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The Aig Bonuses As Protection Money

Probably the biggest question people have about the AIG derivatives wizards who just pocketed $165 million in "retention bonuses" after nearly vaporizing the global economy is: Why on earth would we want to retain them? Why not just show them the damn door?

Well, Andrew Ross Sorkin, who writes the Dealbook blog for The New York Times, has a disconcerting explanation:

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments. ...

Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work — against taxpayers’ interests.

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.

Feel better now? Me, too.

--Noam Scheiber