why the AIG folks should get their bonuses

This controversy is spurring Washington's politicians to new rhetorical heights (or depths):

The rhetoric grew so heated yesterday that  Sen. Charles E. Grassley (R-Iowa) suggested in a radio interview that AIG executives ought to "follow the Japanese model . . . resign, or go commit suicide." An aide later explained he does not actually want executives to kill themselves.

(I love the thought of that aide calling up journalists after his boss's rant..."Just to clarify: when the Senator said suicide...").

The AIG story is galling. It's enough to bring out the populist demagogue in anyone, not that Washington's lawmakers need much prompting. The White House has switched to Code Red (High Outrage) to join in the general indignation.  But the truth is, it's better to pay those bonuses than not pay them. For two reasons: first, once you start breaking contracts, then you unleash yet more chaos into an already roiling economy. Second, the brainiacs who helped get companies like AIG into this mess are needed to get them out of it - they're the only ones who have the remotest chance of defusing the remaining bombs.

Comments

[Lyle]

Sorry for being slow and naive, but I'm confused: The NYT story reports that AIG employees built the financial 'bomb' that contributed significantly to our global crisis, and that these same cretins are being heavily recruited. By whom and to do what?!

[Marbury]

To defuse remaining such 'bombs'...on the need-a-thief-to-catch-a-thief principle. Unfortunately these are the only guys that know how to calculate the value of the banks' toxic assets, because they put together the mathematical formulae that created them.

[Marie]

And they can't or won't work without bonuses? Given the choice between no bonus, but being able to keep their jobs and sort out this mess, and unemployment and / or whatever senators might mean by suicide, it's conceivable that some at least might stick around for the bomb disposal. Having said that, the mass litigation that could follow a withholding of bonuses is a more compelling argument.

[Albert Rimbaud]

This notion that they created the mess so they are able to sort it out is plain wrong. The notion that they should be paid the same sort of absurd bonuses to fix it as they were paid to break it is even 'wronger'.

The problem was too much mispriced synthetic debt taken onto the balance sheets of too many banks and institutions. The fact that they were paid so much actually made them believe that their duff maths were actually.

Sorting it out is going to be a very slow and very painful writing down of assets and unravelling of legal liabilities. That's the job for accountants and lawyers not traders who have already screwed up on a monumental scale.

[Carol D. Mitchell]

Stipulations regarding issuance of the Stimulus to AIG should have included a warning/disclaimer: That Business executives who (Legally) qualify for a bonus, under pre-existing employment contracts, ( this year) or throughout the duration of AIG's dependency on Stimulus money - will not get them via Government money; but, only by money earned in excess - equal to "Profit" for the company.

Unfortunately, without such a disclaimer - these executives who probably are under contract to receive a certain bonus - would be entitled to them (bad or good) under Department of Labor law. Otherwise - an executive with a signed contract could sue for the bonus.

To rescind a pre-agreed upon "benefit" is really just as bad as executives getting them via tax payer money.

The real tragedy is whomever put together the stimulus - could have averted issuance of these extravagant, multi-million dollar bonuses with a simple phrase.

Goes to show you...The people we entrust to the highest branches of our government aren't as smart as we think they are.

Recipients of the bonuses should voluntarily give them back - out of understanding the nations financial crisis, that is degenerative at best.

[Lyle]

Thanks to all for informative insights. Man, what a dog's breakfast this situation is.