AIG Bonuses: Finance is Not Rocket Science

Are the AIG bonuses justified? Your answer will probably depend on whether or not you buy the idea that finance is a world of full of people smarter than you. I assure you, it is not.

The arguments against paying out millions in bonuses to the band of grabbers over at AIG are many, financial and otherwise.

The case for paying out the bonuses basically goes like this:

The financial geniuses over at AIG are the only people in the known universe that have the expertise to get the company out of the mess they got them into in the first place. Also, AIG made them a deal, so legally we have to pay up.

I don’t buy it.

As for ‘unwinding’ the derivatives deals that comprise the current cluster of confusion, there are many highly talented forensic accountants, lawyers, and finance savants that could swoop into the records and decipher all the complexities and ‘undo the deals’ in a matter of weeks – days if you get enough of them together. And $165 million would buy a lot of talent. This kind of finance-is-rocket-science thinking is what has in part enabled this crisis.

And the bit about being legally obligated to pay the bonuses? Seems like you’d have a pretty good case that the deal itself was illegal. Didn’t AIG already know they were going down when they made it? Steven Thel, a professor with Fordham Law School and former SEC officer, said in an interview with NPR that this kind of bonus guarantee was ‘unusual’. He also questions the motivation for paying ‘retention bonuses’ to employees who had left the company. He wonders why not just litigate? Me too.

I agree with Tisa Silver that the AIG bonuses are a drop in the bucket, but all those drops add up and we can only tackle one at a time. Let’s clean up this spill, wring out the sponge, and repeat.

What do you think?

Image Credit: AIG.com screenshot