Of AIG "Bonuses" and The Vanquishment of My Inner Miss Haversham

[mallorys_camera]

I suppose what confuses me about this whole AIG drama is the use of the word “bonus.” In popular parlance, a “bonus” is an additional payment given as a reward for performance in helping to reach some specifically defined company goals.

In the case of AIG, however, the word “bonus” was used to describe a contractual remuneration linked to length of employment. It had nothing to do with merit. Being a strict grammarian and logophile, I might quibble with the use of the word “bonus” to describe such payments, but there’s no doubt in my mind that these payments are legal providing the terms of the contract were fulfilled.

Taxpayers, of course, have the right to be furious – but really they should be furious at the lawmakers who were in such a hurry to push that initial bank bailout through with inadequate provision made for oversight and review.

Instead we are getting this lynch mob mentality – string the fuckers up! strip them of the fruits of these ill-advised contracts! – which I find disturbing.

Here’s what they should do with AIG. Here’s what they should have done with AIG 5 months ago: fire the board of directors the CEO, and all other top report executives; replace them with a new thoroughly vetted group to whom strict marching orders have been given on what will constitute remuneration going forward.

If Obama decides to take this to court, the federal government will lose and there will be legal costs to pay on top of that $170 billion bucks we’ve already dished out to AIG.

(If by some chance the federal government wins, then you should be afraid. Very afraid.)

###

In other news, many, many errands yesterday. I read most of Ruth Rendell’s 13 Steps Down while waiting around in various long burocratic in various lines.

Around 6pm got a call from Heidi inviting me over for corn beef and cabbage. At first I wasn’t going to go – because, after all, I am clinically depressed so sitting alone in a dark and hideously messy house like Miss Haversham, brooding over the Past (note the capitol) is my idea of a good time. Then the nursemaid persona in my brain kicked in: Come on…

And I enjoyed myself! Heidi and Bill couldn’t have been nicer. Their friends Bill and Laurie were there too, and after dinner the Bills got out their respective instruments – stand-up bass cello, Gibson guitar – and began to play jazzy old blues covers, St James Infirmary, Nobody Loves You When You’re Down & Out. They play very well together.

Today Crap Divestment begins anew. I’m hoping to finish off the books, the bookshelves and the clothes.

Comments

[platofish.livejournal.com]

I have to agree - if the contract says these 'bonuses' have to be paid, and there is no 'unless we are broke' clause.....then it has to be paid.

[mallorys-camera.livejournal.com]

Yes indeed.

[alexkaufmann]

The AIG bonuses are similar to "roster bonuses" in sports-- if you're on the team's roster as of a certain date, you get the bonus.

Not only are the bonuses contractually obligated, they amount to less than 1/10 of 1% of the money given to AIG.

Why is there no outrage about the other 99.9% of this bailout?

[a1icey.livejournal.com]

oh, like spitzer's article for slate? lol

[mallorys-camera.livejournal.com]

Read that yesterday. Good analysis. Alex, the link is here: http://www.slate.com/id/2213942/

[alexkaufmann]

Haven't read it. Can't really say I'd be all that interested in anything that hypocrite has to say.

[mallorys-camera.livejournal.com]

True, Spitzer likes his hookers. But he knows an awful lot about securities fraud. The piece is worth reading.

[alexkaufmann]

I no longer recognize our economic system. In a market economy, the idea of "too big to fail" is ludicrous.

We've privatized profits and socialized risk. It's insane.

[a1icey.livejournal.com]

We've privatized profits and socialized risk. It's insane.

why is that insane?

[alexkaufmann]

In Capitalism, private individuals or entities risk their capital in the hopes of making a profit. Those who take the risk earn the rewards. If there's no risk involved, the rewards are far lower (T-bills, for example, give a much lower rate of return than speculative stocks).

In what we're seeing now, taxpayers are being asked to take the risks (by bailing out those companies whose risks didn't pan out). This is an incentive for companies to take much larger risks, knowing the rewards are larger and the risks (to them) are lower. It's like investing in a speculative stock that only has the risk of a T-bill. If you know of something like that that *I* can get in on, please let me know.

We're encouraging greater risk-taking since companies know they can't lose. The risk of loss is what keeps these companies from taking stupid risks in the first place.

We will continue to see these companies take greater and greater risks, knowing that their losses will be covered by the taxpayer. Instead of ending this type of risk taking, what we're doing is encouraging more of it.

That's what's insane.

[a1icey.livejournal.com]

some argue that this system is over. thoughts?

[alexkaufmann]

Which system? Capitalism as a whole remains the greatest wealth-creator in the history of mankind.

This new hybrid we're seeing? Its day will end because it's unsustainable. Eventually, even the taxpayers will run out of money.

[a1icey.livejournal.com]

re: the first section of your entry - with my parents having had the careers they have had, i obviously have strong opinions on this and i am pleased to see that you set the record straight. even for investment bankers like my father, bonuses are not "bonuses" in the sense of common usage - they are a significant aspect of his compensation that is much closer to a commission on his work.

obama's declaration freaked me out, to be quite honest. he's completely out of touch.

[mallorys-camera.livejournal.com]

Well I would say insofar as Obama's voice was one of the loudest raised in favor of pushing that legislation through so fast that it contained no provisions for oversight, that this is Obama's fuck up as much as anything.