While I share the outrage that these despicable incompetents are being paid bonuses out of our pockets, and feel the frustration that such a conspicuously broken benefits system was allowed to remain in place, I don’t think AIG should break the contracts it signed. Far from it. They signed 'em, they’re on the hook for 'em.
Of course, it’s our money paying those bonuses, but they really are a drop in the bucket compared to the total amount we’re being screwed for. A little perspective is called for.
Seems to me this is a self-solving problem. We’re bailing out AIG, which means this money is going to come with plenty of strings attached. Other companies will see the government’s sticky fingers in AIG’s works and will undoubtedly review their compensation packages, especially if we make some noise about passing a law to cap such compensation. Furthermore, I predict it won’t be long before everybody in the country will know the names of the schmucks who strung us up. The guys who arranged this generous compensation for themselves are going to have a tough time evading a public shaming. I wouldn’t be heartbroken if they had to squander those self-granted bonuses defending themselves against a flurry of civil you-cost-me-my-401K suits.
This is not my area of expertise, but to hazard a guess, the punitive nature of the tax. When the Congress under Carter enacted the windfall profits tax, it was to serve as an excise tax on the anticipated difference in oil prices after the removal of price controls.
When Congress invites recipients of a windfall to commit suicide, a finder of fact might conclude that there’s some animus and effort at punishment going on.
I think this is a significant observation. And it could possibly have been addressed if the bailouts weren’t drawn up so hurriedly.
This reminds me of the situations where the airlines renegotiate labor contracts and renege on their pension obligations during reorganization, and then turn around and offer gold-plated packages to their top brass.
I say give the AIG folk their bonuses, but make those bonuses consist solely of AIG stock and require that they hang onto it for 5 years or so. Or maybe the bonuses could be in the form of some of these triple-A rated mortgage-backed securities… Let the performance of their new personal portfolios show how talented these folk are that they need to be retained.
OK, continuting along the Socratic path (understanding this is not your area of expertise): Given that AIG would have become backrupt without governement injections of funds, and therefore the contracts could have been voided, can it not be argued that the bonuses are a “windfall” due to the governement action?
As well, I’m not entirely convinced that one Senator mouthing off is equivalent to
…When Congress invites recipients of a windfall to commit suicide…". Bit of a stretch, counselor.
Wow, they totally don’t get it. The amount of money is not really the issue (well, it is part of the issue), it is the principal. ANd BTW, half of $6.4 million is $3.2 million so whoever that guy or gal is, that ain’t much sacrifice.
Take the bonuses back from those who left. For them it was obviously not a retainer. I doubt that it ever was. But, then give up and let the bonuses go. Follow that with brooming the whole lot. They are supposed to be so smart, but they could not figure out what rewarding bonuses from tax money would turn into? Their greed caused this mess. Lots of banks went under. There are plenty of qualified people available.
We should have government regulators climbing over every transaction. The people have to be protected from the bankers .
Bernanke was on TV a couple days ago saying there are mega billions sitting in the accounts of these banks. They are not lending. They were given the money to free up lending so the economy could recover. They knew that. They have not acted in good faith.
This letter to the New York Times states it aptly:
I would personally love to see the “talent” involved here find a new job in this lousy economy. I’m sure employers are just lining up to hire people with AIG stamped all over their resume.
Retention bonuses can be structured in lots of ways. One way is to pay half up front and half at the end of the period they asked the retained employee to stay for, say a year. So they’d say “your retention bonus will be $X, here’s half of it, the other half is waiting for you if you stay for a year.” The employee could take that first half, walk, and be done with it. The first half of the bonus was two things, it was a sweetener to make the employee happy today. It was also split up to keep a ton of bonuses from coming due in one pay period. They could split a bonus over two fiscal years instead of one and make it contractual. If the employee left during the year, no second half of the bonus. The employee is less likely to do that because they’ve just received a nice big check and they’re in a good mood. During the year they look back on the nice big check and think, there’s another waiting for me if I just stick out this year at this shitty company.
This is an example of a contractually obligated retention bonus which could produce exactly what we’ve seen at AIG. Some people who took a bonus(the first half or so) and walked, and some who stuck it out and are contractually entitled to receive the second half now. Their contractual obligations were to remain with the company(presumably avoiding offenses which warrant termination) and doing their job for a year. That’s it, they get the bonus.
Contracts are important. AIG wrote some stupid contracts(CDSs) and made bad assumptions(retain AAA credit rating, CDSs would not default in massive numbers, at least not on stable institutions like Lehman Brothers). They’re paying for it, as the contracts stipulate. If the US taxpayer says they’re too big to fail, then we have to fund their operations, and that means their existing obligations. We can lean on them not to make stupid obligations predicated on stupid assumptions in the future, but we can’t do an ex-post-facto re-write of all this stuff without going through something like chapter 11.
I also agree with the “broken window theory” and fully support efforts to not retain or give future bonuses to executives and employees in business divisions which are generating huge losses. But the broken window theory doesn’t apply to windows which were broken before it went into effect. The bonuses were already set. The rock was in the air. Going to Herculean efforts to snatch the rock out of mid-air to prevent a broken window is going to cost us the opportunity to stop more rocks being thrown, some of which may not be aimed at windows, but instead at people’s heads. Is it worth intercepting this rock, possibly at the cost of someone smashing someone else’s brains out while we’re trying to catch the rock? Or should we go ahead and let the window break, and spend our time and energy making sure no one else throws rocks on our watch?
I see Geithner taking the fall. He knew about it and did not fight it.
Then it is Michael Douglas’s fault too. The Wall Street 'Greed is Good" speech haunts us all.
Way back somewhere around page 3 RickJay suggested a distinction betw union workers and the top execs b/c there is at least a chance the union contract contributed to the companies poor position. (Apologies for a poor paraphrase.)
I’m not entirely sure how valid the distinction is, because it seems that what we’ve seen is that many of these large companies are operated such that their primary goal is not to create anything of longlasting value, but to instead provide the greatest income to certain interested parties - shareholders/owners, employees, affiliates, etc. - in the short run. If a high-flying exec can pull down enough cash this year and maybe the next, he really has no reason to care whether the company even exists after the third year. There certainly seems isufficient incentive to forego current compensation for the sake of longterm reward. And, so long as the exec avoids prosecution, he is always free to loot another company …
I am very VERY unsophisticated in terms of money, finances, and economics. But I can confidently say that I often commented that I did not understand how what was going on over the past decade was in any way sustainable. But heck - why put on the brakes when so many people were profiting so wildly? I can moan about my recent losses, when in reality I’m no worse off than I was a decade ago or so. While it sucks to have so little to show for a decade’s worth of conservative investing, a lot of people have it much worse.
I know this is impractical and unworkable, and I know I’m not saying it right, but a large part of me thinks you could pretty closely approximate identifying “wrong-doers” by tracking who profitted the most - especially from “financial” businesses that have questioinable balance sheets.
A lot of it goes back to such discussions as CEO compensation. Recent events make it all the more difficult to imagine how ANYONE could possibly EARN the tremendous compensation so many of these folk do. Maybe all compensation should be deferred 5 years, and if the company no longer exists or turns out to have been disadvantaged down the line by policies you supported, you are SOL.