AIG's Dysfunctional Managers and their Bonuses
I am not sure that the American taxpayer should even honor a contract that appears fraudulent in origin. The 2008 bonuses in these contacts were awarded at the same robust levels as 2007, even though these contracts were written when it was quite clear that the financial climate had chilled. Maybe questions about these contracts should be answered in a criminal courtroom.
Employees of profitable divisions of distressed companies such as the auto industry understand that they have to forgo their bonuses until the whole company is profitable. Why should Wall Street be any different?
As outraged as I am, Congress has turned AIG into a punching bag. Senator Chuck Grassley (R-Iowa) recommended in a radio interview that AIG executives "follow the Japanese model ... resign, or go commit suicide." An aide later clarified that the senator "does not actually want executives to kill themselves," but he should not have to. Is a member of Congress actually advocating suicide as a solution for a crisis caused by a lack of government regulation? If that is the case, maybe he should also do the honorable thing.
Congresswoman Carolyn Maloney (D-New York), who usually only gets her panties in a bunch about guns, is calling for a 100% tax on AIG bonuses. Congress is now calling for a 91% excise tax on the bonuses.
America, a country founded on the principle of equality, can not seriously be considering taxing specific employees of one company a different way than all the rest of the workers of the country. What's next? Will employees of Wall Street firms that earn bonuses have to wear yellow stars and live in a special ghetto?
The attorney general of New York, Andrew Cuomo, has joined the fray by subpoenaing the list of AIG employees that received bonuses. "The whole concept of a performance bonus to me is oxymoronic when it comes to AIG," said Cuomo.
The real outrage at AIG is not the $165 million in bonuses paid to employees. It is something 1000% bigger. Eliot Spitzer, disgraced former New York governor and attorney general, puts the whole story in context: "The real scandal at AIG is not the bonuses. It's that AIG counterparties are getting paid in full.
Current NY Attorney General Cuomo also argues against paying the counterparties in full: "If the taxpayer didn't bail out AIG, those contracts wouldn't be worth the paper they're printed on."
It should be a surprise to no one that the Bush administration's, particularly Treasury Secretary Paulson's, favorite charity, Goldman Sachs, leads the list of AIG counterparties by receiving almost $13 billion of American taxpayers' money. There is no good reason that AIG did not negotiate a haircut on the contract with Goldman Sachs. In effect, Goldman Sachs, the richest firm on Wall Street, received a bailout from the American taxpayer. Many of whom are being thrown out of their houses. An additional $24 billion of our cash has gone abroad to foreign banks to satisfy their AIG contracts.
Stay tuned. I am betting that AIG will continue to make our blood boil. The senior management there refused to accept that the financial world has changed and that they can not continue to operate as they did in the past.