"Dear AIG, I quit" (now with 110% more marijuana!)

[Ed Oscuro]

This last week the country has been boiling over the insinuation that many of the bad people at American International Group were being paid big bonuses for staying on. I always felt that the discussion was one-sided; with the information the public was hearing, the reaction was more than understandable, and yet pieces were obviously missing. Without getting into what I think is the threat to the nation this wave of populist sentiment and ex post facto taxation (thankfully smacked down) may pose, and the possible promise, here's what an AIG executive had to say:

http://www.iht.com/articles/2009/03/25/ ... santis.php

The one area where I will differ strongly from the executive is on the issue of the necessity of the retention payments. Sure, at the time they were agreed to it was meant as a way of preventing a brain drain, apparently; I'm not talking about when the Obama Administration gave its okay, but when the bonuses were originally agreed to, and which could have been well before the meltdown really hit its stride. However, the line that you need to retain these people to "untangle" AIG-FP's (Financial Products') stuff doesn't hold water, because it's stuff most anybody coulda done.

Now we're in a market where bankers everywhere are looking for jobs. AIG could suffer a normally catastrophic turnover rate and probably fill the jobs just as fast as they emptied. On the other hand, it's always seemed quite believable to me that a few people could've been responsible for making the bad bets that have sunk the company. Remember Jerome Kerviel, the Societe Generale trader who cost his company $7BN back in 2008 (a scam of epic proportions!)?

It's rather interesting to note that the Administration seems to have supported the retention payments originally, because, again, they made some sense. Any fool can tell they dropped support only because it became politically toxic. Thank goodness for the process - the quite likely illegal bonus tax idea is dropped, and maybe something rational can start to happen.

What we now have is the government trying its damndest to prove that the anti-government critics are right, and that they'll screw over the people they need to try to boost confidence in. They could have done something sensible like demanding employees renegotiate payments or leave, like autoworkers have been forced to do, like 8900 New York unionized state employees failed to do, and like AIG itself did with a person who decided to take their $1M payment and leave. As an aside, these bonuses weren't likely coming anyway, as this blog entry notes. And of the bonuses that were coming, I'd wager a lot were making up the lion's share of salaries for technical support staff people - and people far outside the Financial Products division.

There were people willing to work at AIG for literally next to nothing, but the current populist, anti-finance sentiment may have repercussions beyond AIG.

A new topic and a question: Is it time to whittle the wage gap between top-paid executives and junior employees? Should it be legislative or voluntary? And if you say yes to the first question, any ideas on the potential for a future brain drain away from the U.S.?

Final thought: Simon Wiesenthal, I liked you, and still do, but don't just blame Madoff; you have to come to grips with the fact you made a really basic and dumb investing decision. Goes for the rest of the lot of you who poured everything into Madoff without thinking.

The one bright spot of news in all this is that perhaps the Swiss are going to start cooperating with governments to return money to its rightful owners. Madoff may have taken all the blame he could to keep the money hidden for family and co-conspirators, but that tactic can be seen through.

[agustusx]

the administration took 3 days to think over the AIG bonuses before going public against them. Obama stated, he liked to know what he was talking about before he spoke. I would not be surprised if the example you mentioned was not the norm.

But in reality no one should work for a dollar a year and expect bonuses, that means you already have Cheddar up the ass. I could not survive a week on a dollar. I am not saying the example you mentioned did not work for it or deserve it, but the last person i remember publicly stating he would work under such conditions was the head of ford, which deserves to go bye.


edit: btw your avi is much cooler upside down Ed!

[Ed Oscuro]

But in reality no one should work for a dollar a year and expect bonuses, that means you already have Cheddar up the ass.

Well, that's just one of society's little incongruities, I guess. Capitalist theory holds that it gives him an opportunity for reinvestment consummate with his contribution to society. As I believe I've stated here, the bonuses were effectively their salary anyway (and as the blooger stated, he probably wouldn't have gotten it anyway, and he may still not). He has his own personal funds allowing him to work for nothing, as he's intent on donating the money, and that's a separate issue from the bonus payment. Being personally financially responsible isn't any sort of crime.

How about - why should anybody be expected to work for a dollar a year? The head of GM, Rick Wagoner, is working for that amount; dunno about the other two Detroit Big Three automakers, and I believe the heads of some other financial firms are doing it. It may be with an eye towards future profits, but it seems to be quite a personal sacrifice these people are making (and then again maybe they just figure they won't get better jobs elsewhere so they'd better stick with the low figures until the market turns - that's not really what I'd consider to be a super cynical plan though).

[UnscathedFlyingObject]

Maybe I should've slacked off at my last job and I would still have it plus some mafioso style bonuses. Performing well and finishing projects ahead of time never got me a dime, just the fucking ax.

[Ex-Cyber]

I think all the talk of AIG bonuses misses the big picture. It's stupid and unfair, yes, but it represents less than 1% of their bailout money and it's just not worth the attention that's been spent on it as a specific issue. There are much bigger things that are broken and this feels like a distraction.

A new topic and a question: Is it time to whittle the wage gap between top-paid executives and junior employees?

Way, way past time. Apologists for massive executive pay like to claim that it's just market forces at work, but I don't see how that squares with the much lower executive/worker ratios in the rest of the developed world (I don't have a source handy, but IIRC we're talking about a difference on the order of 10x).

Should it be legislative or voluntary?

I don't think the two can really be separated; voluntary actions are shaped by the law and vice versa. I don't think an arbitrary cap is a good idea; maybe some kind of nonlinear tax (dis)incentive would work. In any case, the devil's in the details.

And if you say yes to the first question, any ideas on the potential for a future brain drain away from the U.S.?

Not appreciably more likely than it is now; where are they going to drain to? Besides, recent events have made it clear that a lot of these guys were never "brains" to begin with.

[Ed Oscuro]

And if you say yes to the first question, any ideas on the potential for a future brain drain away from the U.S.?

Not appreciably more likely than it is now; where are they going to drain to? Besides, recent events have made it clear that a lot of these guys were never "brains" to begin with.

I agree with you. Apparently the phrase circulating among bankers in late 2008 was "it's (or 'next') 'Mumbai, Dubai, Shanghai - or goodbye," but that became outdated pretty quickly as banking jobs dried up worldwide.

[Koa Zo]

I think all the talk of AIG bonuses misses the big picture. It's stupid and unfair, yes, but it represents less than 1% of their bailout money and it's just not worth the attention that's been spent on it as a specific issue. There are much bigger things that are broken and this feels like a distraction.

This is exactly how I've felt.
The bonus scandal seems like a smoke screen.
Where is the discussion about what is happening to the bulk of the bailout money?!
Why are companies that are owed money from AIG being paid $1 for $1, yet they are sitting on trillions of cash reserves?

Is Obama yet another puppet?

[Ed Oscuro]

Why are companies that are owed money from AIG being paid $1 for $1, yet they are sitting on trillions of cash reserves?

That's other people's money I believe you're talking about. The actual companies were often highly undercapitalized, which led to the breakdown.

[The n00b]

It's really hard for me to pick a side on the bonus issue. For one, many of these bonuses were stipulated in contracts by AIG before they received the stimulus money. Normally AIG could not have paid the bonuses due to a lack of cash flow but once they got the cash, they pretty much had to pay what was in the contract. I once got into an argument with a customer who's payment was off by 30 dollars so I understand the anger of these executives(a few million to them doesn't really matter but it's the principle of someone holding YOUR money).

On the other hand, it wasn't AIG's money to pay out and go about business as usual of running their business into the ground. This money came from the collective taxpayers of America, too many of whom are really hurting, and whose government really wanted to do some good. However, how come we get all crazy over AIG breaking contracts when we don't give a shit if Ford or GM break contracts with the UAW? Actually we encourage the big 3 to break contracts with the UAW. Now I know the UAW contracts are causing harm to their industry but SO DO THE AIG CONTRACTS.

[Ed Oscuro]

Marijuana?! Is it a good way to grow the economy, Mr. President?

Yes, said the President, I'll take the question. The answer:

“I don’t know what this says about the online audience,” the president said to much laughter.

“But, no, I don’t think that is a good strategy to grow the economy.”

I can't see how the President could've made a win out of promoting the legalization of pot, nor does it seem remotely possible he'd be interested in doing so when this last week has been nothing but evidence this Administration does not want to widen the range of public criticism against it, and does not want to open up new divisive issues. That's sound politics, more or less, if a bit gutless.

In any case, I think we might make some headway on the war against drugs, but we really need to pay more attention to the lessons of (alcohol) Prohibition. Marijuana isn't obviously a danger to society any more than alcohol or cigarettes are (in the case of cigarettes, probably considerably less).

Actually we encourage the big 3 to break contracts with the UAW.

A very minor point, but the contracts aren't being broken, just negotiated. Factory workers are more readily replaced than financial wizards, so the common wisdom goes. There have been four generations of families (at least) working at GM, but loyalty doesn't count for anything in the economy. Just an unfortunate reality.

[BryanM]

financial wizards

Put it all on black

[jonny5]

anybody who says money doesnt grow on trees is growing the wrong ones

[BulletMagnet]

How about - why should anybody be expected to work for a dollar a year?...it seems to be quite a personal sacrifice these people are making

Not really, considering that anyone else who'd performed as badly as they have would have been at least fired, and more likely imprisoned. The fact that these rats would even agree to such a thing just goes to show how little they actually have to worry about day-to-day.

A very minor point, but the contracts aren't being broken, just negotiated. Factory workers are more readily replaced than financial wizards, so the common wisdom goes.

Even if this is the case, one would hope that a "replaceable" but competent worker would be more likely to stay on the job than a "rare" but moronic one - seriously, if you need more people in a niche field, put out an offer to train them and you'll have a line out the door in an economy like this. Though of course what amuses me the most is how union contracts are endlessly "renegotiable" while executive compensation is utterly sacrosanct, even when the former party has next to nothing to do with the current mess we're in.

[Ed Oscuro]

How about - why should anybody be expected to work for a dollar a year?...it seems to be quite a personal sacrifice these people are making

Not really, considering that anyone else who'd performed as badly as they have would have been at least fired, and more likely imprisoned. The fact that these rats would even agree to such a thing just goes to show how little they actually have to worry about day-to-day.

I'm dying to see evidence most people at AIG were even aware of this, and of those who did - what, salesmen? Access to information, time pressures, and the simple apparent string of successes the FP unit achieved at one time would have kept whistleblowers silent.

Yes, it was a bad bet to allow some of these people more leeway in making decisions or selling assets, but until this year it seems the critical people - not just in the industry, but in government, and elsewhere - weren't convinced the potential for harm was really worth paying attention to.

Incidentally, the SEC is another popular target of misdirected rage, given that its talented workers are trading cash-in-opportunities for public service; at this point, it's hard to say the rage really should be aimed at and the easy political posturing opportunities these name-and-shame events hold is making it impossible for the public to remain sanguine about these situations.

A very minor point, but the contracts aren't being broken, just negotiated. Factory workers are more readily replaced than financial wizards, so the common wisdom goes.

Even if this is the case, one would hope that a "replaceable" but competent worker would be more likely to stay on the job than a "rare" but moronic one - seriously, if you need more people in a niche field, put out an offer to train them and you'll have a line out the door in an economy like this. Though of course what amuses me the most is how union contracts are endlessly "renegotiable" while executive compensation is utterly sacrosanct, even when the former party has next to nothing to do with the current mess we're in.

I actually made this point earlier. It seems that lots of financial professionals would be perfectly capable of "untangling" the FP "mess," although it's worth noting none of us have actually seen it. However, you sure as hell won't be bringing in factory workers from North Dakota to do this job - some jobs take advanced degrees.

But your point, and mine, that there's plenty of people to do the job stands. It's just that there were and are more sacrifices being made at AIG than people are aware of, so if people see that AIG catches shit all the time, they aren't going to work there. Who in their right minds would work while under attack from the Congress and the President? I wouldn't, and neither would anybody here, unless they were stupid or foolhardy.

[BulletMagnet]

Access to information, time pressures, and the simple apparent string of successes the FP unit achieved at one time would have kept whistleblowers silent.

"Access to information?" Considering that even now most of these companies don't need (and aren't volunteering) to tell anybody what they're doing with taxpayer dollars, there's no way that they would have been required to show jack diddly during the Bush years. Not to mention that supposedly even most of the people who "designed the system" have no clue how it actually works. Also, at what point was someone supposed to notice that the mounting "successes" were based on incredibly unrealistic assumptions?

However, you sure as hell won't be bringing in factory workers from North Dakota to do this job - some jobs take advanced degrees.

To some extent your point has merit, but on the other hand there are plenty of people who have fancy pieces of paper on their walls simply because of their parents' connections or some other undeserving reason.

Who in their right minds would work while under attack from the Congress and the President?

The execs who are keeping their jobs after driving their companies into the ground seem pretty eager to do it. On that point, "under attack" my ass - they're still having money shoveled at them without any notable restrictions on how they ought to use it or even needing to report what they're doing with it. They don't know what "under attack" is - as I've said, if I were in a position to "attack" them their companies would have been nationalized months ago and they'd be rotting in prison.

[Ed Oscuro]

Anyhow, France follows the lead! No bonuses for bailed out banks.
http://www.cnn.com/2009/WORLD/europe/03 ... index.html
There was a question as to what extent limits on banks should be made, but I think it's best to put some respectable limits in place now and let the lobbyists chip away at them later.

Access to information, time pressures, and the simple apparent string of successes the FP unit achieved at one time would have kept whistleblowers silent.

"Access to information?" Considering that even now most of these companies don't need (and aren't volunteering) to tell anybody what they're doing with taxpayer dollars

Completely missing the point, I'm afraid. I'm talking about employees, as individuals, caught in the trap laid by some of their colleagues.

The execs who are keeping their jobs after driving their companies into the ground seem pretty eager to do it.

I don't think you read the same article I did...

[BulletMagnet]

Completely missing the point, I'm afraid. I'm talking about employees, as individuals, caught in the trap laid by some of their colleagues.

I did overlook that to a good extent, but I still maintain that the problem wasn't that nobody noticed that something was amiss, but that they just didn't want to face up to it - not the same sort of criminal activity, but there was at least one guy who'd been trying to get someone to listen to him regarding Bernie Madoff for years, and nobody would give him the time of day even though he had the hard math to prove his case. Was everyone at every one of these companies "guilty?" No, quite a few were nowhere near the level where this stuff was taking place, but the guys who can turn up their nose at hundreds of thousands of dollars to "make a (very after the fact) point" don't get much sympathy from me.

I don't think you read the same article I did...

Actually I saw it in the hard copy of my paper yesterday morning. Either way the fellow's very much a minority - most of the high-level guys are staying right where they are.

[BryanM]

hard math to prove his case.

We don't take kindly to math in this country. Stuff like exit polling statistics that indicate voter fraud? Bah!

[GaijinPunch]

American International Group were being paid big bonuses for staying on. I always felt that the discussion was one-sided;

I don't have the time or energy to read your entire post (no disrespect), but large financial corporations traditionally fuck their employees (the ones at the bottom of the food chain) out of their bonus year end year out. It's a farce. There's always some exuse. "Well, your group made $90 million, but our credt department in Uruguay really took a hit". Blah fucking blah. The fact that they come back and say "we had to pay them" is horse shit.

I may not be the most senior person but I've spent most of my professional life in the industry. Your bonus is only good for the last year completed when your employer thinks you'll complete the next one. It's bait to keep them on the next year, and usually when the shit hits the fan, the banks simply say, "Sorry, nobody's getting paid, and you can't go anywhere else, so fuck off". When they can you, they don't offer your bonus, and unless you have it explicitly written in your contract (which most banks don't allow) you're up the creek w/o a boat. I've even heard of some people getting canned, and they try to get them to sign their bonus & benefits away right then and there. Best story I heard ended w/ someone writting "fuck you" on the entire page of the termination contract.

I'm sure there's some details on AIG's side I'm missing, but, being on the receiving end of the cutting stick before (and being told the exact same quotes above), I have no sympathy.

[BulletMagnet]

Stuff like exit polling statistics that indicate voter fraud? Bah!

Still doesn't stop the cons from using it as an excuse to reinstate the poll tax via a "national ID" to keep the poor away from the voting booths. But actually, you know, investigate Diebold? Blasphemy!

[Ed Oscuro]

American International Group were being paid big bonuses for staying on. I always felt that the discussion was one-sided;

I don't have the time or energy to read your entire post (no disrespect), but large financial corporations traditionally fuck their employees (the ones at the bottom of the food chain) out of their bonus year end year out. It's a farce. There's always some exuse. "Well, your group made $90 million, but our credt department in Uruguay really took a hit". Blah fucking blah. The fact that they come back and say "we had to pay them" is horse shit.

I may not be the most senior person but I've spent most of my professional life in the industry. Your bonus is only good for the last year completed when your employer thinks you'll complete the next one. It's bait to keep them on the next year, and usually when the shit hits the fan, the banks simply say, "Sorry, nobody's getting paid, and you can't go anywhere else, so fuck off". When they can you, they don't offer your bonus, and unless you have it explicitly written in your contract (which most banks don't allow) you're up the creek w/o a boat. I've even heard of some people getting canned, and they try to get them to sign their bonus & benefits away right then and there. Best story I heard ended w/ someone writting "fuck you" on the entire page of the termination contract.

I'm sure there's some details on AIG's side I'm missing, but, being on the receiving end of the cutting stick before (and being told the exact same quotes above), I have no sympathy.

I appreciate this post quite a bit actually, and I understand the busy part.

It's been noted that a lot of the bonuses were deferred, and a story like the one you mention happened at AIG, where they wanted to move a guy to another division and get rid of his bonus (something like $1.2M). He said no to the move and kept his bonus and got canned. That happened about six months ago.

If the bonuses could add up to 50% of somebody's salary, it seems a good guess to me that lots of people making less money at the company are basically making half the wage they expect now. This certainly includes the executives who were going to make the huge bonuses, but possibly also people who were getting the $50,000 bonuses.