Because on the consumer side, that means a bunch of actuarial tables that reflect a reactionary aversion to even minimal risk, life insurance policies don’t get sold to people who in reality should be legitimately eligible, and a frozen currency market.

We’ll also end up with a bunch of actuaries, life insurance salesmen, and currency hedgers who are hyper-vigilant about shady behavior by their future employers out of fear that they will be burned in another company collapse.

Please explain why this would be a bad thing…

So what? In the real world when the company you work for blows up you are screwed no matter how good a job *YOU* did. Everyone gets spanked. That’s why it makes sense to pay attention to your surroundings.

“If AIG doesn’t do something to keep them on board, the company will be reduced to a pile of liabilities managed by mediocre employees…”

Yes, in the real world that’s what happens to companies that blow themselves up. The talent leaves to work for economically viable organizations. Again, so what?

Thanks for chiming in!

I think the we’re drifting away from the important question: do the bonuses make economic sense? If we end up cutting the pay of lots of actuaries, life insurance salesmen, and currency hedgers, so we can feel good about punishing credit derivatives traders, we’ll feel good but be worse off. Lots of companies pay their employees extremely high bonuses even parts of the firm are doing badly (this is how Wall Street behaved when the banks were private partnerships — when the only money they had belonged to the people who ran the companies).

It’s good to be outraged at government waste, but we’re just looking at the cost side of things. It’s like being mad that the Pentagon spent $500, before knowing whether what they got for it was a fancy screwdriver or a new stealth bomber.