The political news this weekend was about AIG, recipient of $170 billion in bailout money (so far) — the largest bailout given to a single company in the history of capitalism.
The outrage at AIG this weekend came in response to the revelation that it paid out $165 million in executive bonuses after the bailout.
I can understand the outrage, but then again $165 million is peanuts compared to $170 billion. It is 0.1% of the entire bailout. Then again, on principle, it stinks.
AIG responded that it was under contractual obligation to pay out these bonuses to executives, stemming from certain contract made with them in the year 2000. If it failed to pay these bonuses, they could be sued for breach of contract.
Fair enough, but — wait what?
I don’t think big business understands the concept of “bonuses”. You don’t contract for them before you do your job. You get them after you’ve done your job, at the end of a fiscal year, and even then, you receive a bonus only if you have done well. Now AIG is stuck with paying bonuses for people who ran the company — and the world economy — into the ground. Jeez.
And now comes Treasury Secretary Tom Geitner saying, in effect, “Well, there were contracts. We can’t do anything about that.” Maybe so. But it is interesting to compare the greedy AIG executives insisting on their contractual bonuses’ with the auto workers in Detroit; the UAW actually made contract concessions in an attempt to help the companies for which its members work.
I think this is at the root of the backlash against financial institutions. Everyone, it seems, is suffering and/or making sacrifices. Everyone, that is, except for the corporate big wigs who got us here in the first place.
“We have a contract,” they cry. “If we don’t get compensated, then we’ll leave our employers and take our considerable financial skill elsewhere.” Really? That’s supposed to be a threat?
Renegotiating those contracts should have been made a pre-condition of the bailout in the first place. The Obama administration needs to be more hands-on and attach strings to further bailouts.
Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid … indeed, AIG’s executives would have long ago been on the street … This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that’s “too big to fail” and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market.
UPDATE: Obama orders Treasury secretary to block AIG bonuses.