Man the media is getting all up in a hissy-fit about this AIG bonus thing. And when the media tells you to care, you listen. In turn, now the public is mad. Since the public is mad, now Obama has to waste time pretending to be mad. The Weakonomist must confess to a tweet or two about it himself, but only out of fascination for the subject.
Remember last week when I was all mad about Geithner and called for his ‘resignation?’ Well this week is the perfect example of why. But hold that thought for a second, first let’s get a trivial matter out of the way.
Why did AIG give those bonuses knowing full and well we’d get pissed?
Simply put, they had no choice. Unless investigators find some conspiracy, all we’ll learn is AIG was legally bound to give these bonuses. It is no different than you having a contract with a landscaper. If he doesn’t do the work, you can sue him for your money back. If you don’t pay him, he can sue you for the money. If AIG didn’t pay these bonuses, they would face lawsuits that would cost the company more money than just giving out the bonuses. You can talk until you’re blue in the face about using government money, but even the Supreme Court will uphold a contract that costs the country millions. You can mumble to yourself about how bad these contracts where, but the fact of the matter is these contracts existed prior to many of these problems, and they are legal.
Now back to the finger pointing. This debacle has raised all of those questions about corporate greed that come up at least every 35 seconds once again. The simple fact is the government could have stopped this from happening in two different ways and did neither. Whose fault is that? Geithner’s, and the Fed and Geithner’s predecessor – Hank Paulson. You see as head of the NY Fed, Geithner was one of the engineers of the first bailout of AIG, and has since been involved in every AIG matter since. Now he’s basically in charge of it, and, as AIG claims, he approved the bonuses just last week. But that’s just an anecdote.
As I said, there were two ways Geithner and his pals could have kept these bonuses from happening:
A) Force AIG into bankruptcy. Had they done this from the start the AIG executives would have had to get in line to receive what is contractually theirs. In a controlled bankruptcy backed by the federal government, they could have at least reduced the bonuses if not eliminated them all together.
B) Blackmail. You dangle the money over the heads of AIG and force them to renegotiate their contracts with the executives. Then AIG could just go to the execs and say, “renegotiate your bonuses or we go into a non-government-sponsored bankruptcy and you’ll lose your job and your bonus.”
But the government didn’t make any requirements like that. The three architects of this bailout were Bernanke, Paulson, and Geithner. Paulson is gone, Bernanke is too well respected for everything else he’s done, which leaves Geithner to burn. So if you want to grab your pitchforks and torches and go on a witch hunt, walk passed Wall Street and head straight towards Pennsylvania Avenue.
Late last night it was announced that Geithner will remove the amount of the bonuses from the money they planned to give them. Such a reactive measure is the perfect example of Geithner’s ignorance. But such as is the American way, you won’t even care about this come next week, and the world keeps spinning.
Photo: markbarky
 By The Weakonomist |
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Said,
This really tweaked me for the exact reason you pointed out: the government never bothered to build in safeguards against this very thing when they plainly had the ability to.
Now, they’re screaming moral outrage and demanding their money back in a situation where the contracts remain valid? What gets everyone’s hackles up is that without government funding, the company would be bankrupt and this wouldn’t be an issue. Instead, shortsightedness prevailed, the bailout was rushed through, and potential ramifications & situations like this were ignored, dismissed, or not even considered. If the government is aware of basic compensation practices, the thought should have occurred to someone that these execs were bound by contracts. After all, the media’s been screaming about CEO compensation for how long, now?
Of course I’m peeved that the bonuses were paid out, but the proposed fixes were even more boneheaded. Threatening to tax the money back? Yeah, that’s a prudent precedent.