We continue to be amazed at the ongoing saga of AIG. We learn in Sunday's New York Times that 400 employees of the financial products unit (yes, the geniuses who destroyed the company) are receiving bonuses ranging from $1,000 (the hard-working and relatively innocent) to $6.5 million (the brains behind the fiasco). Commitments to pay these bonuses were made in the spring, after the troubles began, but before the proverbial all hell broke loose. Outside counsel (presumably paid at their usual and customary rates - and no doubt in advance) confirmed that the promised bonuses must be paid.
AIG's current CEO, Ed Liddy, expained to Treasury Secretary Tim Geithner that the bonuses were needed to keep the most skilled executives. "We cannot attract and retain the best the brightest talent [unfortunate choice of words, Ed] to lead and staff the AIG businesses - which are now being operated principally on behalf of American taxpayers - if employees believe their compensation is subject to continued and arbitrary [arbitrary?] adjustment by the U.S. Treasury."
So the bonuses are being paid with taxpayer dollars: had AIG been allowed to fail, there would be no money to pay these obligations. We surmise that the checks were cashed immediately, before the feds had an opportunity to figure out a way to shut this scam down.
As a tax-paying owner of AIG, you will be delighted to know that the top 25 executives of the financial products unit - all of whom needed the incentive of huge bonuses to stay on the job - have agreed to reduce their salaries for the remainder of the year to one measly dollar. Their pay is finally aligned with their performance. And for the record, that annual salary won't buy them a cup of coffee, but it will cover more than one share of AIG stock.
If AIG survives this current crisis, the company will be on the hook to repay the bonuses to taxpayers. Don't hold your breath. The company that is too big to fail probably should fail, precisely because it is too big.
Is there a moral to this sordid saga? Perhaps. The Bhagavad Gita, India's great spiritual document, describes three gates to hell: lust, anger and greed. Perhaps I am hallucinating, but I believe the logo inscribed over the third gate is that of its most recent corporate sponsor, AIG.