Tax Rascal

Why Barney Frank’s Phony AIG Outrage is Worse Than the Bonuses

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Why Barney Frank’s Phony AIG Outrage is Worse Than the Bonuses

It’s an outrage — handing someone millions of dollars when his employer is nearly bankrupt? It’s ridiculous — larding paychecks with taxpayer dollars? It’s unacceptable — paying out a giant bonus in the face of a huge recession?

It’s just business. Even though Barney Frank expressed outrage over AIG’s recent bonuses, people are (deliberately?) forgetting that AIG is a massive company, with over 100,000 employees in 130 countries. And the team responsible for most of the offices was a remarkably tiny group of remarkably arrogant traders.

If AIG’s structured products team is collecting these bonuses, it is, indeed, an outrage. But it’s much more likely that the bonus recipients aren’t the same team at all. AIG has a huge variety of insurance businesses, and it invests the proceeds from its insurance in an incredible array of assets. Even at a time like this, there are numerous AIG employees who are capable of making the company millions of dollars (and this would be a good time for them to have some extra money).

But think about those people: how happy would they be to work for AIG? If they got stock options for good work in past years, those options are worthless; if they invested their savings in AIG stock, their retirement account just blew up. It’s a wild guess, but I’d bet that the average AIG employee has lost far more (as a percentage of their net worth, and in absolute terms) than the average American worker.

So what are those AIG employees thinking right now? Their first thought is probably something along the lines of “Who’s hiring?” Many of them won’t be able to get jobs. The ones who can demonstrate that they’re good at what they do will be able to get jobs. 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, and constantly hoovering up your tax dollars.

When the economy is good, it’s easy to say “You have to spend money to make money.” Now that the market is in the tank, we should at least be able to agree: you have to spend money not to lose it so fast. Retaining good employees for millions is better than losing them — and losing billions, too.

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18 Responses to “Why Barney Frank’s Phony AIG Outrage is Worse Than the Bonuses”

  1. Instapundit » Blog Archive » DARREN HUTCHINSON: Sincere Or False Outrage? The Obama Administration Smacks Down AIG. “Prior to … Says:

    […] Related: Why Barney Frank’s Phony AIG Outrage is Worse Than the Bonuses. […]

  2. Tom Maguire Says:

    “If AIG’s structured products team is collecting these bonuses, it is, indeed, an outrage. But it’s much more likely that the bonus recipients aren’t the same team at all.”

    Hmm. There are a couple of different AIG bous pools in the news but most of the ire is directed at the $165 million about to be paid to the AIG Financial Products Group that directed their derivatives and credit-default business.

  3. TaxRascal Says:

    Most of the stories I’ve heard quote the entire bonus number, not just the financial products number. It should be noted that even among the FP people, it’s hard to see how many are actually responsible. Most structured products trading strategies involve making offsetting bets (such as writing insurance on one pool of bonds, and buying insurance on another very similar pool to hedge).

    What’s strange is how eager people are to jump on AIG — not just in advance of all the facts, but in order to cut off a full discussion and make sure we reach our conclusions before we have all the data we’d need. The outrage is front-page news; the actual numbers are going to be tucked away in the business section. And guess which news story determines how the government will respond.

  4. Rocketeer Says:

    “It’s an outrage — handing someone millions of dollars when his employer is nearly bankrupt? It’s ridiculous — larding paychecks with taxpayer dollars? It’s unacceptable — paying out a giant bonus in the face of a huge recession?”

    Huh. At first, I couldn’t tell if you were talking about AIG, or the U.S. Congress.

  5. Mickey Says:

    Once again we see that Barney Frank should be fired. Last time I checked, it was up to the Banking Committee to place restrictions on AIG and other bailouts. Perhaps old Barney should give back his pay…he should be taken out in cuffs and reservations as Bernie Madoff’s cell mate. I see no difference between what Bernie has done and what Congress and President “il duche” Obama has done.

    Timeline shows Bush, McCain warning Dems of financial and housing crisis; meltdown
    http://www.youtube.com/watch?v=cMnSp4qEXNM

    Look to me like Jim Johnson, Barack Obama, Maxine Waters, Frank Raines, Cris Dodd and Barnie Frank should be in prison. And speaking of “take backs” when are we going to take back the millions that went to Johnson and Raines? Cook the books, bribe congress crooks and cons and they’re all sitting pretty – why?

  6. russ Says:

    Huh. At first, I couldn’t tell if you were talking about AIG, or the U.S. Congress“…

    Excellent!

  7. Kay Says:

    Agreed that false outrage is reprehensible. And as I’ve blogged, Congress deserves much blame for not holding AIG’s and other bailed out companies’ feet to the fire when it comes to spending taxpayer money. But the spending has to stop, especially now that the U.S. (read taxpayers) own 80 percent of the company. If AIG lawyers were better during the closing days of the Bush Administration at getting free rein in spending federal funds than U.S. attorneys were at setting limits, then so be it … this time. True, maybe some decent, hard-working folks who didn’t contribute to the economic debacle will end up getting hurt. Welcome to the real world. Someone usually pays more than they should for someone else’s mistakes. But a line has to be drawn in the sand somewhere and AIG with its previous excesses is begging for it to be drawn right through their bonus payout budget line item.

  8. frankg Says:

    Don’t give them the money. That isn’t hard. Just too hard for Washington, DC. If we didn’t give them the money, we wouldn’t have to worry about this, and what probably is a bunch of deliberate staged warfare against big business/etc. to distract from the plundering continuing in Washington, DC.
    obama: look at meee! I’m outraged!
    Didn’t anyone read the fine print on this deal when it was passed?
    Did they really NOT know it would happen?
    Don’t give them the money. But no, the circus that brought us affordable housing is going to fix this latest crisis. The big caper continues.

  9. TaxRascal Says:

    Kay:

    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.

  10. GayPatriot » Refer Barney Frank to House Ethics Committee Says:

    […] learning of Frank’s outrage over AIG, I decided to do something I had intended to do when the Democrat’s conflict of interest came […]

  11. NerdAlert Says:

    “it’s much more likely that the bonus recipients aren’t the same team at all. AIG has a huge variety of insurance businesses, and it invests the proceeds from its insurance in an incredible array of assets.”

    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?

  12. NerdAlert Says:

    “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.”

    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…

  13. Rocketeer Says:

    “Please explain why this would be a bad thing…”

    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.

  14. Lubna Says:

    Hi TaxRascal,
    I noticed you had linked one of my posts, this is how I got here. Interesting website and I would like to share it with my readers. Would you mind if I blogrolled you? Lemme know by posting a reply on my tax blog.
    Best
    Lubna

  15. mike Says:

    elmer fudd is on the loose. vote him down and out now.

  16. Chas. Says:

    Ol’ Barn would probably love an AIG “bone-ass”.
    What a stand-up guy!

  17. Wednesday’s Links Value Plays Says:

    […] – BS outrage at AIG […]

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