Bonuses for crashing capitalism?!
AIG says its hands are tied when it comes to paying bonuses to employees of its disastrous financial product division. Commentator Paul Kedrosky thinks some people ought to have their heads examined.
Paul Kedrosky (paul.kedrosky.com)
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TEXT OF COMMENTARY
Kai Ryssdal: In a letter to Treasury Secretary Geithner saying he had no choice but to pay the bonuses, AIG CEO Edward Liddy said his hands are tied. Commentator Paul Kedrosky thinks some people ought to have their heads examined.
PAUL KEDROSKY: We're paying $168 million to employees of AIG Financial Products? Hello? This is the same part of AIG that almost destroyed global financial markets last September, that has been bailed out repeatedly, and that recently turned in the largest quarterly loss in U.S. financial history. Gee, imagine what AIG employees would have been paid if they had succeeded in their vandalism. Oh wait, they would have got nothing.
In the absence of $170 billion in government assistance AIG would be bankrupt, with the result being no bonus payments. While crashing capitalism would have been an impressive achievement, it is not something for which you should receive a bonus. Instead it is outrageous and unconscionable.
Granted, we don't know why these AIG Financial Products employees are receiving payments. Crashing capitalism may not have been on the list. But let's assume it had do with selling credit default swaps, insuring toxic securities, and so on -- all of the sorts of things that we have known for over 18 months that AIG was doing and shouldn't have. Even if there are systemic risks in letting AIG fail, should we now be paying people for overachieving in AIG's ruinous ways, even if there are compensation contracts that say so? Of course not.
Yes, the whole bonus discussion is a sideshow. A few hundred million in AIG bonus payments is round-off error alongside the $170 billion of taxpayer money that has already been committed to the failed insurance company that, when no one was looking, turned into a hedge fund. The real issue is how AIG gets gracefully dismembered, and how we taxpayers stop playing bankers to high-rolling hooligans.
But one thing at a time. Voters have to believe that the government, which controls 80 percent of AIG's shares, is really in control. Compensation restrictions should have been put in place last September when AIG was saved. And with AIG management now avoiding doing the dirty work, President Obama has said his administration is looking at all legal means to block the payment of these bonuses.
Good for him. Because if the company won't do it, he or Congress must. If, that is, they want support for fixing the financial system, as opposed to paying people bonuses for breaking stuff.
Ryssdal: Paul Kedrosky is a senior fellow at the Kaufman Foundation. He is also the editor of the business blog, "Infectious Greed."
Comments
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03/17/2009
There are those concerned about balance who see criticism of AIG exec bonuses as unfair.
Their expertise is needed for dealing with these ever so complicated deals. They need to be retained.
RUBBISH ! They need to have over ripe fruits and vegetables lobbed their way !
Where is the shame? At least after the Roaring Twenties, we had public libraries all over the country. Senator Grassley is right about asking for contrition, even at extreme levels. This is Enron to the third or fourth power. Does anyone remember the experts at Arthur Anderson? Thomas Jefferson was so very right about the importance of dissent in the face of tyrants. We all know there are plenty of MBA grads who are looking for entry level work who would love to sort this out....and they'd give it their best without all of the grandiose entitlement mindset. I say, show these guys what we hand out routinely to petty level thieves
03/16/2009
IF AIG had gone bankrupt (as it should have), then all of the executives getting the bonuses would be unemployed, and high ranking officials would have an investigation from the SEC. I say send the SEC dogs on the AIG (not the same that they sent on Madoff please)
From Salt Lake City, UT, 03/16/2009
AIG is my life insurance vendor, with a total of three policies for personal and business purposes. I can't tell you how incensed I am that 1) they bought into the same reckless gambling mentality as so many other companies, and 2) they seem to have a titlement mentality, in which they, as the financial elite, do not have to suffer the consequences of their failed speculations. The rest of us are taking it on the chin while they are throwing parties and reaping bonuses for captaining a sinking ship. Enough already. Fire them all! I would imagine there are any number of hard-working, qualified, and much more humble insurance salesmen who are currently looking for work...
From Falls Church, VA, 03/16/2009
Hi Kai, et al,
On this AIG bonus that everyone is trying to stop- Are the bonuses being given out in tax year 2009? If so, what would stop Congress and the President from amending the tax code to: "increase the income tax rate to 100% for any employee accepting a bonus from a banking or insurance institute receiving in excess of $150 Billion in government assistance" ? One would think that would surely stop anyone from taking a bonus, even if it was contractualy stipulated.
Anyways, love the show, both 5:50 AM and 6:00PM. (WAMU in DC)
Thanks-
Pete Eldred
From Charlotte, NC, 03/16/2009
Gee, Marketplace do you think someone who writes a blog entitled "Infectious Greed" might possibly not be exactly thoughtful or balanced? When are you going to break away from the so-called "wisdom of the crowd," which is really the "madness of the mob," and give your listeners more than the drivel they can hear on Fox News or CNBC. I've heard enough from both bloviating extremes to last a lifetime. Do you think AIG made these credit default swaps with itself? Mr. K laid the crash of capitalism (the world economy and stock markets, I assume) to the feet of one company. Who do you think makes the market? We all do. Marketplace should know that a marketplace is a place where people come together to decide on a price for goods or services. When no one comes to the market to buy, the market crashes. Our economy is bigger than one company even with its counter-parties, which by the way, included many local municipalities. The truth much bigger and more complex than Mr. Kedrosky's cheap diatribe. Your listeners are capable of understanding the truth, isn't it about time you deliver it?
From DeLand, FL, 03/16/2009
I also had the same question as Patti... I heard 168 million mentioned in another part of All Things Considered...
03/16/2009
Just a question for clarification please. In the early part of Monday's Marketplace show, I thought I heard Kai Ryssdal comment on the 450 million in AIG bonuses, but later in the program there was mention of 168 million in bonuses. Which is correct?
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