Everyone – and I mean everyone – seems to be in full-throated cry over the decision of insurance giant AIG to honor their contractual agreements with their employees and pay out $165 million in bonuses to the same executives that nearly collapsed the financial system. As corporate whipping posts, they certainly make an attractive target, and the idea of taxpayer money lining the pockets of people who have cost the economy millions of jobs and the stock market hundreds of millions of dollars of value through their venality and incompetence is repugnant.
But I wonder if that notion is as ultimately offensive as the idea that the federal government ought to have the power to step in and retroactively breech private employment contracts negotiated in good faith.
Part of the problem with the banking system today is a lack of transparency and trust: Banks don’t know who is holding how much toxic debt, nor, really, how toxic that debt is. In this environment of deep economic uncertainty, government probably ought not go around breaking a fundamental element of the market system: The right to contract with an employer on your compensation package. The idea that a contract actually means something. That, like the law itself, it’s legally binding on all parties.
Especially when, as David Freddoso points out, the government played a part in the issue at hand:
(Why) is Obama so outraged and surprised? Today we learn that he signed the very bill that quite clearly made those bonuses legal — the $787 billion stimulus package he had traveled around the nation promoting. The bill includes restrictions on executive compensation, but creates an exception for bonuses contractually obligated before February 11 of this year. The provision, and the exception, were inserted into the bill by the chairman of the Senate Banking Committee, Chris Dodd (D, Conn.), who has received more than $100,000 from AIG employees in the last 20 years, had written and inserted the relevant provision, with the relevant loophole. How can he, the president, or anyone else who voted for the stimulus, suddenly act surprised? Don’t tell us they didn’t read the bill.
Of course they didn’t read it. It was far too important and urgent to actually read.
In practical terms, very little can probably be done about the AIG bonuses. But the fallout does provide a nice opportunity to demonize businesses, generally. After all, it’s very clear now that it’s the role of government to hand out jobs, not businesses. One only has to look at the ongoing campaign to demonize general and business aviation:
Since the Big Three auto executives committed the terrible faux pas of coming before Congress for a handout in their private jets, business aviation has been sensationalized and demonized. For a government concerned about creating jobs in a recession, there is little concern given to the thousands of American jobs being lost due to the misrepresentation of a viable transportation industry, and the potentially tens of thousands more that could be affected when you factor in supplies and vendors to the industry. In fact, National Air Transportation Association president Jim Coyne estimated that there are “more than 1.265 million jobs created by the general aviation industry,” as quoted in an article on AINonline.com
Of course, if you have access to military hardware to move your coterie around, it’s easy to object to the mote in the other guy’s eye. After all, it’s not like they’re politicians.
They’re little people.
But I wonder if that notion is as ultimately offensive as the idea that the federal government ought to have the power to step in and retroactively breech private employment contracts negotiated in good faith.
I think it IS. What they’re trying to do just freaks me out.
Scary thought, lost to too many of this nation: If “someone” objects to what you are receiving, be it salary or bonuses, that you agreed to, along with your employer as “fair,” said compensation can become “unfair” at the whim of the latest pool of the person n the street.
Ask not whom the bell tolls for…it can also toll for THEE!
Yep, my kind of society: Payment based on polls. And we wonder how we got into such a mess…i guess that makes for a stable flow of money, right?
I am outraged at the disconnect from the executives in the financial industry who pay these bonuses (for performance?). The game has changed and they still don’t get it.
But I am perhaps more enraged (if that is indeed possible) at the congress people and their righteous indignation over this and their planned remedies. This is the same bunch who less than a week ago passed a $410B appropriation bill full of a bunch of BS earmarks and dismissed any opposition to them as “last years business”. To quote Senator Schumer – “the people don’t care about that…”
How can wasting the people’s money on projects that would never survive an up or down vote on the merits be any worse than wasting money paying performance bonuses to traders that engineered the meltdown of the financial system? While they are rushing to pass a 100% income tax on these bonuses why not add language to repeal all the earmarks in the appropriation bill that Obama so lamely signed while lamenting the earmark practice? Somebody show him where they locked up the veto pens- Bush never could seem to find them in eight years they must be hidden deep in a closet under a pile of old silverfish eaten copies of The Federalist Papers…..
Simple — Obama didn’t read or understand the agreement that he signed. Most in Congress didn’t. They were snookered and now they feign outrage, because the people ARE finally outraged.
“In this environment of deep economic uncertainty, government probably ought not go around breaking a fundamental element of the market system: The right to contract with an employer on your compensation package. The idea that a contract actually means something. That, like the law itself, it’s legally binding on all parties.”
Just an observation here: corporate executives who feel that companies are legally obliged to provide them the bonuses are the self same executives who have happily eliminated all kinds of contractually promised benefits of retirees and disabled employees – and no one has even blinked.
So that fundamental “right” was broken long ago – but no one cared that retirees and disabled employees were getting shafted.
So tell you what – let’s take those bonuses and use them to cover the costs of re-instating contractually promised benefits that have been stripped from retired and disabled employees. It puts the genie back into the bottle and the executives whose poor performance and greed brought about this crisis don’t get rewarded for their actions.
Works for me.
All well and good, and not that I wholly disagree with you, but can we at least be spared the faux moral outrage from the exact same fools that ensconced those bonuses into law?
Likewise we should all express our outrage and demand that every one of the multi-millionaire players in professional sports teams which are in the bottom half of their leagues forfeit their obscene salaries!
They have demonstrably failed to perform up to the standards expected of them. The public is paying them via ticket sales and they benefit from government subsidies for their plush stadium facilities.
I DEMAND IT!!
From each according to their means. To each according to their needs. But, some animals are more equal than others.
First, I do not want the legislative and/or executive branch butt in into the private business.
Second, the agreement is an agreement, and if, as indicated, the contracts promised 100% of 2007 pay for 2008 regardless of performance, the company is obligated to pay them bloody bonuses.
Third, both the legislative and executive branches did NOT provide for any strings attached to the taxpayers’ billions given to the AIG last year.
Fourth, both the legislative and executive branches SHOULD HAVE provided for the strings to come with the billions, but that would have required longer review and discussion of the bill – and they wanted to stuff it down our throats asap. So, now they both engage in the exercise of the monumental CYA.
Fifth, the AIG Board of Directors should have reviewed the contracts and should have told the executives from the Derivatives Dept (the ones directly responsible for the mess we are in now) and told them to take one for the team for a year. If the executives refused, the BoD should have withheld the bonuses anyway – I am sure that there was a possibility that the court would find that particular ‘regardless of performance’ clause in the contract void as unconscionable. Anyway, if it came to a legal battle, the spotlight would have been on the bad apple Derivative Execs, not the AIG and industry at large.
Sixth, the Derivative Execs are self-serving morons who are indeed disconnected from the reality – each and one of them should have declined the bonuses or at least requested a one-year postponment, under the current circumstances. The fact that they are not doing it and dragging the entire AIG and the industry down with them just plays into the liberal class- war sterotype.
Seventh, yes, I am outraged at the Congress and the BoD and the Derivative Execs, for each of them epically failed in their ultimate fudiciary duties that they owe us, the taxpayers.
Eighth, I still do not want their bonus-paying contracts getting void by the act of the government instead of judiciary.
Olga/
Right behind, beside, and in front of you on this one. The precedents that would be set if the President were to be able to reclaim the fees/bonuses by Presidential ukase are ominous indeed. Another example of ill-considered, ham-fisted decision-making on the part of both Congress and the Executive. Time to lay in more provisions, I guess…
It’s Obamanomics. Lack of thinking it through, both on the porkulus package (euphemistically titled the American Recovery ad Reinvestment Act) and in how the AIG debacle was executed.
Mr. Obama burned through some of his political capital on this one and there will be more unintended consequences. Wait and see.
None of these bonuses would be available had AIG been left to it’s own devices. Now we’re rewarding bad behavior, the folks that actually helped create this gigantic mess. . I’m as outraged as anyone.
It’s the fact that none of the bonuses would be available without government money that puts the government in the position of being able to dictate terms to AIG. If AIG doesn’t want the money it can keep its obligations to executives. If it needs that money it has to work by the rules of the lender.
And banks, in some respects, aren’t like other companies that can file chapter 11 and be safe from creditors while they clean up shop. Accounts are covered by the FDIC….because it’s their business to hold everyone’s money. The government is involved already, and the federal government has to pay for those accounts if and when the banks go broke.
You know, I don’t know who was entitled to bonuses or how much they were supposed to get.
And it may or may not be ethical (based on any number of things).
This outrage by the Congress isn’t about ethics….Chris Dodd inserted language that specifically left executive compensation out of TARP (now he’s trying to reverse that).
This is about greasing palms, getting caught and covering your ass by Congress. It’s also about changing the rules in the middle of the game (can you spell the election of 2000?)
These people in Congress are using our money instead of Charmin and getting away with it.
But I agree with you lex….
The thing that bothers (scares) me the most is that we now have a Congress that thinks it’s OK to single out individual citizens to punish for anything they think is bad ( the AIG exec’s, the auto execs, Rush, … So the guys that got those bonuses now will have different tax rates than the rest of us (according to schumer)?…..can you spell illegal?
People need to wake up to the bigger picture here.
So the guys that got those bonuses now will have different tax rates than the rest of us (according to schumer)?…..can you spell illegal?
People need to wake up to the bigger picture here.
I’ll admit my knowledge isn’t what it should be in this area, but it seems to me that such a thing contravenes the concept of “equality under the law” (or some such language/theory), yes?
Remember that stuff in the Consitution about *no retroactive laws* and *no bills of attainder*?
The Congressional proposals being thrown around have elements of *both*.
Cap’n,
What about the automatic pay raises Congress gives itself every two years? The two principal members of Congress responsible for the Fannie Mae/Freddie Mac debacle are now hypocritically saying AIG should be investigated for fraud.
Excuse me?
Oh, I forgot, Congress can’t be disciplined except by itself. They got off Scot-free.
I agree that I don’t want Congress to interfere in the contractual obligations of the private sector.
That said – what about the ethical obligations of these executives? These are the people that brought AIG to collapse – how are their brains wired that they feel they are entitled to their contractually-guaranteed bonuses.
Soulless bastards.
“souless bastards”
Kriss, having spent some time on the “inside” of Wall Street for a number of years I’ll just say that, while not everyone can be characterized that way, there’s more than enough of them to go around. And that can be said about a lot of the professions that deal with tax law and money. I’ve always said that nothing wouldn’t cure what ails the financial sector–bankers, Wall Street, etc.,– like taking the head of every institution out into the nearest open field and shot just on general principles, “pour l’encourager les autres.” Same reason I didn’t go to law school, (with apologies to Snake, half my fraternity brothers, and others wandering by) I just didn’t feel I had enough larceny in my soul to become a financially successfully lawyer. (LOL)
These are the executives that brought AIG to collapse?
OK, so I’m an executive at AIG, got the corner office and the key to the vice-presidents lavatory, my first thought on entering the office is “I’m making a couple million a year, I’m going to stuff this job and do whatever I can to screw this company, all the investors, all the shareholders, and I’m going to do it inside of six months because I have a bonus of one million dollars this year, and between that and the million I normally make I can add them together, retire, and live on the $40K interest income and spend my time on the golf course.”
Sorry, just not seeing it. Maybe I don’t make a million per year, maybe I don’t get that in bonuses I negotiated for when I took the job, but I’m simply not seeing somebody worth that kind of coin throw up his hands, tell the Board of Directors “get stuffed” and exit never to work in the finance or insurance industries again.
Again, I go back to Congress. Any law-making body that can direct money lending via something like the Community Re-Investment Act needs to look pretty close to home for the cause of financial sector problems. You can be darned sure that VP’s with bonus’ pay of a million bucks aren’t throwing their careers and earnings away for the one-time bonus pay-out and then settling in tar-paper shacks in the Montana hills writing economic manifesto’s.
For that matter, the bonus pay is what, a hundred million? Congress just wrote a check for us, the taxpayers, on the order of one trillion dollars. Money we are obligated for even though we don’t have it. Money that goes towards nearly 9000 pet projects that through law we’re required to fund. 9000 projects that apparently passed Congressional muster and had no objections, yet the very same Congress couldn’t figure out the company they were about to obligate us for billions of dollars to lend might have had 0.01% of its profit dispensed as bonuses rather than salaries or new buildings.
So I’m on the hook for a trillion dollars, as a taxpayer. I’m supposed to get upset over 100 million spent according to contract in a private business?
Why, if you start worrying about such insignificant amounts, pretty soon you’ll be unable to pass omnibus funding packages, and then where will we be?
Paging Senator Kennedy — there was a book published a few years ago called, “What’s Wrong in Kansas.” Kansas would like to know why they’re paying for the Big Dig in Boston and why in the hell a $2.8 billion project has cost us close to $15 billion today and is not yet completed. I’ll fix this problem for you at 1% of the money I save the taxpayer.
I’d retire on it, unfortunately the Congress that funds it won’t.
Worries of a hundred million in bonuses? Had we not poured billions into AIG and propped it up, those bonuses would be in bankruptcy court right now as claims against the assets. Instead Congress spent billions, bought controlling access in the company, and is now obligated to pay per those contracts, which amount to under 0.1% of the overall.
A billion here and a trillion there, pretty soon you’re talking about spending other people’s money.
– Max
While I appreciate the outrage over the AIG exec’s bonuses, they are bulletproof legally. All them attorneys in Congress and the WH should know that. The talk about creating special laws to take it all back as tax remind me of something that the Sheriff of Nottingham or Hugo Chavez would do…
Simple deflection via that Law of Thermodynamics Lex often uses. Geithner is a lightweight. he missed this just like he forgot to pay his taxes….sure.
God help us all. Recommend file this latest under buffoonery not economy or politics.
b2
You might also want to see who the number two recipient of AIG’s political contributions is. Free hint: He’s now the President.
I also pointed out to my son and reminded him of the quote “The government that has the power to give you everything you want also has the power to take it away.” while Chuckie Schumer was pontificating on raising the tax rate to 90% on those individuals who received those legal bonuses that it was the quote in action.
Nothing good is going to come of this, nothing at all.
While I’m not at all impressed with the Obama crowd’s attempt to impinge on private industry contracts, I’m even less impressed by Obama’s own statements of anger.
His retort about the bonuses not representing “our values” especially! “Our values”, Mr. Obama? Shouldn’t you have said, “my values”? After all, your values track right along with dividing up the AIG bonuses and sending them out across the land as some sort of socialistic “mini-stimulus” package.
As unhappy as I am with the government’s propping up of AIG in the first place, I do NOT want to claim your “values”, Mr. O. They are not the values of our forefathers, nor capitalist values. Whatever values they are, whose-ever they may be, your “values” are definitely not my “values”.
Please, Mr. O, include me out of your values sub-set.
So GMAC, you see no good coming out of this?
Hmm, how about energizing the public about the duplicity/hyprocosy of the Dems? Possilble illegal, but that doesn’t seem to stop Congress.
Those who may or may not get the bonuses can KMA -it is monie out of my (kids, grandkids) pockets. Screw them, they failed, let them fail.
Obama-nomics. Welcome to President Erkle
What david foster @10 said. In other words, “Roger THAT!”
If the bast!ds can levy confiscatory taxes on AIG and its employees, they can do it to anyone. I couldn’t believe my eyes/ears when I heard that.
I imagine the Supreme Court might have something to say about the subject, were it to get to that point. One would HOPE, anyway.
The leaders of our nation need to understand what any mid-grade officer, graduate of any staff college understands instinctivly — second and third order effects.
OK, do the satisfying thing — “claw back” this legally paid compensation. Feels good, peasants holster the pitchforks. Everyone moves along, nothing to look at. Next time someone thinks about building a financial services firm, will they do it in London, or NY? Money flows to where it is secure — protected by the rule of law. No difference, in effects, between nationalizing an oil refinery, or “clawing back” bonuses. Both lead to an extreme reluctance to expose yourself to that in the future. Does anyone think this satisfying effort will regrow the revenue engine of the state of NY?
If Joe Blow lives up to his employment contract, meets his agreed goals, then he has the same right to being paid for work already done as an hourly worker at Mcdonalds. Most states, you don’t pay your employees for work already done, you are afoul of the law. What’s the diff here, legally? I understand the emotional ability to draw parallels to union benefits. Fails the rational thought test, however. These bonuses are for work already done. No one has ever tried to force repayment for past benefits, no matter how extravagant. Limiting future benefits is not parallel to confiscating earnings for past work.
But then, we have a nation that confuses “wealth” with “income”, so why should I be surprised. Surprised, no. Fearful, ??????
Could someone please explain to me why it isn’t appropriate for a lender to make restrictions on how the creditor spends the money it is given?
After the fact, Liz? It’d be like a bank giving you a car loan and then taking that money back after you’d bought a BMW instead of a Prius. Well and good if that was a pre-condition of the loan, but a bit intrusive if imposed after you’d spent the money, money that, in this case anyway, AIG management was contractually obligated to expend.
I agree that it’s ugly. But there are plenty of ugly things that aren’t illegal. If the feds arrogate to themselves the right to retroactively break private contracts based on the momentary outrage of the mob – or worse, fan those flames as a way of deflecting public anger at their own venality/incompetence – where does it end?
Now, it looks like the government is going to “make the taxpayer whole” (right) by deducting the bonuses from future payments. Which is the route they should have taken to begin with, but which does call into question the analysis that went in to the so-called rescue plan to begin with.
The whole thing stinks, the government has shoveled hundreds of billions of dollars at pet programs all over the country and pretends to be surprised when some of it (any of it?) isn’t spent on preferred economic activity.
It used to frost me when I was told to get a job done and came back with the results. “THAT’S NOT WHAT I WANTED!” What was: “Not that! DO IT AGAIN!”
Actually had a situation like this stretch across 11 months of work, and when the report was signed out 35 complete rewrites later, 6 months late (of our own self-imposed goal), I was told @ 2AM on Change of Command Day that it was my fault that it was late.
It sure would have been nice if he had sat me down and said: “Look, this is going to be controversial. If it’s great…make sure we can say it and support it. If it’s not, figure out how to say it without saying it, for many, many important people are going to be hanging on every word and my future, and by derivation, yours, will be weighed in light of what this report reads like. Got it? Good. Get to work.”
Liz — good question. Because a lender can’t impose restrictions that invalidate existing contracts, even if the lender is the gov’t. Bankruptcy courts can, but lenders can’t.
This is a VERY slippery slope we are headed down. What next? Laws that tax income of over $200K at 100%, if 50% of that income comes from Medicare/Medicaid payments? (AMA — get your pitchforks ready) 100% tax on incomes greater than GS-15 pay at companies with 70% of revenues from the feds? (don’t laugh, one retiree friend thinks that should be the cap).
Part of the problem is, that these “bonuses” are being viewed as kinda like a Christmas turkey — “we had a good year, so everyone gets a turkey — some bigger than others.” I haven’t see the contracts, but I bet they were deferred compensation, with defined metrics. Most are equating this to the turkey, since they have never had a metric based comp plan. I do know that this came from an effort by AIG, over a year ago, to retain talent by committing that regardless of performance in 2008, that bonuses would equal 2007 amounts. Contractual obligation, and a moral obligation to the employees. Do we want to go to a place where mob outrage can trump obligations?
And, for people that spout so much of protecting people who “work hard, play by the rules”, and are the defender of the “little guy”, isn’t there any outrage at paying Société Générale and Deutsche Bank $12 billion each — at 100%? Some American (“claw back” taxes will only fall on them) who “worked hard, played by the rules” gets $1M, and the Hill mob gets all lathered up. Compared to paying two foreign banks $24B of taxpayer money, when they hadn’t even suffered a loss, isn’t this dude a “little guy”?
It’s the same old story. First Congress creates the problem, then rides to the rescue to “solve” it thereby GARRR-RONN-TEEING (as they say in South Louisiana) that, whatever the size of the problem, it will get exponentially bigger.
One only has to look back at the S & L debacle in which Congress, in a panic to show their constituents that they were “doing something” to fix the problem (after creating it in the first place via regulatory “fixes” for the S&Ls as a response to the disintermediation that resulted from the runaway inflation and high interest-rates of the Carter tears) forced many of the few surviving healthy S&Ls to sell at fire-sale prices the one part of their portfolios that was performing and keeping them solvent–namely their junk bond holdings. All because Congress panicked and, not taking the time to understand that the term “junk” was an bond trader’s term of art, became worried they couldn’t justify to their constituents condoning the Federal backing of institutions holding of something labeled “junk.”
Of course, the owners of those S&Ls whose institutions were driven into bankruptcy by this move sued in Federal Court and won. So to add insult to injury, besides throwing gainfully employed citizens out of work by bankrupting their employers and putting lots of little people on the public dole at great expense to the tax-payer, Congress not only had to make the owner’s losses good, (with even MORE tax-payer’s money) they had to also pay penalties and attnys fees–AGAIN with MORE tax-payer’s money.
Or take the ENRON debacle. In it’s haste to make it look like it was doing something to “fix” the problem in tax-payer’s eyes, the Justice Dept sued the CPA firm, Arther Anderson itself, as a corporate intentity, rather than the firm’s individual business partners/corporate officers who supposedly created/condoned the mess. This was done as it would have been much harder to prove against the individual principal actors. By DOJ pressuring the Judge handling the case to, in effect, charge the jury with a directed verdict, a quick conviction was obtained which caused the loss of the firm’s license and it’s ability to conduct business.
But who, EXACTLY was punished? NOT the principle business partners/officer’s of the firm who were the “supposed” miscreants in this affair. Oh, no, those guys–the big kids–having not been personally convicted of anything– simply walked across the street and went to work for the competition at the same salary.
No, it was the blameless little people–the non-participants, some 5,000 of them–the secretaries, clerks, IT guys, mail-room clerks, messenger-boys, etc., who lost their jobs and lively-hood when the company was driven out of business in a fit of self-righteous prosecution–all thanks to the rush to prove to the public that the Government was “taking action” to “fix the problem” and “punish the wrong-doers.”
So, in both the S&L AND the Enron debacles, we see the unintended second and third order effects Scott mentioned
and warned about. Now about this current mess:
How does that old saying go? “Beware of Greeks bearing Gifts.” Well, time to modify it: “Beware of Congress when it tries to solve any ‘emergency’ it has created in the first place.” Signs should be posted: “Be alert for scurrying Chicken Littles” …………….But then everyone here already knew that, didn’t they?
VG — you didn’t point out how populist outrage in Congress played a large role in the S&L debacle — another second order effect Congress washed their hands of.
Climb in the way back machine, Sherman, and let Mr. Peabody take you to 1981, and the passage of the Economic Recovery Tax Act of 1981, AKA Kemp-Roth, after its two Republican sponsors. One of the main provisions was creation of the Accelerated Cost Recovery System, which allowed depreciation of real estate over 15 years — designed to encourage RE construction in an economic downturn by increasing the tax writeoffs associated with those investments.
Then, in 1982, the Tax Equity and Fiscal Responsibility Act revoked the planned further increases in depreciation planned for ’85 and ’86. The Deficit Reduction Act of 1984 lengthened the depreciation period from 15 to 18 years (thereby further reducing the deductable depreciation). The Imputed Interest Act of 1985 again drove down the deduction by increasing the period to 19 years. Then, we get to the Tax Reform Act of 1986, sponsored by Democrats Dick Gephardt and Bill Bradley, which effectively (at least in the early years) halved the tax benefit of RE investment by extending the period to 27.5 years for residential RE, and 39 years for non-residential.
This is not the place to discuss what the right incentive for RE investment. The issue is, what effect do changes in tax law have on markets? The effect on RE values, in the only place where any RE lending was going on (west south central US), was sudden, and dramatic. The root of the problem was that Congress changed the rules in the middle of the game. Populist outrage at large tax deductions forced a change, and the change did not include grandfathering existing properties. As a result, properties lost a large portion of their value — the value that was associated with the attendent tax deduction. Wiped out, by a simple act of Congress.
The second order effect, was that the properties that banks and S&Ls lended on, were no longer worth the value of their mortgages. Banks had to write down the value of their assets to reflect the decrease in the values of their mortgages. Once that happened, the banks’ equity decreased below regulatory minimums. It continued, and there was no option but for the FDIC to step in and take over the bank.
If Congress would have simply grandfathered existing RE investments, there certainly would have been a decline in new construction. But the existing properties, and their associated mortgages, would not have declined in value, and would not have triggered the S&L mess of the ’80s. But, just as we are seeing today, Congress’ desire to be seen as “doing something” precluded looking at the unintended consequences. And they are allowed to get away with it, time and again. And I have no idea why.
I can’t link directly to the post but one “MiltonG1″ posted this comment in response to E J Dionnes posting in support of taxing these bonuses at 98%:
As much as I think these bonuses are over the top and undeserved I think trashing to constitution as a proposed remedy costs us much, much more.
Maybe if Congress had done its duty and actually taken the time to read what it passed as legislation we could have avoided this travesty. But that would be placing the blame squarely where it belongs for so much of the current crisis – something not likely to ever be addressed.
I’ve got a solution: have them resign and let’s take a page from Hillary’s approach to Russian relations. We need a “do-over” on the last election across the board….
“As much as I think these bonuses are over the top and undeserved”
Just as a contemporaneous observation, I’m see a lot of that sentiment lately, but I’m not sure where it comes from. It seems to me that one would need to actually know who received such a bonus and would need to know the role played by that person and its importance to the health of the organization to make any kind of meaningful judgment on the topic.
Which knowledge, by the way, I do not see a lot of from those holding forth with that sentiment.
I base my opinion on the concept that I am deeply familiar with having spent 25 years earning bonuses: that incentive compensation be based on actual performance in doing a a job that provides benefit for an organization. Based on the results documented from the performance of the AIG unit in question I would submit that any bonus would meet the criteria of being over the top and undeserved. I am not saying their contract did not stipulate it as obviously it has been the practice of a lot of corporate America to base bonuses other than actual performance of the organization and presumably the employees contribution to creating that performance.
That the traders did in fact create trades in derivative contracts is not in doubt – they were obviously very good at doing so. That such contracts contributed to the financial mess should also not be in doubt. Whether they legally are entitled to the bonuses is not my point. Not everything that is legal is acceptable – especially in light of the current circumstances that were known at the time the bonus contracts were created.
So I stand by my characterization – even as I deplore the proposed solutions to attempt to right what I clearly think was a wrong to begin with.
T6-
The government itself (DoD at least) is beginning to implement a bonus plus compensation system.
It’s called NSPS. Supposed to keep garden slugs from being around for 30 years and supposed to stop the practice of promoting people up the chain based on incompetence. Ahhhh, the angst in implementing it can be felt far and wide….LOL.
b2
B2
If you ever get a $1M bonus and the aircraft program you work on crashes everytime it flies I’ll suggest that is “over the top” as well…:)
In the mean time I’m philosophically OK with paying people that actually do something more than those that don’t whether bond traders or school teachers. It’s the entitlement mentality surrounding them that corrupts the concept IMO.
One question came to mind this morning, as I was reading a so-dull-it-cures-insomnia spec sheet…
If these bills are so large that Congress itself, the folks we elect to represent us, can’t even read them before voting on them…
Who does read them and advise the Congress how to vote? And who *writes* them?
Perhaps part of the cure to this problem is to be found in Congressional accountability.
Haw! Haw! Haw! (snork!) Congressional accountability… Geez I crack myself up.
– Max
Max:
You need a vacation as you are clearly becoming delusional….
It was comical to listen to Sen Dodd backpeddling on the language inserted in the bill that allowed the AIG bonuses yesterday. Claiming that “somebody” changed his language from the time he inserted it and the bill got printed and voted on to allow them. So which is it Senator:
1) You meant to allow it thinking nobody would notice
or
2) You are so disconnected from your own staff as to not know what they are inserting under your name.
Can you imagine if the Congress who drafted the Constitution or the Bill of Rights acted like these “gentlemen and gentlewomen”?
As someone who has recieved bonuses not based on performance, but on working through a transistion, I take exception to T6Flyer’s assertions.
Once the decision is made to wind down a particular operation, restructure, or merge; a dilema presents itself. If you intend to keep the value of the assests intact for the transition and/or sale, then someone has to keep the lights on. Without some sort of incentive, those who are most skilled (and thus most marketable) will leave at the first opportunity, until you have nothing but those who are unable to find any other employment. And now your assets are worth diddly. But you get to be all superior and moral and cast aspersions without a single clue as to the reality of the situation.
Since the stated goal was to preserve AIG as a going concern, any wholesale exodus would have sealed the fate of the company. And even in a down economy, talent can still find work, so you can’t use the economy as a way to keep those employees shackled to their cubes.
This is a tired argument used to justify this culture on Wall Street forever.
Somehow if we just don’t continue the gravy train all these superstars will vacate the building. Its time someone called their bluff. In a country of over 300 million with untold numbers of people trained in finance you can’t tell me these are the only people who can solve this mess? I’m not buying it and never will. Maybe they might have to give up the house rented in the Hamptons this summer and such but I just am sick of hearing over and over how we need the “talent” to get us out of this. Exactly how is that working anyway? Offer them a salary and bonus based on how well the turnaround works and I might buy into that. If nobody will sign up then you just about know what the chances of saving the thing are right there. If they don’t sign up then they are in effect saying “we are just going to milk this (the taxpayer) as long as we can because we don’t believe in the house of cards we’ve built either”.
And your class-warfare, envy-based argument is just as tired. And I’m not using it to justify any culture, anywhere. I am simply pointing out to you that your view of the world (and demanding equality of outcome) is simplistic, and your belicose berating of others who dare to disagree with you seem to qualify you perfectly for a job in the current administration.
Demonizing people (like me) who have gotten bonuses for not bailing out (making it possible for the merger/shutdown to occur with a minimum of loss) won’t win the argument. And once we get into the “why does HE/SHE get such a large salary?” game, it is just a small slide down the slopes to wage and price controls. Never mind that it has never worked, the lazy, self-entitled sloths of the world will ensure that it will get trotted out over and over again.
Are you seriously suggesting that you can take anyone off the street and have them step into any complex job and be immediately productive? Even working at a Burger King requires some training. Sure, you could get a Joe off the street, but if all the institutional knowledge walks out the door, where will Joe go to get any answers? Maybe your jobs are so basic that Joe would be OK, but I haven’t had a job like that since I was in high school. There were always processes unique to the organization, history and prior events, and special domain knowledge that you only got after being in the organization for a while.
Bring in someone who doesn’t have that, and put them in charge, and you get another Sculley at Apple. Or imagine taking an AF LtCol(Sel), and give him command of a USN squadron in the middle of a wartime deployment. And take away his XO, Dept Heads, and Goat Locker and replace them with USA trained officers and NCOs. Think anything might slip there? Or is that “talent” useless, too?
Quite frankly, I could not care less if YOU “buy it” and I don’t care what YOU are “sick of hearing.” I know facts are not something that emos particularly like to entertain, but I am not inclined to avoid them for your comfort.
How you interpreted my comments as demonizing you is something I don’t understand. In fact I wasn’t demonizing anyone. What I was saying is that to think that the only people who can reform AIG are somehow the very people who lead it into its perilous state is a stretch at best. There are a lot of unemployed people with experience in complex financial transactions, accounting, and law that might lend a hand. But the argument over and again in support of at all these institutions is that no one else can do it.. In fact a former executive at AIG today was quoted as saying that many of the people that received bonuses at AIG are not the ones needed to fix the place since they are the brokers who sell the deals and, since they are no longer in the credit default swap business they hardly need brokers with that expertise.
I am not demonizing bonuses for performance such as orderly workout of a business and can understand the need for that. If I am demonizing it is a culture that exists that is somehow disconnected to the very real suffering that a large segment of the population is experiencing and somehow seems to think they should somehow not feel any responsibility or accept the fact they might not deserve a 7 figure compensation package at the same time. Marie Antoinette as a role model hardly seems appropriate behavior from those in position of authority at this time.
Just as Marie Antoinette hardly seems appropriate, I find that the mobs that executed “enemies of the revolution” are a pretty unsavory basis for commentary.
“There are a lot of unemployed people with experience in complex financial transactions, accounting, and law that might lend a hand.”
Few of whom would be foolish enough to jump aboard a sinking ship, though, without remuneration commensurate with the risk and to offset the potential income of a less risky job.
Hence bonuses and what you consider to be extortionate compensation. I suggest merely that the picture may be a bit more complex than you are in the position to know with any degree of certainty, your anecdotal evidence notwithstanding.
Unintended consequence #1:
The first Johnston & Murphy hits the deck. For more detail:
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031703565.html?wprss=rss_politics
Old TC6flyer and Lex … It’s unfashionable today in the NEA-run educational system, but those of us who remember our high school civics classes know about the “bills of attainder” being forbidden by the Constitution, so may I compliment both of you for your historical knowledge.
If the corruptocrats in today’s Congress attempt to ignore and get around this direct forbidding of such laws by the Constitution, I hope that the effort will fail. It’s not that I approve of those AIG bonuses. They seem disgracefully high to me. But, unpleasant as it is to recognize, they are legal contracts. And if Congress successfully abrogates legal contracts, we are all of us at risk and chaos will result. That we cannot allow.
Marianne
I know this isn’t completely on point but why does this conversation tend to remind me of the way the IMF or the World Bank often tells developing countries exactly how to restructure their economies (and be damned the consequences on the “little guy” there) if they want any money? And hey, if they don’t like it, no one is actually forcing them to take the money, right? Now that’s my definition of intrusive.
/we now return to your regularly scheduled programming