I am left with a troubling question (well, many, but I’ll just go with the one): how come when it’s unions, the company can go and ask them to break their contract etc or even force them to do so and it’s done. Why is everyone so intimidated by these contracts?
Why are we rewarding such overwhelming incompetence and outright greed?
Overwhelming incompetence and outright greed, of course.
The comparison to the Big Three fiasco is apt but there’s two differences:
There is, in all fairness, some evidence to suggest that the Big Three/UAW contract was one of the reasons they’re dying while other automakers are not. There isn’t any evidence that bonuses are what wiped out the credit market; they were wiped out by the bullshit derivative transactions fuelled by real estate speculation and shady mortgage dealing. Bonuses just piss you off, but they aren’t actually what collapsed AIG ,(and Lehman Brothers, Bear Stearns, etc.) I’m not actually convinced that the union deals ARE the Big Three’s problem (or, at least, not the major problem) but they seem convinced they are, or have convinced politicians they are.
Because the MBA business types are more willing to take care of their own than they are blue collar workers who’re seen as adversaries. Which, of course, goes a long way towards explaining those companies’ problems.
Either way, both business models are broken and propping them up is almost certainly going to lead to many, many more problems.
So, IOW, we’re pretty much fucked, right? (can I still say fucked? I never know). And no one has said to AIG, that’s it, not a penny more–this could go on for some time.
I wonder whether AIG could have legally paid paid the bonuses in toxic assets: derivatives or even AIG stock?
Just a thought.
Union members are seen as fungible, replaceable. Anyone can turn a wrench, right? Executives have convinced the world that they possess some secret skill that cannot be found in anyone else. Gregg Easterbrook had an item in one of his columns about how executive salary and benefits are referred to as “compensation”; implying a fair exchange and that their exhorbitant pay is well earned.
I like the stock idea. That would actually be a good idea because it’s an incentive to do well.
You get stock options. If your decisions and policies help the company to do well, the value rises. If you fail, the value plummets. That is a good incentive.
Sen. Chuck Grassley (R-Iowa) suggested that AIG execs go kill themselves. That’s one way to solve the bonus issue.
Your analogy would require all the hospitals around the country or the world to collapse as a person got hurt in a bike accident. Weak,very weak.
I haven’t read the entire thread, but I was under the impression that the bonuses were spread out over large parts of the company…not just for the top executives (this seems to be how the media is playing it, and even how Obama et al are portraying it…that it’s merely for the top dogs).
Since it seems to be a legal contractual issue, and since we are talking about a pretty meager amount, all things considered (IIRC it’s like $160 million…contrast with the $100+ BILLION in bail out funding we are talking about less than a percent).
Here is the thing…when the government decided to bail out AIG, did they not look at their contractual agreements? Having looked, did they not consider the ramifications of those agreements? Did they assume that AIG would not attempt to fulfill them?
I think this entire issue is a bunch of smoke and mirrors that is playing on the fear and ignorance of the general public, much like the anti-nuclear folks play on fear and ignorance. In the bigger scheme of things this issue is minor…except for it’s propaganda value. The BIGGER issue is…should we have bailed out AIG (or anyone else) at all? If society HAS to bail out AIG, then we have too…it was in OUR best interests to do so apparently. And if we DO bail them out then we explicitly condone their business model and legal and contractual obligations. We gave them the money. They have used it. This particular use of it is less than 1% of the total funds.
What are they doing with the REST of the money is what I’d like to know. Not the hundred MILLION…but the hundred BILLION.
-XT
AIG was a big player in the swaps. They helped create complicated instruments to avoid regulation as insurance, which is essentially what they were. They had the numbers and knew full well what the risks were. But, with the greed is good mentality, they pushed them making billions of dollars for the company and many millions for themselves. They should not be saved or well compensated now. They have culpability and should be facing investigations. They should be fired and replaced.
I don’t think bailing them out means we condone their business model and accept their obligations, it just means we’re too afraid of the consequences of letting them fail. Personally, I think the whole contract argument is a load of crap. We made the auto unions renegotiate, and the government changes obligations all the time in bankruptcy. There’s no slippery slope here. If companies fear the possibility that the government will step in and refuse to honor their existing agreements then they can choose the alternative, which is to decline any bailouts. Beggars can’t be choosers. As for the “retaining executive talent” argument, that’s been floating around for years and I’ve never bought it. It’s a completely self-serving argument that people who will never sniff a corner office have swallowed for reasons I can’t fathom. If these jokers want to leave because they’re not getting what they feel they are entitled to, let them go to whoever will take them. I doubt they’ll improve their positions.
The problem with your analysis (well, one of them) is…who exactly is the beggar here and who is the chooser? If I loan you some money so that you can avoid the big fall, and I do so out of the goodness of my heart, well then, you are obligated to me…I just saved your ass. If I loan you money because if you take the big fall and by doing so you take me with you, well then, I’m as obligated to you as you are too me, because what I’m doing is purely out of self interest to my own survival…and you might just take that leap and take me with you if I don’t.
If the government wanted to null and void AIG’s contractual obligations then they should have done so (and attached any OTHER strings to the deal) before they handed over the money. They didn’t so, to my mind, it’s a bit late in the game to be getting all hot and bothered about it now.
Either we should have taken our collective medicine and allowed AIG to fail or we should have attached a bunch of strings on them prior to handing them over boat loads of cash…or we should collectively shut the fuck up about how they are using our money at this point and take THAT medicine…and then think hard about how we deal with this kind of stuff in the future, and what kinds of strings we attach to companies we choose to bail out with public funds.
-XT
I have to go with Bricker’s ideas on this. There have to be corrections made. There have to be safeguards and oversight. There’s not much we can do to “undo” what has already happened, but there are some hard Lessons To Be Learned here.
I agree…I hope we learn them. And I hope we apply them in any potential future bailouts. I’m not exactly sanguine about that possibility, mind, but hope springs eternal.
-XT
The United States will survive without AIG. AIG can’t survive without us. The common sense of that reality should override any regard for contracts/agreements/entitlements.
Yeah, yeah, the law doesn’t always make sense. But there’s nothing sacred about these contracts and no value that I can see in honoring them. If it’s in our interest to breach, we breach.
The bonuses that people are yelling about are for people in the division that caused the problem, not in the entire company. That is where the outrage is coming from.
I trust you will never complain about earmarks (not that I know you ever did) because they represent a similarly meager amount. I think the problem here is the unfairness of execs who were directly involved in the crisis getting more money than most people will see in decades if not their entire lives.
In hindsight they should have, but it was a crisis and I doubt that it would be feasible to not bailout AIG and let the world economy collapse to avoid paying unfair bonuses.
You should have seen the answer to your last question in the papers yesterday. You may be right that this isn’t all that important in the larger scheme of things, but much of the public is fed up with bailing out fatcats to start with, and the idea that a lot of money is being spent on bonuses for the people who made the problem happen is not sitting well. This is bipartisan outrage.
Only force in the sense that they probably said that the company would go bankrupt without the contract change, which would make things worse. It was not unilateral.
I’ve read that there is an attempt to see if the numbers the bonuses were based on were accurate. If fraud can be demonstrated, the bonuses can be revoked. But a simpler solution would be more like that of the automakers, and I think Barney Frank said this also. The execs can keep their bonuses, but they will be immediately fired. (I’d put a scarlet A for Asshole on their suits also.) Given their no doubt high living lifestyles, this might work. I’d hope no one would be stupid enough to hire them.
Tax it back. That’s the new strategy being looked at in DC.
Well…IMHO they are ‘fed up with it’ because they have been TOLD that they are fed up with it. This, to me, is similar to all the hoopla made about the CEO’s of the big automakers flying to congressional hearings on their private corporate jets. IOW, it’s propaganda and pretty much a direct manipulation of public sentiment.
This isn’t to say that the public isn’t already scared about what’s going on…and it isn’t to say that their fears are unfounded. However, I’m a bit cynical about this, considering what I’ve been reading and hearing from our brave leaders and the media on this subject. I think AIG screwed up by the numbers by essentially leveraging their company (something like 10 to 1 IIRC…unreal) and by not assessing the risks very well in their non-Insurance business units. However, if I give you a big pile of money because it’s in my own best interest to do so and then, after the fact, I decide I don’t like how you are spending it, it’s a bit late in the game at that point for me to start trying to put a bunch of strings on it, don’t you think?
Ok. So, we saved AIG to save ourselves (in theory)…and now, after the fact (and after we’ve saved them and us) we want to go back and do a ‘do over’, so we can attach all the strings we should have (in theory) attached before. I understand the concept, to be sure…but as with the outrage I’m not seeing the practicality of doing so at this point. The time to attach a bunch of strings that are more than symbolic and for public consumption was BEFORE we opened up the treasury.
To me those are two different things, but I can see how some would make the connection. No, I don’t generally complain about earmarks, though in reality a few hundred million is nothing for our government either…they piss that kind of money away on studies for the mating rituals of earth worms or all kinds of other loopy shit. When they start talking about billions…well, that’s when I start getting a bit more tense.
Again, my (could be flawed) understanding is that the bonuses run the gamut of employees, from top to bottom…and that they are contractual obligations that were in place prior to AIG’s getting bucket loads of federal dollars…and that AIG is simply honoring those prior obligations.
-XT