A Friend Stopped By | 03/16/2009 7:45 am

So, the Boys at AIG Are Getting a Bonus? Ask Shelby White

By Shelby White

Editor’s Note: Shelby White is a New York-based writer whose work has appeared in Barron’s, The New York Times and Forbes. She is the author of What Every Woman Should Know About Her Husband’s Money, published by Random House in 1992.

So the boys at A.I.G. are getting a bonus. Seems to me someone has it backwards. According to the report in The New York Times, the money is a retention bonus. But why would anybody want to keep those same fellows who got A.I.G. into all that trouble? If the numbers are correct, total retention pay was slated to be $450 million. This caused even Secretary Geithner to complain, so in response to pressure, A.I.G. agreed to reduce its 2009 bonuses by 30 percent. And Mr. Geithner garnered a further concession when A.I.G. agreed that $9.6 million slated to go to the 50 top executives would be cut in half with part of the money tied to performance.

Wait a minute. While it’s been a (very) long time since I took high school Latin, I still know that "bonus" comes from the Latin word for good. So how can this money be called a bonus? I propose that, instead, we institute the "malus" (again, my high school Latin – but this time a made-up word for bad). The "malus" would make the boys give back money until A.I.G. made a profit. Sounds fair to me.

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And then of course there’s the billions they’re sending to Europe—AIG has become a major joke and needs to be reined in by government fiat. The execs need to be summarily fired and the bailout money, what’s left of it, returned to the Treasury.

By f p on 03/16/2009 8:11 am

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I believe the bonuses are to be given to "keep the talent in place". lolol What talent?

By f p on 03/16/2009 8:21 am

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Apart from AIG’s sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that’s "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG’s bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.

the above a segment from Reich’s article on Huff. Post

By phyllis Doyle Pepe on 03/16/2009 9:47 am

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The question that arises most forcefully now concerns the nature of capitalism and whether it needs to be changed, Some defenders of unfettered capitalism who resist change are convinced that capitalism is being blamed too much for short-term economic problems–––problems they variously attribute to bad governance (for example by the Bush administration) and the bad behavior of some individuals (or what McCain described during his campaign as "the greed of Wall Street"). Others do, however, see truly serious defects in the existing economic arrangements and want to reform them, looking for an alternative approach that is increasingly being called "new capitalism". This is the kind of discussion we should be having instead of taking on the stance of the big bad wolf trying to blow the house down now that the straw and the sticks haven’t held and we are trying to build it again, brick by brick. Ain’t easy!

By phyllis Doyle Pepe on 03/16/2009 9:54 am

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Phyllis,

I agree that the government is helpless in all of this mess. "Too big to fail" is one of the most stupid statements that I have ever heard. More to the point "The bigger they are the harder they fall" - on top of all of us. I don’t believe the government should take them over because when the government does something they don’t know how to do, it costs we the taxpayer even more money. AIG is so large because it acquired other and smaller corporations. The govt has required them to sell off many of those entities, and I am sure that will happen with Citi. I think the government must now regulate how large a corporation can become. What happened to the anti-trust laws? I believe we will see that happen to many more corporations, as well it should. The trusts get the busts.

I am concerned on the one hand that if foreign interests come in and buy them that could open a whole new can of worms. Or if China wants a piece of them as collateral for our debt, then they hold the keys to our way of life. That might be far fetched, but they may require us to make more changes, reduce the budget, etc. in order to fund our problems. I think the anti-trust laws were ignored because India and China have and are becoming huge players in the economic field. I believe the thinking was that if we had large corps that could consolidate and compete in the global market, our economy could withstand their emergence as competitors. Unfortunately, those corps sent many jobs over to those countries so the guys on the top would make more money. I realize that this view is somewhat simplistic, but I think that is another reason why the gov did not hamper illegal immigration. Cheap labor to compete, while working Americans were losing manufacturing jobs.

By Frannie Em on 03/16/2009 5:01 pm

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Appreciate your response, Frannie, and I agree with your concerns. Re: China: there has been a sharp halt in the progress of health and longevity in China following its abolition of universal health coverage in 1979. Before the economic reforms of that year, every Chinese citizen had guaranteed health care provided by the state or the cooperatives, even if at a rather basic level. When China removed its counterproductive system of agricultural collectives, communes and industrial units managed by bureaucracies, it thereby made the rate of growth of gross domestic product go up faster than anywhere else in the world. But at the same time, led by its new faith in the market economy, China also abolished the system of universal health care; and, after the reforms of 1979, health insurance had to be bought by individuals (except in some relatively rare cases in which the state or some big firms provide them). So––––it is experiencing much of what we are going through re: that issue. The other problem for China is when its economy decelerates sharply, as it is currently doing, the government, like ours, will gradually have to introduce health insurance for all. I bring this all up because it is an example of how we, and not only this country, have to rethink our policies––our ways of governing. Just this matter of health care is a central element in tackling these economic debacles as well as achieving long term transformations. Perhaps a new capitalism is a little drastic, but this economic crisis does call for a new understanding of older ideas, coupled with some newer ones——-a clear-headed perception of how different institutions actually work, and of how a variety of organizations——-from the market to the institutions of the state——-can go beyond short-term solutions and contribute to producing a more decent economic world. Amen, Frannie, let’s have another cup of tea.

By phyllis Doyle Pepe on 03/16/2009 5:54 pm

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Phyllis

Great post. Yes, I will take some more tea as well.

By Frannie Em on 03/19/2009 1:47 am

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Beau Radley, perhaps the apparent “talent” is valid in the eyes of those who are familiar with that kind of talent and can recognize its value. This point is beyond my ability to evaluate. However, my question is “Where will the talent go if they are denied this AIG bonus which they feel entitled to”.

I am in complete accord with the other suggestions you outline.

By Lauriate Roly on 03/16/2009 12:10 pm

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Lauriate

"Where will the talent go…."

I heard that some of the banking talent was going to South American - I believe Brazil. They don’t like their paychecks being decided or capped by the government. Well, if they go they go - good riddance. I think we have to regulate business, but the players actions have to be under review as well. Gone are the days of anything goes, because almost everything went.

By Frannie Em on 03/16/2009 5:09 pm

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How to stop the bonuses? The Internal Revenue code:

Treasury Secretary Tim Geithner should direct the Commissioner of Internal Revenue to challenge the AIG bonuses as unreasonable compensation under the Internal Revenue Code. Finding the AIG bonuses to be unreasonable compensation would render them nondeductible for federal tax purposes, and would strengthen potential shareholder derivative suits to recapture The Great AIG Giveaway.

Section 162(a) of the Internal Revenue Code declares:

"There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including … a reasonable allowance for salaries or other compensation for personal services actually rendered."

By f p on 03/17/2009 6:55 am

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The bonuses are an incentive package agreed apron by the Board to pay certain executives who have met there numbers for the year end. Bonuses have nothing to do with "keep the talent in place"!

But this does tells me a lot about your lack of knowledge in this area.

Two-Faced: Dodd Protected Bonuses, Now He Wants Them Out

Democratic Sen. Chris Dodd is now pushing the idea of taxing AIG bonuses. But this is the same Dodd who inserted language in the $787 billion stimulus bill that exempts the $158 million in taxpayer-subsidized bonuses from taxation.

Dodd is a first class idiot! How is this guy still in Congress?

By Lori F. on 03/17/2009 7:35 pm

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Yeah, and the Treasury owns 80% of AIG so they have the authority to do so. If you’re going to own a business - RUN IT!!

By Lila Kuh on 03/16/2009 8:28 am

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Beau Beau Beau, the TARP money received by AIG from the Congress had no stipulations attach to it. The idiots in Congress put no stipulations on the TARP money and how it would be use. The bonuses to be given to some executives are contracted bonuses that was written in long before the TARP money was in place.

The government can’t do anything about this!

By Lori F. on 03/16/2009 12:22 pm

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Oh yes they can—-watch! Pragmatism rules using action! Idealism is in the minds of dreamers. the ideal is a combination of both…..As you know, owners are the shareholders…..the BOD is responsible —has a fiduciary DUTY to the shareholders, and to the ongoing-ness of the company…..especially when the compnay officers are working AGAINST the success of the company….now…..the BOD that approved those bonuses, in light of the fact that the company was failing—-suggest the BOD failed in their fiduciary duty by givin them the OK…..What that means is that each individual member of the BOD can be sued for their lapse in wisdom….they are NOT deemed part of the company—-they are oversee-ers. When the first member of the BOD finds himself in a lawsuit for failure to perform his fiduciary duty to the shareholders, and other owners of the company—-thing will change faster than lightening! Add to the mix, the FACT…that it is WE THE PEOPLE that OWN 80% of AIG….We hold the majority of the shares…we can EASILY vote OUT the CEO, the Officers, even the BOD members…..for what reason? A goal of being in business, and issuing shares, is to grow the COMPANY…not the pockets of the bonus-mongers….and…well…the company lost money, there are even major questions of fraud and corruption—-nd that, dear one….is why you are in a state of misunderstanding as to WHAT the Government CAN do! You may want ot go back to Business 101….

WE THE PEOPLE can actually fire every one of those crooks. You know, if they sold me an insurance policy on YOUR house, so that I collected money when YOUR house burned down….wouldn;t you want to know why and how they could get away with it? You wouldn;t get the money—-but I would. In most of the world—-that is illegal—-that is what AIG did that got them into this mess……

By Patty E on 03/16/2009 3:21 pm