am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/50 "2009-03-16T00:29:22Z")
gonzomax: Nice point about leverage. Separately, I’ll add that the vulnerabilities of the money market fund model have been known for years as well. > [@5\_time\_champ](#): > > True, but I am getting damn sick and tired of “best and the brightest” pointing a gun at our heads, and saying “Bail me out, or I’ll shoot.” > > Maybe we should start playing hardball with them. Plenty of Republicans are saying “Let 'em crash” Today’s Republicans are saying that. Then again, many of their proposals are actually more extreme that Herbert Hoover, who bungled the country into the Great Depression during the 1929-March 1933 era. (It wasn’t Hoover’s fault though, since the first decent model of a whole economy was only described in 1936). Playing hardball with financiers is one thing. Playing hardball with the economy is another. We went down that path during the Great Contraction (1929-33): unemployment eventually topped 20%. We don’t need to repeat that. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [March 16, 2009, 12:32am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/51 "2009-03-16T00:32:43Z")
> [@elucidator](#): > > Well, now, that’s a point right there,\*\* Voyager\*\*. Why were those agreements written that way? Just as you say, the standard bonus agreement is not written to ensure that bonuses would be forthcoming if everything goes into the toilet. For good and obvious reasons. There’s a bad side to that, though. Writing bonuses with too much contingency on company performance can cause the company to “adjust” corporate performance so as to avoid paying bonuses. Having worked for a company like that, I can tell you it deson’t feel good to know they’re cooking the books to hump you out of your money. I don’t feel bad for the rich guy getting richer, but let’s not screw some schmoe out of money he could use to put his kid through college - money he’s fairly owed. ---
**Author:** ![5\_time\_champ](https://avatars.discourse-cdn.com/v4/letter/5/278dde/32.png) [@5\_time\_champ](https://boards.straightdope.com/u/5_time_champ)\ **Post date:** [March 16, 2009, 12:34am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/52 "2009-03-16T00:34:43Z")
> [@Voyager](#): > > It appears that many companies (not only in the financial industry) are stuck on an argument for bonuses that made a lot more sense when the company was apparently doing well and there were lots of available jobs in the industry. I’d hope that any highly placed exec in AIGs Financial Services Division would be poison. Yeah, can’t you just see those resumes? Sleazy McFuckup, Sr Undertaker –er Sr Underwriter 2000-2009 AIG Financial Products Division • Sold over $1 billion of credit default swaps • Personably responsible for losses of more than $10 billion • Earned over $6.5 million in bonuses even as division brought AIG, Inc to the point of bankruptcy Personal References The _Jim Cramer of CNBC_ called Sleazy McFuckup, “A leader in the collapse of the American financial system.” ---
**Author:** ![mhendo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mhendo/32/3159_2.png) [@mhendo](https://boards.straightdope.com/u/mhendo)\ **Post date:** [March 16, 2009, 12:46am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/53 "2009-03-16T00:46:12Z")
> [@RickJay](#): > > How do you know everyone receiving a bonus is a fuckup? > > Jesus, dude, I’m sure you’ve held some jobs; you must realize it’s possible for a business to lose money and still have good employees. Is every single person who works for General Motors a fuckup? > > To hell with your “I’m just a country boy” sarcasm and answer a question straight for once; have you or have you not ever held a job? Were you not entitled to your pay as promised, even if your boss fucked up? I guess, in this particular case, it just seems that there are AIG employees who can’t be considered fuckups, and who did their job as required, but who, in doing so, actually exacerbated the very situation that has led to AIG’s problems. The people in the Financial Products division might have been doing their jobs well, by the standards set for them. They might have been hard workers, following a plan set out by their bosses for selling their products. But can you not see why, even if those bonuses are contractually mandated, some folks might look askance at rewarding people (even hard-working, honest people) with wads of government money for carrying out the very practices that put AIG (and the economy) in the shit in the first place? I’m not arguing that you’re wrong about the legal obligations. I’m simply saying that the general dismay and outrage at these bonuses is completely understandable, given the circumstances in which they were earned. ---
**Author:** ![Robot\_Arm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robot_arm/32/18280_2.png) [@Robot\_Arm](https://boards.straightdope.com/u/Robot_Arm)\ **Post date:** [March 16, 2009, 1:09am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/54 "2009-03-16T01:09:22Z")
> [@fruitbat](#): > > Somehow I think the tune would be wildly different if you were a worker in retail for instance. Imagine some guy embezzles a hundred million from the parent company. You are the assistant manager of a local store that exceeds its sales target by 20%, which entitles you to a $10,000 bonus. I can hear the cries of “unfair” from here when they not only take away your bonus, but villify you as part of a crooked company. > > People are leaving because the can’t sell things under the AIG banner. They know that the profitable parts of AIG are for sale and when bought the purchasing company will likely bring in new management. They see a parent company that may not exist anymore and a government owner that politically finds it difficult to pay them. Taking the bonus away is just one more thing in a long line of reasons to leave. > > So I would ask, how is my example above different from someone who works outside the financial products division of AIG? I agree that giving bonuses to people in that division is insane, but it is likely required by contract. In the post I originally quoted, you said most of AIG’s talent is already gone. So who is left to be receiving these bonuses? I certainly hope they aren’t paying these millions (necessary for retention) to people who have already left. If they are legally required to pay these bonuses, fine, pay them. But I find it hard to believe so many employees met their performance targets in a company that failed so spectacularly. (More below.) For that matter, where are all these AIG people going to? Competent people are having a hard time finding work these days. Who would hire someone jumping ship from a company that has been driven into the ground? > [@Voyager](#): > > I have been in many bonus plans, and the deal in all of them is that bonuses are contingent on the company as a whole achieving certain goals. Once that is done, individual divisions/people might get more money, based on certain formulas. This is done partially to not enrage stockholders who might be unhappy that employees are getting bonuses when the company is missing its objectives, and partially to encourage employees to work for the good of the company, and not optimize locally. There are plenty of people meeting their goals and doing a good job in a money losing company. It is accepted that those are the breaks. Exactly right. Maybe the company is fucked but the fine print in the employment contracts says they’re due for a bonus. Whoever wrote that fine print should have his head on a plate. Business as usual is just not good enough anymore. If people earned bonuses, give them bonuses, but this company has lost billions. Find the people who screwed up and cut them loose. Unless they invested last year’s bonus with Bernie Madoff, they’ll probably survive. > [@fruitbat](#): > > Do you really know who these people who blew up our economy are? They are likely mild mannered math nerds who build computer models in attempts to understand what happens to a bundle of securities if variable x,y or z changes. They aren’t evil, as much as we would like to believe so. There is a heritage of models that attempt to account for movements in the markets and then abruptly fail. Nicholas Taleb has written some great books that talk about how this happens. So there is precedent that models fail. All the more reason that they shouldn’t have bet the farm on the one they had. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [March 16, 2009, 1:10am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/55 "2009-03-16T01:10:03Z")
> [@mhendo](#): > > The people in the Financial Products division might have been doing their jobs well, by the standards set for them. They might have been hard workers, following a plan set out by their bosses for selling their products. But can you not see why, even if those bonuses are contractually mandated, some folks might look askance at rewarding people (even hard-working, honest people) with wads of government money for carrying out the very practices that put AIG (and the economy) in the shit in the first place? Well, of course it’s understandable, I certainly am not going to argue with that. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 16, 2009, 1:27am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/56 "2009-03-16T01:27:17Z")
> [@RickJay](#): > > There’s a bad side to that, though. Writing bonuses with too much contingency on company performance can cause the company to “adjust” corporate performance so as to avoid paying bonuses… I wasn’t clear, apparently. Its by way of asking why the bonus arrangement was done this particular way. Now, maybe this isn’t the case, but it seems as though a bonus agreement centered around the well-being of the company would be the “standard”, and this sort of agreement would be an exception. Now, if that is the case (and I don’t know that it is) then the question naturally arises as to why the exception was made. On whose behalf, on who’s authority. That sort of thing. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 16, 2009, 1:35am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/57 "2009-03-16T01:35:21Z")
> [@Robot\_Arm](#): > > …Unless they invested last year’s bonus with Bernie Madoff, they’ll probably survive… There would be a certain sublime beauty in that. ---
**Author:** ![The\_Tao\_s\_Revenge](https://avatars.discourse-cdn.com/v4/letter/t/73ab20/32.png) [@The\_Tao\_s\_Revenge](https://boards.straightdope.com/u/The_Tao_s_Revenge)\ **Post date:** [March 16, 2009, 1:38am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/58 "2009-03-16T01:38:46Z")
Is there any stipulations about delivery method? Could the bonuses be delivered encrusted in something nasty? Deposited anally with a pitchfork in quarters? ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 16, 2009, 1:44am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/59 "2009-03-16T01:44:19Z")
An update from _Talking Points Memo_ (links within) [http://www.talkingpointsmemo.com/archives/2009/03/a\_glimmer\_into\_aig.php](http://www.talkingpointsmemo.com/archives/2009/03/a_glimmer_into_aig.php) > [@](#): > > AIG has released limited information on who its biggest counter-parties were… ---
**Author:** ![Death\_of\_Rats](https://avatars.discourse-cdn.com/v4/letter/d/a6a055/32.png) [@Death\_of\_Rats](https://boards.straightdope.com/u/Death_of_Rats)\ **Post date:** [March 16, 2009, 1:52am UTC](https://boards.straightdope.com/t/bonuses-for-aig/489541/60 "2009-03-16T01:52:01Z")
The sad part is you know they had to see this backlash coming and didn’t even \*try \*to spin it before word got out. If nothing else, they could come out upfront and say that they don’t want to pay the bonuses but contractually have to, fake looking chagrined and contrite and at least pretend that their plan is not to screw us while they laugh all the way to the bank. [Previous page](https://boards.straightdope.com/t/bonuses-for-aig/489541.md?page=2) [Next page](https://boards.straightdope.com/t/bonuses-for-aig/489541.md?page=4)