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.
Hey fruitbat and Bricker, how dare you try to inject facts and actual rational thought into this thread. It’s positively un-SDMBlike of you! Please ban yourselves immediately, thx.
Why is it that, according to the Yahoo article, the bulk of the bonuses are going to Financial Products, the division that caused the most problems? Is there any reason why they are entitled to bonuses, besides contractual obligations? Do you feel good that your tax dollars are going to reward these guys? If there’s something I’m missing here, do point it out. I’m not talking about bonuses to account managers or other bystanders in AIG. I’m talking specifically about these big bonuses going to Financial Products, for which I’ve already provided a cite.
If you were one of folks responsible for trashing our country’s economy, as statistically you would be, according to [Rubstreak**'s cite, you’d be an even more hateful person for accepting it.
let them get their bonus, taxed at 110%. Congress could pass a law right quick.
“Oh, no, the bonuses are being paid with our *other *money, the money we don’t want to use to cover our bad investments; we use the government’s money for that!”
Heavens, I don’t pretend to any legal sophistication, I’m sure a country boy like me will not grasp the subtleties. The articles linked to do very clearly state that legal authorities have been consulted, and they are quite firm in their assurance that this is all perfectly legal and above board. Indeed, we have an obligation to pay these people handsomely for screwing every pooch in every pound in the country, plus buggering a few at the Westminster Dog Show.
We lesser minds are limited by the confines of common sense, which suggests that people who fuck up everything they touch are not stellar performers, and are not, therefore, due any special compensation. If they are due any compensation at all, for that matter.
This is almost comical because I would have let them fail in the first place. My problem is that now that the government decided to take a huge stack in AIG they are politically forced to piss and moan about it. My assertion is that in making AIG an unnatractive place to work they are torpedoing their own investment.
Oh, dear, Bricker, Rand Rover has come to your aid. I’m sorry, had I thought you would be subjected to such an embarrassment, I might never have started the thread. Though you frequently trod the path of political error, you are overall a pretty good egg (for a lawyer), and don’t deserve such a fate.
Ah, I see you have read their contract, and discovered what “X” is! Good work boys, now use some of that bonus to buy some ointment for that swollen, red wanger of yours.
About that word “investment”? Do you foresee any prospect that this “investment” will offer us any harvest of return? Do you foresee any prospect that those people who’s 401(k)s have turned to shit before their very eyes are going to reap some benefit?
No doubt, this would be welcome news! Please share the underlying foundation for these glad tidings, that we might all be cheered. If you have such.
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 it depends on what you consider a “fuck up.” Do you consider the Financial Products division a group of fuck ups? I think it’s safe to say that they are. Yet they are the ones who are receiving a large number of the bonuses.
These were bonuses from 2008, when there was definitely malfeasance going on, but its full import for the economy was not yet known. They are contractually obligated to be rewarded for something that we now know was incredibly bad for our economy, and led to the collapse of AIG as a whole.
Now, the argument is that the bonuses will help AIG retain the services of the best and brightest in Financial Products:
Should they be retained? Should AIG even be in this aspect of the business anymore? I can’t answer that. I’m hardly an expert. But it seems to me like they want to have their cake and eat it too. I certainly don’t want to finance that, do you? We have to, since the contracts are legally binding, and such fuckery will not happen in 2009, but it can still chafe, which is what this Pitting is about.
One has to wonder why you’re turning this into an ad hominem attack on elucidator. Ample evidence has been offered that a lot of the bonus money is going to the division of AIG that did fuck up. This isn’t about elucidator’s job history, it really isn’t.
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. There are also plenty of good people losing their jobs due to the market turmoil caused in large part by AIG.
The reason AIG got bailout money was not to save the hides of stockholders, or even employees, but to save the hides of the banks who insured their crappy assets with AIG, and who would have to have even worse balance sheets if AIG went under.
It seems very clear that they are under a legal obligation to pay. My objection is to the idiots who wrote the bonus requirements so that the obligation remains even under present circumstances, to those taking the money even after they destroyed the company and most of the economy, and to the typical “retention” argument. 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.
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.
Why was it needful to depart from the accepted norm? Who signed off on this exception, and for what reasons?
Its not like this is news, or anything, I’ve been reading about this shit for years now. For years, people have been writing that the housing boom was unsustainable, that the mortgage market had been corrupted by short-term profit incentives. Am I to believe that people who are paid for their expertise are caught unawares by something that was obvious to a hippy who can read?
Well, that would suggest otherwise, wouldn’t it? If they departed from the norms of such agreements to ensure they would be paid if things went totally south…kinda suggests to me that they were thinking it very well might. No?
Oh, and just to clarify a term of art: “optimize locally”? Does that mean “I got mine, Jack”?
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.
Will these bonuses get taxed as ordinary income? Or will they get declared capital gains and get mere a 15% tax? Because that seems even more disgustingly unfair.
Can I modify your example to make it more a little realistic?
Ted Smith is a member of the Derivatives and SnakeOil division of AIG. His compensation plan gives him $200,000 salary and the proviso, “Perform X and you will receive a bonus of $500,000.” Ted works very hard, so hard that the efforts of his team push AIG into insolvency.
Bricker"But that will mean they have top fire a lot of people, and many more people will lose money invested in and through the company. It’s to avoid this that the government gives them bailout money."
No. No. No. Bailout money exists because of systemic risk. AIG was bailed out because of counterparty risk: for example, we didn’t want them taking down the municipal bond with them.
Looking forward, I do. (Bricker: assistance requested.) The government ends all bailouts and replaces them with “Bankruptcy bailouts.” Some firms indeed are too big or have too much counterparty risk to fail. So the government steps in, ponies up some cash and initiates something analogous to bankruptcy proceedings. The twist is that a few of the creditors are prioritized ahead of time. Specifically, the government may announce at its discretion that those offering interim financing are made whole. Shareholders should be wiped out automatically. And there is no reason that those receiving large bonuses should take priority over senior bondholders or junior bondholders.
I understand that US bankruptcy procedures work pretty well, though it can be slow. Some of its attributes might usefully be applied in this case. A blue ribbon team of analysts should be appointed to work out a framework for future taxpayer subsidized bankruptcy bailouts. There is no inherent violation of property rights if such creatures don’t follow precisely the same precedents as that for ordinary bankruptcies. For example, there should be a lot more cram-down involved in a taxpayer subsidized process. Oh, and if the bondholders don’t like that, they are welcome to sue anybody but the taxpayer.