Populist Outrage Over AIG Bonuses Scaring Private Investors Away From Buying Toxic Assets

from the backlash... dept

Before anyone gets that upset, I'll say that I'm pretty much in exact agreement with Adam Davidson from NPR's Planet Money when it comes to how to feel about the AIG bonuses that were big in the news last week. It's definitely disgusting and troubling to see the money handed out that way, but it's really a tiny sum in the big scheme of things, and there are a lot bigger and more important things that the government should be focused on. Besides, the populist anger is really misplaced -- often directed at the current management or the recipients of those bonuses, rather than those who put in place the contracts that made those bonuses required. But, the very fact that Congress spent so much time on it highlights something we warned about earlier this year: as soon as the government steps in to help a business, it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued. That will certainly limit what many companies are willing to do.

And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess.


Reader Comments (rss)

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    Anonymous Coward, Mar 23rd, 2009 @ 4:43am

    Considering that bonuses are often the majority of compensation for a large number of employees in these companies I think a lot of people really just dont know what they are talking about.

     

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      Anonymous Coward, Mar 23rd, 2009 @ 6:00am

      Re:

      Nah that's not it. The popular sentiment would be 100% spot on if the bonuses were not required. A fair chunk of AIG's bonus money was essentially paid for by the stimulus boost from the government they were given. That money was given so they could stay in business, not to pay for someone's yacht.

      As has been said, whomever made those contracts with the bonuses *required* to be paid, and whomever signed those contracts to make them binding, is entirely the person(s) whom should be the focus of the anger.

      Really, there should of been a clause that if the company was not doing well enough the bonuses would not be paid. The same reason that clause was not put in the contract is the same reason why no one would have an issue with that: AIG is "too big to fail" and "could never do poorly".

      That arrogance is partly why all these firms are having issues; they confused it with confidence.

      But yea. There should of been an escape clause and for the companies that didn't have an escape clause for those bonuses, they just should not have gotten any tax payer money. "Too big to fail" is going to do more damage to the economy from us trying to save them than anything else.

       

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    steve, Mar 23rd, 2009 @ 4:52am

    AIG bonus's just a scam by congress to hide their 81B set-asides

    This is just a way for congress to hide the 81 billion of personal set asides they added to the 'recovery' funding.
    Like those lying, cheating money suckers care about the taxpayers!!!!

     

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    R. Miles, Mar 23rd, 2009 @ 4:57am

    $0.02

    Before I continue, I just want to say I know nothing about the AIG news. Nor do I care to know. Just the rumblings about bonuses, but this was water cooler news.

    But, I will have this to say: People only have themselves to blame. They deserve this and every other bad news to come out from the government spending.

    Why? Because they did nothing to voice their objections regarding the bailout. When congress first denied it, people should have taken action to write their senator(s) to also deny it.

    The people of this country decided to sit back and do nothing. That is, until a "savior" came along requiring votes to take office.

    Now, they're doing what they've always done: whine and bitch about it.

    My stance has always been to let these companies fail, and yes, I've voiced my objection to the bailout.

    Little good it did, but I'm only one person.

    Imagine what would have happened if everyone got involved?

    The politicians, after all, are supposed to be working for our best interests.

    An interest no longer about the people, but for those who line those contribution pockets.

    So, to those who are angry at AIG but did nothing: Shut the hell up. Your punishment for doing nothing.

     

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    Lucretious, Mar 23rd, 2009 @ 5:07am

    it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued

    Not for nothing Mike but I've heard this same argument from the Wall Street apologists on various news programs. These companies had pretty much unfettered freedom and it was abused to the point that it basically crippled the economy.

    The "populist view" happens to come from the people financing this whole mess. You might want to be a tad less elitist.

     

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      jonnyq, Mar 23rd, 2009 @ 7:05am

      Re:

      The "populist view" is just reflecting what people are being told to be angry about. It's not an "elitist" view to direct outrage in the proper direction.

      First Congress writes a special provision into a bill that tells you to keep bonus contracts. Then, a couple months later, Congress acts completely surprised and outrages, starts holding hearings, and then demands their money back.

      So, as a business, you should be scared of dealing with the government.

      You don't have to be an elitist to pay attention and direct outrage toward the government for passing out money like candy and then getting pissed about it in the same breath.

       

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    JohnForDummies (profile), Mar 23rd, 2009 @ 5:43am

    In the grand scheme of things, $165M is hardly a dent in the $170B that was given to AIG.

    int molehill = 165,000,000;
    int mountain = 170,000,000,000;

    if(molehill != mountain)
    {
    molehill = mountain;
    }

    Like a magician, we're being distracted by one hand, while the left hand is doing all the 'work'. "Now for my next trick, I'm going to make ANOTHER TRILLION DOLLARS disappear."

     

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      Anonymous Coward, Mar 23rd, 2009 @ 5:56am

      Re:

      "In the grand scheme of things, $165M is hardly a dent in the $170B that was given to AIG."

      While this is true, and the source of all of these problems is the fact that bailout money was given to start with, I think it's highly important that these bonuses get covered by the media, etc. From a symbolic standpoint, they encapsulate everything that is wrong with these bailouts, and in a way that the public can understand. If the money was just disappearing into the AIG black hole, the people would assume that the government was doing something to help. With the bonus fiasco, they can now see the failures of the plan at work in easy to understand terms ("Oh, you drove the company into the ground? Here's a million bucks").

       

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      Anonymous Coward, Mar 23rd, 2009 @ 6:18am

      Re:

      Lol I love that trick

       

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      Anonymous Coward, Mar 23rd, 2009 @ 7:14am

      Re:

      "In the grand scheme of things, $165M is hardly a dent in the $170B that was given to AIG."

      XKCD sums up your point nicely:
      http://www.xkcd.com/558/

       

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    trollificus, Mar 23rd, 2009 @ 5:47am

    Sadly, true.

    If the gov't were to put on one of these circus acts trying to impose a fine on Satan, I'd have to wonder if he was getting a bum rap.

    Other problems, besides the difficulty of getting people to work at a gov't-held company when the terms of employment include "some public pillorying may be required" and "compensation may or may not be awarded, and if awarded, may be taxed at a bazillion percent":

    a) The AIG bonuses represent .001% of a "winner-take-all, steal what you can, while you can" mentality. Executive compensation, as currently administered, does not serve the economic interests of the nation, the fiduciary interests of the (often widely dispersed) owners or the long-term well-being of the companies involved and their employees. Screwing over a few execs at one company is just populist bread and circuses.

    b) Throwing out contracts at the whim of the government means throwing out the rule of law. How far down the road of the Zimbabwe Model do we want to go? Adding zeroes to our currency to "beat inflation"??

    c) When our government "deals with" any issue like this, it is a certainty that among the "dealers" will be the very people most involved in creating the problem (by ommission or commision). In this case, the same "bipartisanship" that gave us the ill-planned and costly Iraq War, gave us the market distortions of PC lending and mindless Fanny Mae Freddie Mac investment in derivatives. So that's bad, mmm'kay?

     

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    MadJo (profile), Mar 23rd, 2009 @ 6:04am

    Wasn't AIG the same company that used taxpayers money to send its boardmembers to a spa?
    And then we are surprised that they do a similar thing again?

    The company deserves to go bankrupt.

     

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    Anonymous Coward, Mar 23rd, 2009 @ 6:08am

    All the big bonus do is send the wrong message - if your a CEO and fuck up you get a big bonus. If you a little guy and fuck up you lose your job.

    It really pisses me off when the the CEO gets big bonus because there resource based company makes record profits (the CEO had little to do with the high prices of resources). Now this year the prices are crap so to keep the CEO around they give them another big bonus but also layoff hundreds of good hard working individuals to make the books balance.

     

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    Anonymous Coward, Mar 23rd, 2009 @ 6:25am

    Mike, you seem to miss the point.

    Yes, it's a small amount of money compared to the enormous amount given. But I have yet to hear one good reason why MY TAX MONEY even 1/10000000000000th of a penny is going towards patting some jerk on the back for destroying his company and my country!

     

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    Overcast, Mar 23rd, 2009 @ 6:30am

    You'd have to like be on crack to buy any of that stock.

    I mean - seriously; invest in a company that's ran themselves into the ground and then when the government bails them out; they blow money on resorts (don't forget the first big waste of money) and then they get more money and pay big bonuses?

    High risk is one thing; outright stupidity is another.

    I really don't think anyone who cares about their investments will ever invest in AIG again.

     

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    michael lockyear (profile), Mar 23rd, 2009 @ 6:48am

    AIG and the other bailed out companies are basically zombies...not quite dead, and not quite alive. Anybody doing business with them (not just employees) will now have to think twice.

    In there current state these "semi-failed" companies were always going to battle to attract the best and the brightest...the bonus issue will now make it even more difficult.

    Bailing out failed companies was not a very bright idea to start with...making it difficult for these companies to operate seems even more stupid.

     

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    DCX2, Mar 23rd, 2009 @ 6:50am

    Glenn Greenwald

    GG makes a great point. The sum of money involved may be small, but what we're dealing with is at the very heart of the issue. Here we have some people who, when it was obvious that the jig was up, wrote into their contracts that their bonuses must be no less than 75% of what it was during the good years. These people feel entitled to their millions of dollars regardless of their performance.

    This is the source of the populist anger. Capitalism does not reward failure. We are giving corporations the wrong incentives when we allow this type of unchecked and excessive compensation to occur. If anything, we need more public outrage.

    That said, I don't see why anyone would be upset if you bought toxic assets off of a corporation. I'm sure the average American understands the difference between the people who made the mess and the people who are helping to clean it up. Those who fear public backlash are likely looking for an excuse to rag on the taxpayers that are upset with them. It's a defense mechanism.

     

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    Jack Sombra, Mar 23rd, 2009 @ 6:53am

    The real problem with the bonus's...

    The real problem with the bonus's is that we all of have a general understanding that "bonus" means

    "Something given or paid in addition to what is usual or expected."

    Where in the financial sector bonus basicly means

    "Expected salary paid as lump sum for tax and financial reasons"

     

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    Chuck Norris' Enemy (deceased), Mar 23rd, 2009 @ 6:53am

    The Stink in DC

    I have never seen such grandstanding as there has been in DC over this. You want to know who is to blame. Congress! For giving AIG the bailout. Congress knew that some of this money was going to go toward bonuses when they passed the bill. AIG was upfront about it! Now that wind got in the press about it, the clowns in Congress are trying to blame AIG.

     

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    Anonymous Coward, Mar 23rd, 2009 @ 7:29am

    This reminds me of the situation in the UK with sacked RBS boss Sir Fred Goodwin, who is drawing a £700k a year pension from the bailed out bank.

    There's been lots of criticism, even the Govt and the Prime Minister have weighed in over it.

    The fact remains that it's a bit late now to be complaining about this, it's a product of how financial organisations have been allowed to operate. Goodwin has insisted on keeping his pension despite many calls to forgoe at least some of it. But he's got a right to that money, however much it might leave a bad taste in the taxpayers mouth.

     

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    Harmann Kahn, Mar 23rd, 2009 @ 8:23am

    These aren't bonuses as we know them, Jim

    These aren't performance bonuses, they're a tax dodge for the income personally agreed to by the very people who are receiving them. See, in the real world people get bonuses that are $500, or a month's pay, instead of four times as much as they make in a year.

    These people broke the world economy with their greed, they shouldn't be rewarded, they should be prosecuted on the behalf of the other 99.5% of us.

     

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    Pangolin (profile), Mar 23rd, 2009 @ 8:26am

    Outrage not enough

    There's an excellent article on the root cause of this "Crisis" over at Rolling Stone.

    http://www.rollingstone.com/politics/story/26793903/the_big_takeover/

    It's really good and explains why AIG is so important to this mess and how THE ACTUAL PEOPLE getting these bonuses deserve them (NOT) and just how screwed up the actual "bail out" is. It ought to be called a PARDON rather than a bail out.

    If you are upset about the bonuses wait till you read this.

     

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    Al-Anon, Mar 23rd, 2009 @ 8:26am

    This is a non-story being used to whip-up the "pitchfork" crowd into unwittingly supporting "The One's" Marxist agenda (like those Acorn types picketing AIG executives' homes and threatening their families). To support, I offer the following:

    1. The government knew about the bonuses and allowed them when the bail-out was crafted.

    2. The government is rather fond of expressing outrage about problems they themselves have caused, and are quite skilled at deflecting blame for political purposes (think Fannie, Freddie, HMO's, etc.).

    3. The bonuses are part of a contractual obligation, and the punitive confiscation law passed by the House is unconstitutional and will almost certainly be overturned by the Supreme Court.

    4. Many of the divisions within AIG WERE profitable...it was really just one unit (engaged in derivatives) that dragged the whole company down. Who has taken the time to figure out if the execs receiving the bounuses are part of the former group, or the latter?

    5. As the article points out, the $165 million is a small share of the total bailout. If Washington wants to "feel better" about bailout money being used for bonuses, just deduct that amount from the total eligible for bailout. Or, inform AIG that they have a choice - let the bonuses stand and forego future assistance, or convince the execs to return them in exchange for "goodwill" (i.e., bargin).

    I'm still laughing.

     

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      mischab1, Mar 23rd, 2009 @ 11:34am

      Re:

      I was under the impression that the majority of the bonuses being complained about were going directly to people in the deriviatives division that caused the problem.

      OTOH, I haven't bothered to verify that.

       

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    Liberty Dave, Mar 23rd, 2009 @ 8:49am

    Here's the deal...

    Government should never, ever, ever be giving out taxpayer money to keep a company in business. Never. Never ever. Never ever ever.

    So I definitely think people's anger is misplaced big time, they should be angry that the government is bailing out failing businesses. That is wrong, wrong, soooooo wrong!

    If a business is failing that's the market's way to telling that organization that it's ineffecient, and they'd better change things to become more effecient or leave the market and let effecient businesses handle things.

    If you keep a failing business afloat then you're ignoring the market's messages, which is bad in the long run. Companies won't learn their lessons, they won't have as much incentive to make good business decisions if they can just get bailed out by a government that steals from its citizens and bails them out.

    This whole thing is disgusting, with bailouts of our failed banking system that doesn't operate in the free market, to the bailouts of companies that scream "we're too big to fail!"

    Bullcrud...no company is "too big" to fail.

     

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    John Dole, Mar 23rd, 2009 @ 9:29am

    no way to modify past agreements

    AIG execs and management should in no way have to renegotiate their bonuses just because the company they worked for is bankrupt and needs to be bailed out to help save the economy. Why doing so would be Marxists socialism!!!

    That is the way it should be, unless we are talking about renegotiating contracts of those dastardly unions in the automotive industry. Well those guys are just regular workers so there shouldn't be a second thought to changing their contracts.

    To all who can't see the obvious, there is a stark double standard when it comes to regular workers and so-called elites.

    btw, AIG isn't in bad shape because of invisible market forces, it and a large number of banking institutions are in trouble because they were allowed to be incredibly stupid with their money and business practices. This was because of a lack of regulation. Regulation that hindsightedly Alan Greenspan now sees as necessary.

    So we allow that stupidity to enter us into a new great depression (thank you Hoover) or 'we' (the government) do something about it.

     

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    Alex Hagen, Mar 23rd, 2009 @ 9:32am

    Bullshit

    "And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess"

    Bullshit. Complete and utter bullshit. The fact that no one wants to buy toxic assets has exactly ZERO to do with the reaction from the American people and congress to AIG's bonuses. They don't want to buy them because they are toxic. They didn't want to buy them before the AIG fiasco, they don't want to but them now, there is no real benefit to them buying them, but they are being pressured to do so. Of course they are looking for any reason, other than "we don't want to" to say no.

    It would certainly give a company pause in taking free money from the goverment, but that is certainly not a bad thing. I WANT companies to be extremely desperate before accepting bailout money. The more strings the better.

     

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    bob, Mar 23rd, 2009 @ 10:22am

    Smoke and Mirrors

    The CBO says that Obamas economic plans will triple the national debt in a decade, woohoo we are on the road to third world status with the international banks running everything.

     

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    Anonymous Coward, Mar 23rd, 2009 @ 10:39am

    The NY Service Employee's union picketed in front of AIG headquarters.

    Now why would a group of union employees picket? Obviously their union heads told them to, they don't just sit around thinking "who should we picket next, unless its Trump, that's probably usual.) Why would their union leaders tell them to picket in front of AIG? AIG throws hotels and restaurants lots of business, so that is kind of their customer. Their union heads must have gotten a call from someone telling them to get their members to protest.

    Now, who would have made that call? I am pretty sure that the service employee unions are not big supporters of the Republican party. Must have been the democrats.

    Now ask yourself why when Obama is saying that taxes on the bonus are a bad idea (yet it passes the house) what is actually going on?

    What you are seeing is theater, it is a set up for what comes next. Nationalized banks. Nationalized Wall Street, Nationalized health care. This is the game plan folks. Get people screaming about one thing that sets up the master plan.

     

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    Liberty Dave, Mar 23rd, 2009 @ 12:26pm

    To John Dole

    "btw, AIG isn't in bad shape because of invisible market forces, it and a large number of banking institutions are in trouble because they were allowed to be incredibly stupid with their money and business practices. This was because of a lack of regulation. Regulation that hindsightedly Alan Greenspan now sees as necessary."

    You're partly right in your assessment, that AIG and others aren't in bad shape because of "invisible market forces". They're in bad shape because the government keeps interfering with said "invisible market forces".

    More regulation is NOT needed. We already have a heavily regulated economy as it is, and look what happened.

    And banks and other institutions weren't just making bad investment decisions on a whim, the government was forcing banks to loan money to people that they wouldn't have loaned to in a free market.

    Alan Greenspan made the remark that he saw a flaw in the free market system, but we don't have a free market in this country!

    A truly free market doesn't have a money czar like Greenspan at the head of it to mess with interest rates, and in this case lower them abnormally thus sending the wrong signals to investors in the marketplace.

    A free market doesn't have 4 congressional committees over-seeing the "unregulated" Fannie Mae and Freddie Mac.

    If the free market were allowed to actually function in this country we would have much less catastrophic recessions and depressions.

    Government interference in the marketplace is what caused our current financial crisis, which Ron Paul and others warned about (you know, people that actually understand economics). Anyone that says it was the free market at work has been listening to Barney Frank, the idiot of the ages, far too much.

     

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    Lucretious, Mar 23rd, 2009 @ 12:56pm

    from your post I assume you agree that these companies shouldn't be bailed out?

     

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    Liberty Dave, Mar 23rd, 2009 @ 1:53pm

    Correct

    If you're talking to me, Lucretious, then yes I agree that these companies shouldn't be bailed out. No company should ever be bailed out by taxpayer money under any circumstances, in my opinion.

     

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    StephanieInCA, Mar 23rd, 2009 @ 2:30pm

    Every time I start to lose my ire about this whole AIG fracas, I just go back and watch some of the AIG ads from a few years ago. Gets me all worked up again in no time. Interestingly, AIG has removed its ad gallery from its site, but you can still find some of the ads here: http://urbzen.com/2009/03/23/too-big-to-fail-fail/

     

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    Dan, Mar 23rd, 2009 @ 2:54pm

    Could we apply the same penalties to these crooks that are applied to down loaders? Like a 425,000 X multiplier? Seems fair to me.

     

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    Clueby4, Mar 23rd, 2009 @ 6:41pm

    Some regulations

    Regulatory reform, or even a pulse would be nice.

    Where are the perp walks, and Madoff doesn't count.

    It seems every few years, (eg Junk Bond scam, Saving & Loan scam, EnronArthur Anderson scam) we have some form of finacial FRAUD scheme and only a few scapegoats are displayed to appease the masses.

    Then again, you wouldn't hear a peep out of me if the bailout bill had component that using the term "Free Market" results in immediate commitment and be placed on some common-sense offender list.

     

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