This just in: American International Group [good ol' AIG ] is doling out tens of millions of dollars in new bonuses to some of its executives, after receiving more than $US 170-billion in aid from American taxpayers. But, wait! It gets better! No, seriously. Wait for it. Wait for it. The lion’s share of the payments are going to the AIG Financial Products Unit. These are the guys who sold the credit default swaps — you know, the very financial products that essentially destroyed the company. Oh yes, and the entire financial system as well. For the Globe and Mail’s coverage, click here.
How is this possible? How is it even conceivable? What kind of company creates an incentive plan that provides contractually obligated bonuses to a unit which effectively destroyed the entire company. I mean, how does that even look on paper? Even if we overlook the fact that the taxpayer bailout money is going to be funding these bonuses, how can an intelligently designed incentive plan pay out bonuses after the company collapses. Imagine it: Clause 9. b, in the event of willfully negligent conduct that destroys company, employee will receive tens of millions of dollars because, shucks, we know s/he tried hard his or her darnedest.
I am starting to get the feeling this company is only going to be solvent long enough for the executives to suck every last thin dime they can out of it and the American taxpayer. Why should I think that? Well, they’ve already demonstrated that they are willing to exploit an unsustainable, irresponsible, and ultimately apocalyptic business model in order to line their own pockets. To them, extorting the US government for a few billion more probably seems like a good deed.
You’d think, if they had even a hint of self-respect, decency, or honesty, those entitled to the bonuses would decline them as an act of good faith and as a wise measure to avoid being strung up in the streets by angry citizens. Moreover, I can’t help but think about the billions of dollars that were sucked out of the company in the form of bonuses previous to this year. You know, when the company “appeared” to be making money hand over fist but was instead really just sowing the seeds of its own destruction. Where did all that money go? Places where the U.S. government and tax payer will never be able to get at it, even while footing the bill for its true costs.
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Wayne C
March 16, 2009
Crazy. I guess we should ask why no one is questioning this.
sterlinglynch
March 16, 2009
They are (check out the article) but it seems it’s all there in the contract and must be paid out.
I guess the real question for me concerns what changes in corporate governance need to be made such that an “AIG” is less likely to happen again. If the corporate structure can’t be modified to limit this kind of grossly irresponsible behavior, then that structure should be abolished. Period.
Paper Bag Princess
March 16, 2009
100% agree. This crap makes me want to revolt…with some old-school guillotine shizzle.
sterlinglynch
March 16, 2009
It doesn’t take much squinting to see the outcome of this financial debacle as “taxation without representation”. These guys didn’t give a damn, did what they pleased, and are now getting tax payer cash in return for their negligence — not to mention all the fat they skimmed off the top when things seemed to be alright.
Maybe someone should throw some tea into the New York harbor.
JVL
March 16, 2009
How did the French revolution start again?
sterlinglynch
March 16, 2009
I believe a “financial crisis” had some role to play ….
sterlinglynch
March 16, 2009
As further evidence of “the keep AIG a-float to bleed it and American tax payers dry” hypothesis, check out how some of the bail-out money was spent.
As reported in the post:
“Through three separate types of transactions, Goldman received an aggregate US$12.9-billion. Among European banks, SocGen was the biggest recipient at US$11.9-billion, Deutsche got US$11.8-billion and Barclays was paid US$8.5-billion.”
For further details:
http://www.nationalpost.com/news/story.html?id=1394328
rostockrose
March 18, 2009
I was talking about this with Amanda this morning and what captured my interest is that it appears that the outrage is driven by the language used – the fact that they are recieving “bonuses”. But these “bonuses” are hard-coded into the contracts of the executives, and they are not entirely driven by corporate profits. They are more like shadow salaries (so that the list salaries of the execs are lower to keep shareholders happy but the true pay is high to be competitive with other firms). Ultimately they are just part of a total compensation for services rendered. It shouldn’t matter whether they get paid “bonus” or “salary” – it matters that they got paid huge sums of money. But to me the bigger problem is that they got paid huge sums of money for doing exactly what they were supposed to do, maximize short term profits and manipulate various mathematics to ensure constant upward growth of stock price at the maximum possible rate. You better believe that if a year ago AIG execs turned their financial services to only work with low risk, low yeild products their shareholders would have canned the lot of them. I find it a little amusing that the American public is outraged that people should be paid well for being good capitalists, and downright hilarious that the outrage is based on a failure to understand the difference between two definitions of the word “bonus”.
sterlinglynch
March 18, 2009
Very helpful addition. I think Americans are starting to clue in on what is happening, what has happened, and what’s going to happen. And they are pissed off. So they are grasping onto whatever issue they can as an excuse to express that rage. So in the same way that it is unlikely Marie Antoinette actually said “let them eat cake”, it doesn’t matter if these are “bonuses” or “shadow salaries”, it just matters that these guys and gals got rewarded to rape and pillage and continue to be rewarded while many folks don’t even have jobs.