# Democrats Pass 90% tax on AIG bonuses **URL:** \ **Category:** Great Debates\ **Created:** [March 19, 2009, 7:06pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058 "2009-03-19T19:06:44Z")\ **Posts on this page:** 20\ **Page:** 14
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [March 23, 2009, 7:29pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/261 "2009-03-23T19:29:17Z")
> [@tomndebb](#): > > Now that the company is in danger of sinking, the functional people who understand both the ways in which complex trading works as well as how that complex trading is stated on the company’s books, are still at AIG, (probably not for much longer with the current cries of “Burn the witch!” still ringing in the air), as the ones who were issued the payments as an incentive to not flee the company and let it burn after the crash. How is a bonus incentive to do anything except take the money and run? If they need any greater incentive than holding some of the few remaining jobs in an utterly ruined sector, then give them some fairly priced stock options, ones with a real shot at making a good return if the company makes even minor improvement in stability. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [March 23, 2009, 8:13pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/262 "2009-03-23T20:13:58Z")
It’s always easy to say in hindsight that the guys who made these decisions were stupid or evil. But it’s a lot more complex when looking at it at the time. The key problem is that complex financial instruments were being created that had never been used before. I’m pretty sure these were tested based on assumptions that were considered reasonable, but those were themselves based on a very limited history, in an ever changing world. I have absolutely no doubt that a lot of these AIG guys were biased to make assumptions that would allow them to make billions of dollars of paper profits, and by happy coincidence millions of dollars of very real bonuses. But before you start claiming that they were stupid or the like, you need to show that most other people who were not biases reached opposite conclusions. I haven’t seen anything remotely like that. ISTM that the financial community as a whole, from the smartest to the dumbest, agreed - in aggregate - that all these financial instruments were highly valuable investments and reasonable risks. So the most important lesson to be learned is not about how we need to need to be even more vigilant for the Evil Bad Guys. Rather, it’s about how we must be on guard against the notion that we (colleectively) know it all, and have it all figured out, based on our latest super-complicated model and theories. Of course, this has far broader application than just financials - global warming and social engineering being two subjects that spring to mind just now. ---
**Author:** ![magellan01](https://avatars.discourse-cdn.com/v4/letter/m/45deac/32.png) [@magellan01](https://boards.straightdope.com/u/magellan01)\ **Post date:** [March 23, 2009, 9:08pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/263 "2009-03-23T21:08:23Z")
I’ve changed my position on this. While I was of the opinion that we should just get the money back, period, I think this is a well-intentioned but poor idea driven by emotion. It assumes that NO ONE had done their specific job in a way that entitles them to the bonus they contracted for. I can’t believe that to be the case. Also, it creates a dangerous precedent. If the government can go after this one small group today, what other small groups can they go after tomorrow? ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [March 23, 2009, 9:19pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/264 "2009-03-23T21:19:55Z")
> [@Cosmic Relief](#): > > How is a bonus incentive to do anything except take the money and run? If they need any greater incentive than holding some of the few remaining jobs in an utterly ruined sector, then give them some fairly priced stock options, ones with a real shot at making a good return if the company makes even minor improvement in stability. We WANT them to take the money and run. They sold off 1.2 trillion in assets and still need to sell off another 1.7 trillion. The bonus should be based on completing a task and I’m fine with them leaving when it’s done. ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [March 23, 2009, 11:08pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/265 "2009-03-23T23:08:10Z")
> [@tomndebb](#): > > (probably not for much longer with the current cries of “Burn the witch!” still ringing in the air) Am I the only person who thinks that the bonuses are what _caused_ the cries of “burn the witch!”, and that rescinding them will probably lower the general level of hatred back to a normal and manageable level of grumbling and suppressed dislike? ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [March 23, 2009, 11:45pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/266 "2009-03-23T23:45:34Z")
[QUOTE=begbert2] Am I the only person who thinks that the bonuses are what caused the cries of “burn the witch!”, and that rescinding them will probably lower the general level of hatred back to a normal and manageable level of grumbling and suppressed dislike? [/QUOTE] No…I think you are in the majority both on this board and in the general public. I am not among the majority opinion of course. -XT ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [March 23, 2009, 11:54pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/267 "2009-03-23T23:54:35Z")
> [@Magiver](#): > > We WANT them to take the money and run. They sold off 1.2 trillion in assets and still need to sell off another 1.7 trillion. The bonus should be based on completing a task and I’m fine with them leaving when it’s done. Alright, except the bonus isn’t based on completing a task, is it? IIRC it’s just a retention bonus, just a sort of way to say “thanks for not running off to another high-paid job in the financial sector, even though there aren’t any left”. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [March 24, 2009, 3:02am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/268 "2009-03-24T03:02:33Z")
[Will this help chill things?](http://dealbook.blogs.nytimes.com/2009/03/23/cuomo-says-many-big-aig-bonuses-were-returned/) > [@](#): > > Attorney General Andrew M. Cuomo of New York announced late Monday afternoon that 9 of the top 10 bonus recipients at the American International Group were giving back their bonuses. > > He also said 15 of the largest 20 bonus recipients in A.I.G.’s financial products division had agreed to give back the money, for a total that he estimated at about $30 million. “Those bonuses will be returned in full,” Mr. Cuomo said during a conference call with reporters. > > The attorney general noted that about 47 percent of $165 million in retention bonuses was awarded to Americans, accounting for nearly $80 million. All told, Mr. Cuomo said, A.I.G. employees have agreed to return about $50 million in bonuses. Or will the public just move on after the Geithner rally? In any case [the Senate](http://www.cnn.com/2009/POLITICS/03/23/aig.senate.democrats/index.html) seems likely to deal with this a bit less impulsively. > [@](#): > > The populist wave that swept Capitol Hill last week against controversial bonuses paid to AIG executives stalled Monday after the White House and several key senators raised concerns about legislation to heavily tax the bonus payments … BTW, people here keep claiming that the people who designed these vehicles are “long gone” but no one has provided any evidence that such is the case. I have no cite either other than having heard an NPR report early on that claimed that contracting parties internationally were very insistent that they would only do business with AIG if these particular individuals who had been instrumental in creating the arrangements stayed on board and that their contracts had been written to allow them damages of some sort if they were not. Did anybody else hear that report? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 24, 2009, 4:11am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/269 "2009-03-24T04:11:49Z")
[AIG Execs Resigning](http://www.reuters.com/article/businessNews/idUSTRE52N0AO20090324) This was as predictable as rain: > [@](#): > > A handful of senior executives working within American International Group Inc’s controversial financial products unit have resigned, said a company spokeswoman late on Monday. > > The division is at the heart of the financial problems that brought AIG to the brink of bankruptcy last September, saved only by a taxpayer bailout that has now swelled to as much as $180 billion. > > The spokeswoman declined to specify the exact number of resignations, noting they were expected to be “manageable,” and said there were indications that more will follow. Saving AIG just got a little harder. It’ll probably get harder still in the next few days. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [March 24, 2009, 4:15am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/270 "2009-03-24T04:15:02Z")
What a clusterfuck. It’s good and right and proper for people to be angry. We’ve every right to be angry. But it would be nice if this anger could be directed more productively. This taxation thing is just not the way. I can’t say whether these folks even deserve the money or not, but this is just not the way to do things. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [March 24, 2009, 11:40am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/271 "2009-03-24T11:40:17Z")
[QUOTE=Fotheringay-Phipps;10965126The key problem is that complex financial instruments were being created that had never been used before. I’m pretty sure these were tested based on assumptions that were considered reasonable, but those were themselves based on a very limited history, in an ever changing world. I have absolutely no doubt that a lot of these AIG guys were biased to make assumptions that would allow them to make billions of dollars of paper profits, and by happy coincidence millions of dollars of very real bonuses. But before you start claiming that they were stupid or the like, you need to show that most other people who were not biases reached opposite conclusions. I haven’t seen anything remotely like that. [/QUOTE] You assumption is wrong. I mean, you are right that AIG were biased to make big profits. There was no risk control in place. AIG priced this stuff as if there would never be a bubble bursting, which is ludicrously wrong. After the 1987 crash, all the fledgling derivative houses out there had to rewrite their models. Before the crash, they assumed a normal distribution (actually a log normal distribution) with the tail approaching zero. So, if there was a deep out of the money option worth zero but someone was willing to pay a nickel for it, well they would be happy to sell it for a nickel. When the crash happend, all those options worth zero that they sold for a nickel, suddenly became a huge liability and bankrupted a bunch of people. So, they made something calling a fat tails model, where it was a normal distribution but the those theoretically zero value range were adjusted for the once a decade market crash that we seem to have. AIG just assumed they would never ever have a crash and never have to pay out. It was a mind numbing stupid failure that any fucktard should have seen coming. It was an insurance company for god’s sake, and they didn’t have actuarials to run regression analysis? They did, but of course never did the risk management and/or never listened to the risk management people. ---
**Author:** ![Steve\_MB](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/steve_mb/32/5339_2.png) [@Steve\_MB](https://boards.straightdope.com/u/Steve_MB)\ **Post date:** [March 24, 2009, 5:27pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/272 "2009-03-24T17:27:28Z")
> [@Monster104](#): > > You certainly _are_ going to be sorry, along with everyone else, when AIG folds because it can’t offer the competitive pay they need to be able to provide in order to retain the intelligent and capable workers it needs to get out of the mess it’s in. If they’re so intelligent and capable, how come they got into the mess in the first place? :dubious: ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 24, 2009, 5:49pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/273 "2009-03-24T17:49:33Z")
> [@Steve\_MB](#): > > If they’re so intelligent and capable, how come they got into the mess in the first place? :dubious: If government is so smart, how come they encouraged sub-prime mortgages and let the GSE’s package all this stuff? If the media is so smart, why were none of them ringing the alarm bells? If Wall Street was so smart, why were stocks so over-priced? If home buyers were so smart, why didn’t they see the folly in buying homes they could never hope to pay the mortgage for once the balloon payments kicked in? If the Chinese are so smart, why are they saddled with trillions of dollars of American debt which may get inflated away on them? I could go on. The most tiresome aspect of this whole thing is how so many people are trying to make it personal - to find the ‘culprits’ and punish them. That feeds the old class warfare angle - the rich engage in shenanigans that make them richer, knowing it will hurt everyone else. But this was really a systemic breakdown. It was a problem of poor oversight, mixed signals from government, a long expansion engineered by the fed which caused people to under-estimate risk and simultaneously seek new investment vehicles as interest rates remained low, etc. It was classic bubble mentality, and it affected everyone from Wall Street bankers to regulators to the guy down the street flipping houses and the young couple in way over their heads because they convinced themselves that their home value would grow so fast that they could refinance their way out of trouble. Time to stop looking for scapegoats and simply figure out where to go from here. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [March 25, 2009, 12:23am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/274 "2009-03-25T00:23:13Z")
It is entirely correct to say that bad decisions were made by a lot of different parties at a lot of different levels. And the vast majority of those decisions were merely insufficiently cautious or wise. But it does not follow that attempts to limit the profits of poor decisionmakers is populist scapegoating. As you know, **Sam** , in the absence of government intervention, what happens is that the people who made bad decisions (investors, bankers, real estate agents, house-flippers, irresponsible buyers, and other institutions) get their comeuppance from the market. Since we’re only allowing some of those groups feel the pain, people are justifiably concerned about the moral hazard of letting some of the bad decisionmakers avoid the consequences of their actions. On some level, it is right to characterize this as mere populist rage. But isn’t the entirety of it. Taxing bonuses need not be about “punishing culprits,” it can be about ensuring that government intervention to save the economy minimizes as much as possible the moral hazard involved in doing so. It might still be a bad idea because it will hinder the purposes of the bailout in the first place. It might be that the cost of reducing the compensation of AIG employees is that the economy is harder to turn around because we push valuable people out of AIG. But if it should be rejected on that basis, that’s the debate that we should be having. The idea cannot be dismissed merely as populist rage, it is at its core an effort to avoid moral hazard. ---
**Author:** ![HMS\_Irruncible](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hms_irruncible/32/7394_2.png) [@HMS\_Irruncible](https://boards.straightdope.com/u/HMS_Irruncible)\ **Post date:** [March 25, 2009, 12:36am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/275 "2009-03-25T00:36:30Z")
> [@Sam\_Stone](#): > > If government is so smart, how come they encouraged sub-prime mortgages and let the GSE’s package all this stuff? > > If the media is so smart, why were none of them ringing the alarm bells? I’m sorry, were we talking about million-dollar bonuses for the media executives paid out of the coffers of the government bailout of the media? Oh right, because there weren’t any. > [@](#): > > If Wall Street was so smart, why were stocks so over-priced? Which Wall Street traders received million-dollar bonuses paid out of bank bailouts? Oh right, there weren’t any. They’re all broke. > [@](#): > > If home buyers were so smart, why didn’t they see the folly in buying homes they could never hope to pay the mortgage for once the balloon payments kicked in? No idea, but those people are all broke now. They might be getting a little government relief. None of them will get any bonuses. I could go on and on, but is it clear by now that your comparisons consist of nonsequiturs that a child could see through? ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [March 25, 2009, 12:44am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/276 "2009-03-25T00:44:55Z")
> [@Cosmic Relief](#): > > Alright, except the bonus isn’t based on completing a task, is it? IIRC it’s just a retention bonus, just a sort of way to say “thanks for not running off to another high-paid job in the financial sector, even though there aren’t any left”. According to the press, some of the bonuses were paid to people who already left. They recouped over a trillion dollars in assets so they had to have done something. It’s not like they were paid a bonus to keep their chairs from floating away. Without reading the contracted goals I can’t honestly answer your question but it doesn’t seem like the NY AG did either. He just grabbed a pitchfork and led the rabble to the gates of AIG. He should be concentrating on Cassano who pushed the underfunded CDS’s in the first place and not on the people actually fixing the problem. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [March 27, 2009, 3:46am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/277 "2009-03-27T03:46:51Z")
Cassano did not write 2 trillion dollars in derivatives. He had a staff of nearly 400 in his group. They were all involved. It was a profitable business. They all shared the big bucks and prestige. Now all the Nazis are prison guards who did not know about the camps were exterminating. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [March 29, 2009, 4:27am UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/278 "2009-03-29T04:27:04Z")
> [@gonzomax](#): > > Cassano did not write 2 trillion dollars in derivatives. He had a staff of nearly 400 in his group. They were all involved. It was a profitable business. They all shared the big bucks and prestige. Now all the Nazis are prison guards who did not know about the camps were exterminating. People who sell insurance policies aren’t responsible for, or are aware of, the calculations behind the policies. It would have been a small group of people constructing the formulas behind the policies. ---
**Author:** ![hobscrk777](https://avatars.discourse-cdn.com/v4/letter/h/a6a055/32.png) [@hobscrk777](https://boards.straightdope.com/u/hobscrk777)\ **Post date:** [March 29, 2009, 4:26pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/279 "2009-03-29T16:26:22Z")
> [@Magiver](#): > > People who sell insurance policies aren’t responsible for, or are aware of, the calculations behind the policies. It would have been a small group of people constructing the formulas behind the policies. Don’t the people selling insurance policies have a vested interest in understanding the methodology behind the product they are selling? Would you buy a car from someone who knew jack shit about automobiles? To say that the people selling these horrendous policies are completely innocent is off-base. I think they’re negligent, at least. ---
**Author:** ![AHunter3](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ahunter3/32/368_2.png) [@AHunter3](https://boards.straightdope.com/u/AHunter3)\ **Post date:** [March 29, 2009, 4:51pm UTC](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058/280 "2009-03-29T16:51:04Z")
I am happy that they are doing it (couldn’t happen to more deserving folks) but my gut (in the absence of a fully informed sense of jurisprudence in America) says the OP is right and that this can’t be constitutional. Isn’t there some old old law with a common nickname like “No ‘John Smith’ laws” meaning that equal protection prevents a law from being written so as to only apply to ‘John Smith’ ? [Previous page](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058.md?page=13) [Next page](https://boards.straightdope.com/t/democrats-pass-90-tax-on-aig-bonuses/490058.md?page=15)