AIG Madness
The media is abuzz today with discontent over the fat bonuses paid AIG executives despite the fact that the company was bailed out by the United States government. AIG's answer to the criticism is that the bonuses are a matter of contract and there is no way AIG can avoid them.
Pay and benefits to the members of the United Autoworkers Union were also subject to a contract. A big contract that covered more than a few executives. That contract got modified after two of the Detroit Three took federal dollars to stay afloat. Something tells me AIG had a little more flexibility than it lets on.
UPDATE
Larry Summers and the NYT have both now made the case for allowing AIG to pay and keep its bonuses. Their arguments are two: 1) the sanctity of contracts and 2) employee retention. Poppycock both. As to the contract argument, contracts are indeed sacred... most of the time. Extraordinary circumstances, say a change in ownership (to the US Government) or a financial meltdown may give a clever lawyer some ability to get out from under. It is worth noting that, had AIG declared bankruptcy, the contracts would have been nullified and no bonuses paid. Moreover, there is the re negotiation option outlined above. Bottom line -- if AIG cannot align the interests of their traders with that of the company, they are in bigger trouble than we thought.
The "employee retention" argument relies on the idea that we need to retain those people who built the bomb because only they Know how to defuse it. I suspect this is not the case. If they knew how to defuse it, they likely would have. I am skeptical of the belief that the traders involved here had any idea about the whole of what they were doing. They just made trades. It was the aggregation of their work, and not the individual trades, that created this mess. Perhaps worse, this just seems to be part of a money culture of entitlement that seems to exist in the upper floors of corporate America. Wealth is just assumed and actual performance or value added is a mere detail.
Last point -- it seems like Tim Geitner and the new administration are taking a lot of heat for AIG. Let's remember this deal was done long before those in power were even elected. They are sleeping in a bed they did not make.
Pay and benefits to the members of the United Autoworkers Union were also subject to a contract. A big contract that covered more than a few executives. That contract got modified after two of the Detroit Three took federal dollars to stay afloat. Something tells me AIG had a little more flexibility than it lets on.
UPDATE
Larry Summers and the NYT have both now made the case for allowing AIG to pay and keep its bonuses. Their arguments are two: 1) the sanctity of contracts and 2) employee retention. Poppycock both. As to the contract argument, contracts are indeed sacred... most of the time. Extraordinary circumstances, say a change in ownership (to the US Government) or a financial meltdown may give a clever lawyer some ability to get out from under. It is worth noting that, had AIG declared bankruptcy, the contracts would have been nullified and no bonuses paid. Moreover, there is the re negotiation option outlined above. Bottom line -- if AIG cannot align the interests of their traders with that of the company, they are in bigger trouble than we thought.
The "employee retention" argument relies on the idea that we need to retain those people who built the bomb because only they Know how to defuse it. I suspect this is not the case. If they knew how to defuse it, they likely would have. I am skeptical of the belief that the traders involved here had any idea about the whole of what they were doing. They just made trades. It was the aggregation of their work, and not the individual trades, that created this mess. Perhaps worse, this just seems to be part of a money culture of entitlement that seems to exist in the upper floors of corporate America. Wealth is just assumed and actual performance or value added is a mere detail.
Last point -- it seems like Tim Geitner and the new administration are taking a lot of heat for AIG. Let's remember this deal was done long before those in power were even elected. They are sleeping in a bed they did not make.
posted by Jack Reed at 2:18 PM
0 Comments:
Post a Comment
<< Home