UPDATE: There is an interesting analysis of this AIG story from Josh Marshall at Talking Points Memo.]
Although I start every day with the online newspapers, I look forward to Sundays for the couple of hours, often more, of leisurely immersion in the mix of news and expanded weekend features that has been my ritual for half a century.
As usual yesterday morning, I brushed my teeth, fed the cat, made the coffee and settled down at my computer. Also as usual, I started with The New York Times. What was not usual is that when I saw the headline of the lead story, AIG Planning Huge Bonuses After $170 Billion Bailout, I nearly spit my coffee onto my pristine new laptop. You could say I was spitting mad.
It was only 6AM eastern time, but the number of comments at the end of the story had already reached 528, all of them some variation on what David Weidler of New Orleans wrote:
“This is criminal. Instead of being fired for there incompetence they are being rewarded. How can Congress allow this to happen?”
Indeed. It's good to know I'm not alone in my anger.
I skipped over to The Washington Post where it was also a front-page story: Bailout King AIG Still to Pay Millions in Bonuses. The number of comments of the same stripe had already passed 600.
So much for my pleasurable Sunday morning ritual.
After the brouhaha over CEOs traveling to Washington by private jet to beg for billions, and the widespread disgust at multi-million-dollar bonuses for those same CEOs and their corporate sidekicks, and the president's public chats on our troubles and our responsibilities, Little Miss Sunshine here had thought bonuses might be finished. How could I have been, even briefly, so delusional? Where did my instinctual cynicism go?
Not to worry. It returned full force Sunday morning and I am enraged.
The federal government has given AIG $170 billion in bailout money in exchange for 80 percent ownership of the giant insurance company. AIG planned to pay out $165 million in bonuses by yesterday which, according to The New York Times, is in addition to $121 million previously paid. And, this bonus money is going to "the same business unit that brought the company to the brink of collapse last year.”
That would be the financial services division, the one that wrote trillions of dollars of credit default swaps backed by sub-prime mortgages.
Edward M. Liddy, the new AIG chairman appointed by Treasury secretary Henry Paulson to run the company wrote in a letter last month:
“These employees [receiving bonuses] are highly specialized and/or are part of businesses that control billions of dollars of revenue and value that will be needed to repay the U.S. taxpayer. Our competitors understand how valuable our top executives are, and we are acutely aware that they would like to siphon off our most talented leaders.”
- - The Washington Post, 15 March 2008
In addition to that “best and brightest” argument for bonuses from bailout funds, both the companies and the federal government say that the bonuses are binding legal contracts:
“...in his letter to Mr. Geitner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and had been told that AIG had no choice but to follow through with the payment schedule.
“The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken.”
- - The New York Times, 15 March 2009
Horse pucky. Corporations break contracts every day, especially those with their employees. In a brilliantly clear explanation of how debt destroyed our economy, attorney Thomas Geoghegan, writing in the April issue of Harper's (not yet online), says:
“First, we removed the possibility of creating real, binding contracts by allowing employers to bust the unions that had been entering into these agreements for millions of people. Second, we allowed those same employers to cancel existing contracts, virtually at will, by transferring liability from one corporate shell to another, or letting a subsidiary go into Chapter 11 and then moving to 'cancel' the contract rights, including lifetime health benefits and pensions.”
People who destroy a company are not “talented” and they are not “valuable” as Mr. Liddy and other CEOs continue to insist in the bonus controversy. They are criminally incompetent. They have brought our country (and other countries) to its financial knees, destroying the life savings of millions of people. In addition to the retirement savings and college funds of those in mid-life that are gone, there are elders who will live in penury for the rest of their lives due to the greed and incompetence of the people in these companies.
Here's a rueful laugh to go with my rage – the definition of bonus at entrepreneur.com:
“A monetary payment made to an employee over and above their standard salary or compensation package. Bonuses are one of the ways employers reward their employees for a job well done.” [emphasis added]
Someone has got to pay for the destruction of trillions of dollars of ordinary Americans' (mostly modest) wealth if for no other reasons than appearances and to assuage the fury of people who not so long ago had jobs and savings and now stand helpless in unemployment lines and live crammed in with relatives while business executives who caused this crisis are allowed to continue in their jobs still raking in millions for “a job well done” in addition to their astronomical salaries.
It was shocking, but also gratifying, to see how many hundreds of people, so early in the morning, had already expressed their rage in comments at The New York Times, The Washington Post and other newspapers around the country. If these executives are not going to be fired or prosecuted, at least the bonuses must stop.
A government that can figure out a “legal” way to deprive workers of their right to organize and their earned pensions can certainly figure out how to strip executives of their unearned bonuses. Rage, rage against this crime to President Obama and your representatives. You know how.
[At The Elder Storytelling Place today, Norm Jenson has a puzzle for you in his story, The Jumble.]