Bonuses for crashing capitalism?!
TEXT OF COMMENTARY
Kai Ryssdal: In a letter to Treasury Secretary Geithner saying he had no choice but to pay the bonuses, AIG CEO Edward Liddy said his hands are tied. Commentator Paul Kedrosky thinks some people ought to have their heads examined.
PAUL KEDROSKY: We're paying $168 million to employees of AIG Financial Products? Hello? This is the same part of AIG that almost destroyed global financial markets last September, that has been bailed out repeatedly, and that recently turned in the largest quarterly loss in U.S. financial history. Gee, imagine what AIG employees would have been paid if they had succeeded in their vandalism. Oh wait, they would have got nothing.
In the absence of $170 billion in government assistance AIG would be bankrupt, with the result being no bonus payments. While crashing capitalism would have been an impressive achievement, it is not something for which you should receive a bonus. Instead it is outrageous and unconscionable.
Granted, we don't know why these AIG Financial Products employees are receiving payments. Crashing capitalism may not have been on the list. But let's assume it had do with selling credit default swaps, insuring toxic securities, and so on -- all of the sorts of things that we have known for over 18 months that AIG was doing and shouldn't have. Even if there are systemic risks in letting AIG fail, should we now be paying people for overachieving in AIG's ruinous ways, even if there are compensation contracts that say so? Of course not.
Yes, the whole bonus discussion is a sideshow. A few hundred million in AIG bonus payments is round-off error alongside the $170 billion of taxpayer money that has already been committed to the failed insurance company that, when no one was looking, turned into a hedge fund. The real issue is how AIG gets gracefully dismembered, and how we taxpayers stop playing bankers to high-rolling hooligans.
But one thing at a time. Voters have to believe that the government, which controls 80 percent of AIG's shares, is really in control. Compensation restrictions should have been put in place last September when AIG was saved. And with AIG management now avoiding doing the dirty work, President Obama has said his administration is looking at all legal means to block the payment of these bonuses.
Good for him. Because if the company won't do it, he or Congress must. If, that is, they want support for fixing the financial system, as opposed to paying people bonuses for breaking stuff.
Ryssdal: Paul Kedrosky is a senior fellow at the Kaufman Foundation. He is also the editor of the business blog, "Infectious Greed."