Bonuses on a Slow Boil
Maybe you don't spend your weekends perusing SEC filings, so perhaps you missed the one in November in which AIG, the world's most unloved big company, reported that it planned to distribute $469 million in bonuses to some employees. This was after the government began pouring billions into AIG to save it from the fate of Lehman Brothers but long before populist outrage over the bonuses exploded this week.
And maybe you aren't a regular reader of Rep. Elijah Cummings's blog on the Huffington Post. His Nov. 27 entry, "A Bonus by Any Other Name Still Stinks," complains that "just one day after being told that top AIG executives would be forgoing bonuses this year," he had been "shocked" to learn that they would be getting "cash awards" as "retention payments."
But surely you didn't miss the Oct. 8 article in this very newspaper headlined "AIG Spa Trip Fuels Fury on Hill; Pressing Executives to Concede Mistake, Lawmakers Blast Them About Bonuses." Or how about the New York Times on Oct. 17: "A.I.G. Agrees to Let New York Review the Propriety of Its Pay Packages"?
In short, you knew about this, if you cared. So why didn't your self-righteous populist fury boil over before now? One of my favorite things about the news is the randomness of what becomes a big story. This is far from the first time some scandal that was reported with a yawn on Page D13 popped up months later on Page 1.
In this case it's not entirely inexplicable. Part of the fury is precisely because public officials and AIG's executives knew or should have known about the bonuses and knew or should have known what the reaction would be -- and allowed them to go ahead anyway. This suggests, even more than if they were blindsided, that "they just don't get it."
As an explanation for anything, "they just don't get it" has a know-nothing, bullying quality that I don't like. Obama and his colleagues had other things on their minds in October and November. In short, I want to be sympathetic. But they don't make it easy.
Now, trying to get ahead of the story, AIG and the administration are just digging themselves a deeper hole. CEO Ed Liddy says that execs who received more than $100,000 will be asked to return half. Why half? No one is complaining that the retention payments are too large. The complaint is that they exist. As Cummings put it tartly in his blog, "These executives' bonuses are that they still have a job."
If you buy the theory that "retention payments" are needed, then they need to be big enough to work. If $100,000 is the right amount to keep an AIG employee from leaving for one of the many job opportunities no doubt available in the middle of a depression at companies that wish to duplicate AIG's success in marketing securities too complicated for anyone but an AIG employee to understand, then paying $50,000 is a waste. AIG will lose the employee and $50,000.
Treasury Secretary Timothy Geithner said Tuesday that he is going to cut AIG's allowance. The AIG bonuses will be deducted from the government's next bailout check of $30 billion. The point, I suppose, is that the government can then say that no bailout money is being used to finance these bonuses. Except that money is fungible -- one dollar is as good as another -- and as long as the government is writing checks to AIG and AIG is writing checks to these employees, the government might as well be writing the employees' checks directly.
Anyway, the money the government shells out to AIG is not supposed to be an allowance. It's supposed to be the minimum necessary to rescue the company, which is supposed to be absolutely necessary to save the economy. If $165 million or $469 million or any other amount can be trimmed from the bailout without serious harm to the country, why is AIG getting that $165 million or $469 million in the first place?
Like everything about the bailout -- and Obama's economic policy in general -- these "retention bonuses" are being presented as a tragic necessity. You may not like it -- heck, we don't like it either -- but we have no choice. Earmarks in the budget? Look, let's just get past this so we can move on. In a way, this is terrific. Tragic necessity is a concept that has been missing from the American political dialogue. Generally, politicians present every proposal as wonderful in every way, with no downside. But tragic necessity is a get-out-of-jail-free card that loses value if it is used too often, and Obama is going to need it later, when he takes on health-care reform, entitlements, the budget deficit and other delights.