"Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs. ... In high school, they wouldn't have gotten retention (bonuses), they would have gotten detention."
It's worth noting that AIG basically responds to this argument in CEO Edward Liddy's letter (pdf) to Geithner and in the firm's white paper (pdf) on compensation practices. And it's worth noting because AIG's argument for why it can't lose certain employs takes an interesting and perverse form:
AIGFP's books also contain a significant number of complex -- so-called bespoke -- transactions that are difficult to understand and manage. This is one reason replacing key traders and risk managers would not be practical on a large scale. Personal knowledge of the trades and the unique systems at AIGFP will be critical to an effective unwind of AIGFP's businesses and portfolios.
That's from the white paper. Essentially, the complicated contracts that resulted in huge losses in AIG is being used as a reason why the the people who wrote the contracts can't be fired. (They understand the belly of the beast!) I don't really know if this should be convincing. But I do find it interesting that this argument takes almost the same form as the claim that certain institutions are "too big to fail." Size isn't a question of merit, and neither is complexity. But both size and complexity are now being used as a defense of the status quo.
I don't know why you go back again and again to Liddy's whitepaper as if it was the Bible. It looks to me like a collection of many weak arguments as to why the bonuses should be paid.
Maybe becuase you support expediency over anything else and you don't mind these bonuses paid?
I am glad you are in a small minority among the entire population on this (except maybe in the "Buisness" corner of the Atlantic). The POTUS doesn't think like you and he'll show you that a lot can be done to go forawrd without being held hostages to "complexity".
I appreciate the criticism, but I think you should reread my post. Where do I say that the argument in Liddy's White Paper is convincing or decisive? I refer to it as "perverse" and say that I don't find it convincing.
Conor
Yoni,
We are not held hostage to complexity but to the rule of law. These employees had contracts that should be honored. Whether you agree with AIG's reasoning in issuing them is a separate issue.
I understand why people are angry. I don’t like it either. However, I think we’re spending an awful lot of time, energy, and virtual ink on what’s a pretty minor issue in the larger context. If we’ve given AIG $170 Billion then the $165 Million is 1/10th of 1% of the bailout money. Or about 50 cents for every man, woman, and child in the US. I know it’s the principle of the thing and I know it’s bad to reward employees at a company that screwed up so badly. But you know what? Congress screwed up, too - whoever you blame for the financial meltdown you can hardly claim Congress was doing due diligence - and the budget they just passed just gave them automatic raises and lots of money for nice new construction. I’d rather yell at them for a while.
As for the perverseness of the AIG argument, I kind of get it. Let’s say you have a computer system that’s running your entire business. It works fine for a while but then you add a new line of products and the system starts malfunctioning. It turns out the guy who wrote it didn’t do a very good job. Your choices are to fire him and hire somebody decent or to keep him around and let him keep patching the bugs enough to keep you functioning. Obviously you’d like Door Number 1 but with a system that buggy odds are it’s going to take a decent programmer quite a while to get up to speed. If you want to stay in business, you keep the moron so he can keep you running. You also, I hope, hire somebody competent and tell the moron to train him. Since the moron knows he’s going to be fired as soon as the competent guy figures out what’s going on, you’re going to have to bribe the moron to stay around.
Beyond that:
1. I agree with Conor that throwing out the law when it doesn’t suit our purposes is a really, really bad idea. Not just because of the impact that would have on AIG’s trustworthiness in the market but because if we start ignoring the law when it doesn’t yield the result we want, who knows where we’ll end up?
2. As far as I can tell, the bonuses are contractual. If AIG management decides not to pay them, I would imagine the people whose contracts have been abrogated will have grounds to sue. How much would AIG spend in legal fees and - if they lose - in damages beyond the bonus amounts?
3. If Liddy’s letter is accurate I think he should get some kind of award for long-sufferingness. Apparently Paulson *asked* Liddy to run AIG and now Liddy is getting beat up for trying to do the job he was asked to do? Let’s get angry at the people who actually screwed this up. That would be:
4. Paulson, Bernanke, Bush; Geithner, Summers, Bernanke, Obama; and the financial experts in Congress including Frank, Dodd, et. al., for not sorting out this issue before they gave - and gave and gave -AIG money. Either these guys didn’t think about it (for 6 months?) or they didn’t realize companies like AIG paid a big chunk of compensation in contractual bonuses (scary ignorant) or it never occurred to them to worry about it because they understood such bonuses were necessary legally and practically (which is what I hope happened) in which case these guys exhibited amazing tone-deafness by not realizing the taxpayers might be a little miffed.
However the politicians missed this, they are now scrambling to cover their lack of foresight by yelling at AIG. Perhaps Liddy should have closed his letter to Geithner with that old line, “Lack of planning on your part does not constitute an emergency on my part.”
Derivative Dribble:
What kind of a Country of Law is it where it is so easy to fire workers from one day to the next and yet a bonus to traders, who destroyed their own company, cannot be stopped? If Money is more important than anything else, that what you get...