AIG Execs Explain Why They Deserve Their Bonuses; AIG Explains Why It Has to Pay Them

by Damozel | Ian Swanson at The Hill reports:

AIG’s new management team last year proposed that its employees give up their “retention” bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010?

Take a hike.

“We suggested that early on, but there are people who feel this money was due them,” a source close to the company told The Hill.

Aha!  They were entitled to it.  Well, that changes everything. In fact, it explains why AIG concluded it had to pay them. 

Not all of the workers in AIG’s financial products division were taking home million-dollar bonuses. But according to New York Attorney General Andrew Cuomo, the division’s top recipient got $6.4 million, while the top 10 bonuses totaled $42 million. Seventy-three people received bonuses of $1 million or more, according to Cuomo, who subpoenaed the company for information.

“It’s terrible; it’s disheartening,” the source said...

AIG could have decided to keep the money, but determined it might then have had to pay $1 billion in damages in legal fees and lawsuits, more than double what it was contractually obligated to pay the division’s employees in bonuses....

For the last three months, AIG worked with officials at the New York Federal Reserve Bank on how they might avoid paying the bonuses, the source said. In the end, AIG decided there was a greater risk to the company of not paying the bonuses.  (The Hill; emphasis added)

So who are these indispensable managers who are able to require payment of massive bonuses out of the Fed's Big Pot O' Taxpayer Dollars?  Why, the very people who helped bring about the meltdown.  

Apparently, the people who "who created the complicated credit swap defaults that got much of Wall Street into the financial crisis, are the only ones who can unwind them. If they leave, it could make today’s crisis worse....“The risk is, you lose them, you pay close to $1 billion, and you [can’t] unwind the books,” the source said."  (The Hill). 

Of course, paying them whopping bonuses is no guarantee that they will "unwind the books."  "Many of those receiving bonuses already have made enough money not to have to work again," Ian Swanson remarks.

Howard Schweber at HuffPost says:

Okay, here I go saying the unthinkable: management has a point. If a nuclear reactor fails, it is probably not a good idea to fire all the nuclear engineers and bring in civil engineers to fix the problem. Which leads to a more general point that needs to be kept in mind. Everyone I talk to in the banking industry makes the same argument: government does not have the talent that one finds in the overcompensated private sector.,,,.

So what, we're stuck with this system of super-compensation for insane risk-taking backed by a promise of public funds in the case of failure? The infamous "privatize profit, socialize risk" approach? No, but in the short term we are stuck with the consequences of having adopted that system over the past decade. In other words, there are obviously some things we need to do to correct the system of incentives going forward, but until the reactor stops leaking radioactive steam into the atmosphere we have to keep the nuclear engineers on the job.

I see.  It's kind of like having a mechanic destroy your car in the course of performing "maintenance" and then having to pay him three or four times more in service charges to fix it.    With no recourse.  Because he's the only one who knows how he messed it up.  

Also:  I don't buy it.  Nobody who didn't see this outcome coming is that good.  And if they saw it coming, they're definitely not good.  Surely there must be ways of making them disgorge information that's needed to disentangle the knot? 

Or if not, surely there must be a contingent of young financial industry mavens who have the intelligence and training to be able to cut through whatever Gordian knots the current crop of executives have created?  It's not rocket science; it's a game (with rules that the players themselves made up).  I can't believe that we can't find some currently unemployed young geniuses who can't unravel the clue...  

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