Bonuses Are A Drop In The AIG Bucket
March 17, 2009 by Tisa Silver
Filed under Finance
With billions of bailout dollars floating around, AIG’s latest round of bonuses doesn’t really amount to much.
Photo by Mike Licht, courtesy of flickr
Yesterday, I watched White House Adviser Austan Goolsbee discuss bonuses awarded to members of the financial products division on CNN. Mr. Goolsbee said, ”It’s almost like these guys should have gotten the Nobel Prize for evil.”
I use the word evil pretty sparingly, but I can understand the frustration and disgust behind Mr. Goolsbee’s words.
With all of the press conferences, the legal advice, and new ideas for taxing the bonuses it makes you wonder if this $165 million is worth the trouble.
If the bonuses are revoked, the gain would be a moral victory of sorts since most people find the idea of bonuses being awarded to AIG executives is flat out wrong. But I think there is much more to be considered. For starters, how about the rest of the money AIG has received?
In total, AIG has received approximately $170 billion in bailout money. So, relatively speaking, the $165 million awarded in bonuses is a drop in the bucket. The current round of bonus payments represents .097 percent of the bailout money. That is less than one-tenth of one percent.
Even if we disagree on who deserves a bonus, I think we all can agree that more time and resources need to be concentrated on repairing the rest of the broken economy.
My suggestion: Pay more attention to how AIG is allowed to spend (or has already spent) the remaining 99.9 percent of the bailout money it received.
This afternoon, shares of AIG (Ticker: AIG) are trading up about 10 percent.
I agree that we ought to be spending more time and effort on the 99.9%. However, I also believe a ‘moral victory’ is exactly what we need right now. I’ll be posting on this later today.
Hi Lela. I believe that without the victory there will be more outrage. It would have been nice if the bonus structures, contracts, etc. had been explored prior to the payments being made or even at the onset of the bailout package. As they say, hindsight is 20/20.
The evil comment is pretty over the top and unnecessary. I think the saying that AIG stands for Arrogance, Incompetence and Greed is more accurate.
But let me make sure I understand this, the US Government owns 80% of AIG, put a handpicked CEO in place, can put whoever they want on the Board of Directors but still can’t control what happens there? Did I get that right?
There are two things conveniently being left out of the shoddy reporting and demagoguery on this issue: 1) contract law (which explains why Congress is using the tax angle), and 2) the fact that these were not retention bonus, but performance bonuses based on the speed and efficiency with which some of the bad parts of AIG were unwound. By my Joe Everyman checkbook, these performance bonuses seem excessive, but the company was foolish enough to enter into these contracts prior to receiving TARP money. And AIG has a history of doing incredibly stupid things.
Personally, I think the mistake was made when the government didn’t declare AIG insolvent, put into receivership, sell off the good assets and wind down the bad assets. Then we wouldn’t be on this slippery slope of partial nationalization.
I hate to see taxpayer money being wasted, but it seems to be all the fad in Washington these days.
Nationalization is indeed a slippery slope. Like you said, the government owns AIG and the CEO was hand picked. Ideally, the government would have never been involved. Now that it is, we are seeing how deep AIG’s issues are and how difficult those issues will be for anyone, particularly the government, to resolve.
I completely agree with you Tisa, can you tell me who choose the CEO? If this is a government corporation why can they not seem to get Anything done to stablize this company?
Thanks for your comment Jason. AIG’s CEO Edward Liddy (former CEO of Allstate) was chosen by former Treasury Secretary Hank Paulson. Mr. Paulson is the former CEO of Goldman Sachs and selected Mr. Liddy to join that board of directors awhile back.
In my opinion, nationalization involves two parts: money and power. Money as in financing and power as in control of the company. I think the government may have provided the money part without exerting too much control in order to stay on the partial side of nationalization. Now that the formula hasn’t worked so well, Bernanke and Geithner are seeking new forms of power/oversight. Take a look at this MSNBC article: http://www.msnbc.msn.com/id/29849068/