I’m having a hard time wrapping my head around the whole AIG thing. Some thoughts:
- The people working in AIGFP screwed up bigtime, to the tune of $160 (and counting) billion dollars coming directly from the federal government. So AIGFP’s brilliant minds have cost us, the taxpayers, a freakin’ ton of money. There is no way that I think these guys should be getting bonuses in the traditional sense (an award for good work that made the firm extra money), because they did bad work that would have killed AIG and much of the global economy without the aforementioned intervention of the federal government.
- I don’t have a lot of sympathy for the whole “retention money” idea, or that these workers will leave AIG if they don’t get their bonuses. Why? Because working at AIG clearly didn’t work out for these guys. They blew it. John Q. Whartonbusinessschool + working at AIGFP = disastrous internal policy that lead to the necessity of the US government to buy AIG (which it had no desire to do, obviously, before this mess started) to save the financial system. So let John Q go! Don’t retain him. Let him go start a business that he thinks might work well, having learned his lessons at AIG by realizing that your bonus gets axed if you are too thoughtless and risky in your ideas. Replace him with someone who hasn’t been tainted by AIG’s fraudulent management. Matt Yglesias says:
What needs to happen at these firms now is a quiet, orderly, lawful winding-down of business so that the institutions themselves can be broken up and the world can move beyond this mess. That’s no kind of job for an intelligent and hard-working, yet money-obsessed, individual. It’s a job for a competent civil servant who’s happy to draw a decent paycheck to do something useful with his life.
- All of that said, the House’s hastily scrapped together bill to recoup the bonus money from all of the individuals making more than $250k in all of the financial institutions who needed bailout money doesn’t seem like a good idea. Krugman makes some good points on this, and is mad at Obama’s people for having so much faith in John Q and the buddies he made by networking (I hate that verb, by the way) at Wharton:
1. It’s not the way you should make policy — it’s clumsy, and it will punish some innocent parties while letting the most guilty off scot-free
2. But — there wasn’t much alternative at this point. And for that I blame the Obama people.
I’ll leave to others the question of who knew or should have known that the bonus firestorm was coming; but it’s part of a pattern. At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.
I can see how Geithner et al. had more faith in the investment workers than I do; I can populistically rail against these idiots while having no clue what they even do at their desk all day. I do think that the Obama team should play a little hardball, and capping salaries and bonuses is a good way to start, rather than the “clumsy” tax bill that will hopefully not make it through the Senate. I guess that means the AIG bonuses will stick, which is pretty ridiculous. The best we can do is make sure it doesn’t happen again elsewhere.
Blah- what a mess! I told you I’m having trouble thinking clearly and it shows! If you have any more coherent thoughts on this, send them my way.