On Those AIG Bonuses

Like most folks, when I heard over the weekend that failed insurance giant AIG, which owes its continued existence to a huge infusion of federal bailout funds, was paying out $165 million in bonuses, I was a little pissed. It just defies common sense that the same folks who brought the company to ruin should be rewarded, right?

But the ferocity of the widespread backlash, which has led to the President to order his people to explore all legal means of stopping the bonuses and one GOP Senator to suggest AIG executives kill themselves, gives me pause. After all, the riled up mob very rarely gets it completely right and tends to not do nuance all that well. Is there a justification for still paying these bonuses?

Andrew Ross Sorkin over at the New York Times gives it a go, but it's not all that persuasive. He basically puts forward two arguments.

One, which is what the AIG execs are citing, is that the bonus payments are required by contracts which cannot be broken. Sorkin argues that breaking those obligations will have long term aftershocks that will outweigh the short term good feelings gained by stopping the bonus payments. There are a few problems with that. For one, no contract is unbreakable, as this post over at Concurring Opinions suggests a myriad of grounds that might apply. For another, given that AIG wouldn't exist right now but for the bailout, and the bonuses would have evaporated as well, it's a bit amazing that they would survive the upheaval.

Sorkin's other argument is basically that the folks who are getting these bonuses are needed to fix their own fuckup. It's a combination of the "need to maintain the best and brightest" argument with the "these folks are the only ones who know where the bomb is buried" argument. That assumes, of course, that AIG's situation is so unique that nobody from the outside could figure it out. But even if it is, imagine the long term message that sends - if you can fuck things up comprehensively enough, you'll be rewarded for helping to fix it. It will hardly discourage this sort of thing in the future.

So, I'm open to convincing that these payments should get made, but I'm a long way from convinced.