AIG Bonuses

As one of the millions of witnesses to our economy’s collapse, I have been watching with great interest what is happening with the bailouts. The one I am referencing here is the original 800 billion that our government handed out (on the peoples behalf, because it is our money and our government) to various financial institutions including banks and insurance companies. Part of this money went to AIG and, if you have been watching headlines recently, you will note that AIG paid out some bonuses to certain employees.

I am going to be honest here. When I first heard this I was not very happy with AIG. These people are paying bonuses out of the money that we had to give them to stay afloat because they ran their business poorly. They shouldn’t be able to do this. They should be using that money to make sure their company stays in business because someone decided they were too much an important part of our system to fail. Wait a minute. Who decided that? Well, if I am going to give money out of my pocket to help a person who has a track record of being financially irresponsible….. Wait a minute. I wouldn’t do that. This is when my thinking changed on it.

It’s a good thing I had a third party (our beloved government) first, decide what companies are worthy to be bailed out, and second, give said obviously inept company (it needed to be bailed out) money for them to do the same thing they did before: be inept with it. I realized that who I was unhappy with was our government.

This brings me to the bonuses. One thing that is not getting covered by most media outlets is that these bonus payouts are a part of contracts that employees have with the company from before the bailouts. If the company did not pay it initially or took it back from the employee they could be sued and punitive damages could be assessed against the company. The short of it is that AIG is going about their business as normal. They are making sure their contracts are upheld. I am not arguing whether or not these contracts are good for the company or not. We bailed them out so that they could stay in business to do whatever is so vital to our system that we could not allow them to fail. That is what they are doing.

Why would we expect them to do something different with this money when it was given to them without any strings attached?

Now our government officials are making a show, saying that we need to get that money back by any legal means necessary because it’s the taxpayer’s money. I know, this sounds very good. But there is no legal means to get this money back. It was paid out by contract. So the governments call to “get the money back” is really meaningless. So here we are, going round and round in a never ending and pointless debate.

All of this brings me back to something I have been saying for a long time. If a company fails, it fails. If it can’t stay afloat because of mismanagement then it doesn’t deserve to stay afloat. By definition, when we bailout a company we are saying that it can’t sustain itself. And then, as a result, we get into the argument above. We bailed them out so that they could continue business. This is exactly what AIG is doing (payout out bonuses by contract) and the government and media, and thus the people are in a wad about it.

The government should not be in the business of deciding what companies should or should not exist in our system. By bailing some out, they are doing exactly that. Instead we should be letting the companies survive that are surviving and letting the companies die that are dying.

This may not be the most comfortable in the moment. It may hurt for a while but we will come out stronger for it. What we are doing now is essentially putting a Band-Aid on a gushing wound. It may appear to stop the bleeding but it is still bleeding underneath. That Band-Aid won’t stay on for long and when it comes off the wound will be infected and we will have more of a problem.

What we need to be doing is letting the market correct itself. We are living in an economy inflated by debt. It got too heavy for itself and is correcting. We need to let go of our immediate comfort and look toward a future that belongs to our children.

Update:

Well, our government acted before I could get this posted so here is a quick update.

The short of it is (if this passes the Senate – it will) that bonuses paid to any employees would be taxed at a 90% rate if that employee makes more than $250,000 per year and their company received 5 billion or more money from the TARP program (bailout money). Our president had this to say about it:

“Today’s vote rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat. I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”

If they were a failed company what makes President Obama and our congress think that they would do something different than they did before? Personally I don’t want to save a failed company. But I didn’t get do decide what to do with the money. Obama also added this:

“But just as outrageous is the culture that these bonuses are a symptom of, that [has] existed for far too long; a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag.”

You might say that you don’t disagree with that last statement. I even agree with most of it. What I don’t agree with is their solution: more government. Mr. President, more government is not the solution to greed. In fact more government is part of what caused this whole mess. You cannot legislate morality.  I can’t say that I agree with the pay scale that some people have.  We do live in a greedy, selfish, and opulent society  But I also can’t say that I agree with the way our government is handling it.

These “greedy” executives are a product and a part of the society that we all are. Everyone is on the look out for what they can get from whoever (hello entitlement system).  So you could say that these people are a reflection of all of us, just with access to more money.  So instead of pointing a finger look first at yourself.  If our society as a whole changes (this starts with the individual) then maybe we have a shot at changing how those in leadership positions act.

Brian