Fallout: The Financial Crisis

Weekly Wrap: Debating AIG’s bonuses

Marketplace Staff Mar 20, 2009
Fallout: The Financial Crisis

Weekly Wrap: Debating AIG’s bonuses

Marketplace Staff Mar 20, 2009


KAI RYSSDAL: There was a whole lot of the political mixed in with the economic this week. It actually started, truth be told, at the end of last week with the news that AIG was going to payout $165 million taxpayer in executive bonuses. To help us do our Weekly Wrap of Wall Street and beyond we have turned once again to Heidi Moore. She’s the lead writer for the Deal Journal blog at the Wall Street Journal. John Carney writes for Clusterstock.com. Welcome back guys.

HEIDI Moore: Good to be here. Thank you.

JOHN CARNEY: Thanks a lot.

RYSSDAL: John, we’re going to start with you. And we’re going to start with AIG. And the question is: Was it distraction, or is there actually something there to be discussed?

CARNEY: It’s a little bit of both. It’s distraction in the sense that it has everyone focused on something that’s a relatively minor issue in terms of the health of our economy. But it really actually does matter because it’s a dramatic illustration of what we’re doing wrong by having the government keep alive failing institutions.

RYSSDAL: Heidi, I want your take on whether it’s a distraction or whether there’s something really to be discussed about these bonuses.

MOORE: No, I think it is firmly a distraction. These are 73 people who made bonuses over a million dollars. And this country is dealing with a two-year-long recession, the freeze of credit, the fall of the automakers. Our problems are so much bigger than these people’s bonuses, and I just think this looks like a populist circus.

RYSSDAL: Alright, let me crib a line from Paul Krugman here, and throw this at you, Heidi. He says the problems with these bonuses and not making a stink about them is that it shows we continue to have faith in those who got us into this mess in the first place.

Moore: I think that’s little bit convenient to say because it assumes that the same people who are getting these bonuses, somehow, in their free time plotted the downfall of the entire economy. And that really wasn’t the case. These were people who were professional gamblers. Their job was to make bets on obscure financial products. And it was eminently visible from the very moment they started their job, in 2006 or 2005, that losing that money was going to be a potential outcome.

RYSSDAL: Well, someone blew it though, right, John?

CARNEY: Absolutely. I think there is a huge, outrageous thing to say that these guys, as Heidi said, are professional gamblers, and now we have to take their losses. Rewarding people who took outrageous risks, put the taxpayers on the hook for their losses and then actually paying them their salaries so they can live in their Connecticut mansions, I think is just something that was bound to provoke outrage. And the managers at AIG should have known it, and frankly so should have the people in the Treasury Department who are supposed to be overseeing a company the public now owns 80 percent of.

RYSSDAL: Congress is channeling its outrage, that you guys have been talking about, into taking some of that money back. The House passed that 90-percent tax last night. The Senate is going to take it up next week. Heidi, what do you think?

MOORE: I think it’s absolutely absurd. First of all, it creates so many troubling precedents. Number one, if Congress can go out there and just penalize anybody’s bonuses — What if they decide that journalists aren’t serving the public interest enough and they tax my piddling little salary at 90 percent or something like that? It’s so arbitrary. And it’s retroactive, which is incredibly dangerous. And then you have people leaving Wall Street. If you want banks to pay off their TARP money, they’re going to need some employees to do some work. But who’s going to go into work knowing that they’re basically going into work to pay off the government?

CARNEY: I have to agree with Heidi. I don’t think that it’s realistic to put a 90 percent tax on a bonus. People just won’t work for it.

RYSSDAL: Let me try to back the discussion up a little bit and try to maybe put this into a little bit of context. One of the things I was thinking about the other day was the mad rush we were all in September and October, and when I say “we” I mean Congress, to do something. Because Bernanke and Paulson, the Treasury secretary and the chairman of the Fed, were saying the world is going to end if we don’t do something. Shouldn’t we sort of frame what is going on now in light of the press and the squeeze that was on back then. Heidi?

MOORE: Yeah, I think we should, actually. Goldman Sachs held a conference call just today to explain its exposures to AIG. And one of the themes that came out was how fearful they were of systemic risk if AIG fell in September. But you have to understand that this $85 billion loan that we’re stuck with and saddled with and probably never going to figure out, that was signed in two days. That’s $85 billion in two days. And the fact that it doesn’t include a lot of sophisticated thinking shouldn’t be a surprise.

RYSSDAL: Heidi Moore is the lead writer for the Wall Street Journal’s Deal Journal blog. John Carney writes for ClusterStock.com. Thanks to you both guys.

MOORE: Thank you.

CARNEY: Thank you.

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