The other case for bonuses at A.I.G.
In today’s New York Times, Andrew Ross Sorkin maintains that A.I.G. should pay out its $165 million in bonuses because its contracts obligate it to do so and because it needs to retain its executives to extract the company from the mess it’s in. Both of those reasons are stupid. First of all, the government has enforced the breaking of several mortgage contracts to stem the tide of foreclosures. Contracts are broken all the time in bankruptcy, and A.I.G., without taxpayer support, would have ended up where? Yes, that’s right: in bankruptcy. Extreme times call for extreme measures, and I think the unprecedented government equity stake in A.I.G. makes rescinding the bonuses possible without setting us down some slippery slope to the point at which all contracts are meaningless.
As for Sorkin’s point about retaining talent, haven’t these people already done enough damage? And aren’t financial professionals readily available right now? The argument seems less than sound to me.
But here’s the real case for paying out the bonuses: They’re really not that much. We’re talking about a bonus pool that is like one fifth of one percent of all the money that the government had put into A.I.G. It’s like the value of C.C. Sabathia’s contract. In other words, as symbolic as these bonuses might be, they really don’t make much of a difference. Now, what is a bigger problem and worth fighting over is the fact that A.I.G. is paying out 100% of its obligations to the banks with whom it holds contracts. We’re talking about tens of billions of dollars flowing from taxpayers through the government, through A.I.G., and on to the banks without anyone, as the MBAs say, taking a haircut. Even shaving off one percent here would save far more than the total bonus pool that everyone’s raising a fuss over. Now, haircuts, my friends, are valuable enough to raise hell over.
