Wednesday, March 18, 2009

AIG Exec Bonuses: "Logic" Critiques (post 1 of 2)

Dear all,

I am contributing to the blog, Obama IS America!. I just read 2 articles - one in the NY Times and one on Anderson Cooper's blog. These articles ENRAGE me. They discuss reasons for why the government and other entities are justifying GIANT corporate bonuses to AIG.

To me, the logic being used is complete and utter bull**** of the stankiest kind. It makes me think that the 'powers that be' think that I am stupid. Well, unfortunately for them, I am not.

Let's review the "logic" for why bonuses should be paid, as expressed in these articles.

I am going to write 2 blog posts - one for each article. This post will be on the NY Times article, called "The Case for Paying Out Bonuses at AIG," written by Andrew Ross Sorkin.

The second blog post (which you can access by clicking HERE) will critique the Anderson Cooper blog post written by Ed Henry. This article presents the "logic" of Obama's chief economic advisor Larry Summers as well as Treasury Secretary Timothy Geithner.

I will present the argument of the NY Times article (as represented by direct quotes from the article itself), and will then critique it. I will then do the same with the AC blog post.

NY Times:

1. Excuse for why they should get their bonuses #1 - The 'fundamental value' of contracts is sacred, and should not be messed with, even in this situation. Quote:

...The “fundamental value” in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

2. Excuse for why they should get their bonuses #2:

A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

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.

3. Here is the logic for why bonuses were written into executive contracts in the first place:

A.I.G. knew it needed to keep its people.

That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)

“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.

4. This article even seems to attempt to envoke pity or empathy from the reader for these executives - note the sentence in parentheses above stating that Mr. Liddy is earning '$1' a year. Yes, that would be $1, 000,000. The article then continues with:

“The jobs are terrible,” said Robert M. Sedgwick, an executive compensation lawyer at Morrison Cohen who represents a number of employees of banks that have taken government money. “You have to read about yourself in the paper every day. These people are leaving as soon as they can.”

4. Finally, the article concludes with the following sentence. 'You' refers to us, the readers/taxpayers/people being screwed over:

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

So, using this brain that I have been giving and drawing on my knowledge of economics, politics, the law, history, and government action, this is what I think of this "logic":

1. Honoring contracts is, of course, important. Extremely important, especially because contracts legitimate, limit, and delineate so many transactions and relationships in American society, which are only made using contracts because people know that once you sign something you are legally bound to honor what you sign. The importance of upholding contracts is a KEY part of American law and the American Constitution.

HOWEVER, legalese, or legal language is quite amazing at including endless stipulations and limitations to anything and everything. Say, for example, that President Obama signed an executive order (the favorite tool of Bush to make legal whatever he wanted to) that nullified the contracts of AIG corporate executives. There is pretty much no end to the amount of stipulations he could include in the executive order to preserve the sanctity of contracts in general (right, lawyers out there?), in the meantime ensuring that this blatant robbery is stopped. He could say that this executive order ONLY applies in this specific instance due to the nature of the circumstances, being that - AIG is now 80% owned by the people to whom the government is primarily responsible according to its contract with the people (see THIS article); the greed and gambling of these corporate executives is responsible for the loss of lifetimes of savings of the American people/primary shareholders of AIG;  their greed is also responsible at least in part for economic recession around the world.

Additionally, talking about precedent, if the government shuns the outcry of the people - whose interests it is supposed to be primarily representing because this is a Democracy/Republic, and the people are supposed to be the government - it will essentially be choosing to take the side of business over the people. That cannot be a good precedent to set, in the least.

I would also like to note that if the California Supreme Court decides to nullify the 18,000 gay marriages in California, then the government would be nullifying contracts signed between American citizens. I certainly have not heard any outcry anywhere with regard to how terrible and illegal it would be if the government decided to override the power and sanctity of contract with regard to these married couples. At this point, it is pretty unimaginable that someone would say something like "If you think this [country] is a mess now, imagine what it would look like if the [American people] started to worry that the government would start abrogating contracts left and right." Those gay couples and all couples that get married before the law sign marriage contracts because of their faith in the power of the contract and the power of the US government to uphold those contracts. 

2. "AIG built the bomb and is the only entity that knows how to diffuse it." Come on folks, banking is not rocket science. When the atom bomb was built, there were only a handful of people who knew how it worked. AIG is a financial institution and the greedy corporate execs no doubt went to top US business schools and were taught by top notch professors. Well, where are those professors now? Let's put them and their knowledge to use! No matter how messy this AIG situation is, I am SURE that there are people out there with the mental capacity to figure out how to unravel the AIG mess BESIDES the very same bankers who caused this mess in the first place.  Also, just for some context, what if someone had made this same statement about Bush and the war in Iraq?: "Bush built the bomb and is the only entity who knows how to diffuse it." Yeah. Right.   Do I even have to say more?

3.  The fact that AIG's CEO is 'only' making $1, 000, 000 a year really does not make me soften up to this man in the least.  Particularly considering the fact that so many people and families are losing homes and jobs that 'tent cities' are starting to spring up around the country, particularly in California.  And this man is still a millionaire!  Further, saying that 'the jobs are so terrible' and hearing that these 'poor' executives have to read about themselves in the paper everyday also does not strike pity into my heart. I think that not only should these people be reading about themselves in the paper, but they should be forced to meet with the people they have screwed over and they should see their faces and names plastered all over every media outlet in existence.  They should not be allowed to just walk away silently and privately from this job and this mess with millions of dollars.  If they are fighting for public money, their faces and identities should be made public so we can see who it is that we will now be working for.

4. How is it possible that other companies in the financial industry could possibly swoop these people up to use them against the taxpayers? Do these people completely lack any sense of morality whatsoever?  Why are we giving the financial sector billions of dollars without provisions to protect us from future abuse from greedy bankers/corporate executives? I take it that protections are lacking, considering the inclusion of the idea in Sorkin's article that AIG execs could be swooped by other companies that will then cause more ills for the American people.   Additionally, why is it that the only industry that seems to lavishly reward people for incompetence, greed, and failing miserably at their job is the financial industry? If those morons were working pretty much anywhere else, they would be out on the streets to join the tent communities by now. I think it is ridiculous that this 'top talent' will be so 'easily swooped up' by another financial company against which I have no protections.  That is an f'ing joke. 

If the US government can pass the Patriot Act, take away the rights of American citizens in the name of 'national security', torture people in Guantanamo Bay, pass these bailouts in the first place, start wars in other countries (against international protocol), and do a million and one other things that I don't agree with or know about but for which I am paying, I don't understand why the government can't stop these ridiculous bonuses from being paid. 


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