Another weekend, another round of AIG revelations--this time news that AIG is about to pay out $165 million in bonuses to employees in its Financial Products division, the same geniuses who made the bets now roiling the financial markets. Apparently the $165 million is part of a pool of more than $400 million in bonus money AIG agreed to before the government started propping it up last year. The upshot is that there isn't a legal way to block it.
I guess what's outrageous is less the payment of bonuses per se--there are people who do profitable, even socially useful, work even in companies that are melting down, so it's no so surprising that some would be in line for bonsuses (even if the visual is terrible)--than the insane way the bonuses appear to have been structured. Just deducing based on what we know--and there are a lot of missing details--it almost looks like the money was guaranteed to the Financial Products people precisely because their unit was losing money and their normal bonuses might suffer as a result. Which is kind of the opposite of the way a bonus is supposed to work, if I'm not mistaken. Here's The Washington Post, which first broke the story:
That executive also noted that the retention bonuses at AIG Financial Products were put in place in early 2008 at a time when it hadn't yet melted down. "They knew that the book was running into trouble," the executive said. "They thought they could weather the storm. But they thought they needed to keep people in their seats. They were worried."
Then, of course, everything changed. Financial Products kept posting bigger and bigger losses, burying AIG under a cash crunch from which it has not recovered.
Since that collapse, company officials say, many Financial Products employees have lost nearly two-thirds of their compensation under the firm's deferred payment plan, in which bonuses are doled out over several years based on the firm's profitability.
Again, I could be misinterpreting this, but it sounds like the point of the "retention bonuses" was to compensate people whose normal bonuses were evaporating because of the losses they were generating. This seems counter-intuitive at best.
As for the politics, I believe that administration officials--Tim Geithner in particular--are genuinely outraged over this stuff. Still, some of what's come through in the reporting seems less like genuine outrage than outrage manufactured for public consumption. (Which isn't a bad idea given the likely reaction--better manufactured outrage than no outrage--but a little more authenticity wouldn't hurt. It's a once-more-with-feeling kind of thing.) Take for example this quote from the Times:
The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.
Not the most spontaneous-sounding response I've ever heard.
--Noam Scheiber