Out of Control Policy Blog

The AIG Mob Mentality

There is a mob mentality developing over the AIG bonuses given out. And its completely out of hand. Its dominating the news coverage on every major network. Its got everyone from DC to Fargo in a pure, mindless tizzy. It's basically because of the term "bonus", which is mentally linked with reward--but that's all people know. Does anyone know why these bonuses were given out or to whom?

The answer is no. We don't know. New York Attorney General Andrew Cuomo has been filing legal papers to find out. And perhaps there is some argument for AIG being transparent with who got what. But if we don't know, then why all the rage? 

We do know that these bonuses were guarantees written into contracts. They are really just a part of the compensation scheme. It's standard protocol at many firms. And from this report by ABC News, it seems that the bonuses might have been put in place as a part of enticing executives to stay at AIG in the midst of the roller coaster. But in the end these are contracted payments, not special, over the top, frilly exorbant rewards. For political leaders at the highest levels to be decrying such payments without the whole story or really understanding what its all about is shameful.

I hate to gloat, but Reason has been warning about this happening for a while now. Not that AIG would pay big, greedy bonuses, but warning that the government and America just don't know how to run a business. The public doesn't have the stomach for what is necessary in terms of running a company.

The bonuses were put in place sometime in early 2008, before AIG collapsed. They are basically performance based contracts, closely linked to people staying at the firm. In which case they are probably well deserved. Just because AIG as a whole has been awful doesn't mean a few key players in the institution haven't created value--or more importantly, kept the firm from being even worse than it is now.

The mob mentality blocks all of this rational thought from the community mind. And it ignores realities. Like the fact that $165 million is about 0.0015% of all we've spent on bailouts since 2008. And its less than 1% of the money given to AIG. And its way less than the earmarks in the recent 2009 Omnibus spending bill:

  • $568.7 million for California (of which $235 million were personally requested by Sen. Feinstein)
  • $370 million for Texas (including money for goat meat research, page 26)
  • $325 million for Mississippi (including money for shrimp research, page 20)
  • $251.8 million for Florida (including money to provide quality water to cows, page 5)
  • $245 million for New York (including money to preserve murals at a Harlem Hospital)
If everyone who is complaining about AIG is so worried about wasteful or unjust spending, why do they ignore the wasteful spending in their own backyard?
Unfortunately we're just following the pitchfork of Stephen Colbert:

Anthony Randazzo is Director of Economic Research

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Comments to "The AIG Mob Mentality":

Mike Laursen | March 17, 2009, 4:24pm | #

I suspect that a lot of Americans don't really understand the difference between a million, a billion, and a trillion. It's all just more money than they could ever dream of getting their hands on.

Ramana | March 17, 2009, 6:31pm | #

This explanation begs the question about corporate governance. Why are bonus payments not linked to performance ? AIG top leadership's performance was so bad it made mild mannered Fed chairman Bernanke express his anger in public. He said he is very disappointed about having to bailout AIG. This blog says $165 million is a small amount in the big scheme of things and demands people to gain a sense of proportion. Well, too many folks are losing jobs these days, how many jobs can be created using $165 million?

taxed2debt | March 17, 2009, 9:30pm | #

Where was all this 'outrage' when the Congress was spending 800+ billion of our dollars last month?! The only reason these idiot Senators are upset is because someone ELSE is spending what they think is THEIR money!
Stand up people! Make your voice heard! Get INVOLVED!!

Author | March 17, 2009, 11:36pm | #

Ramana--Generally bonus payments are linked to performance, though the performance of the whole firm is not necessarily reflective of any one individual. Furthermore, the point that this number is a small amount is more to point to the large spending on other fronts. Yes $165 million is a big number that could pay many salaries, or buy 165 cheeseburgers, or pay for 300 snickers bars. But if its such a big deal, why not be up in arms over the other billions spent?

The Wine Commonsewer | March 18, 2009, 11:26am | #

Why would anyone assume we aren't outraged about the bailout as well as the bonuses? That's straw, baby.

AIG should have been allowed to fail but once you introduce taxpayer money into the mix, it becomes my business.

I don't give a crap what was written into contracts, there'd be no bonus payments or any other compensation without an infusion of tax money.

Further, I don't care how small or how large the bonus payments are with respect to the overall package of taxpayer funds.

It is difficult to imagine that when the bonuses were put in place in early 2008 that AIG had no idea it was in deep doo-doo. A collapse of this magnitude was brewing for a long time and AIG had to have had an inkling.

The Wine Commonsewer | March 18, 2009, 11:32am | #

I don't think this point can be overstated:

There would be no executive compensation of any kind, using any label you want to describe it with, had the US government not forked over a huge chunk of taxpayer money.

Without the bailout, those executives would be walking to the bus stop. And well they should.

Ramana | March 18, 2009, 2:34pm | #

"Generally bonus payments are linked to performance, though the performance of the whole firm is not necessarily reflective of any one individual."

Are you saying the executives who are getting these fat bonuses are not accountable for the bad performance of AIG? If so who are?

"But if its such a big deal, why not be up in arms over the other billions spent?"

Great question! We should be up in arms over every billion, in fact every dollar of taxpayer money used in bailing out wall street firms. We should not rest until we make sure that all bailout money is being spent ultimately in the interest of the nation as a whole.

Anthony Randazzo | March 18, 2009, 4:58pm | #

As this debate over AIG develops there are two streams of anger that should be separated:
1) Those angered at the bonuses because they feel the money is undeserved; and
2) Those angered by the bonuses because AIG should have been allowed to fail in the first place and shouldn't have the money period.

For those in the first group, I would like to point out that we still don't know who got how much or why. It is unfair to criticize the compensation that just happens to be called a bonus until it is clear what the intention of the money was. Should the leaders of AIG not be paid any money at all? Who should decide their salary? These are questions that aren't answered well by the general population.

For those in the second group, I stand with you. My only defense of the bonus money is to point out that this is a case proving the inability of running a business by national committee. If the company is gonna get bailout money, contracts should be offered. But, yes, AIG should absolutely be allowed to fail--it is unjust to use taxpayer money to prop up failed firms.

We should be upset that billions and trillions are being spent period, not just because some of it is going to Wall Street. Bailout money, taxpayer money being redistributed throughout the country, inherently is not being spent wisely.

Mike Laursen | March 19, 2009, 1:10am | #

It is difficult to imagine that when the bonuses were put in place in early 2008 that AIG had no idea it was in deep doo-doo.

My understanding is that the bonuses were put in place in September 2008, and that AIG and Federal bailout overseers knew all about it.

The Wine Commonsewer | March 19, 2009, 6:10pm | #

Well, Mike, in that case, the way things are going, maybe Chris Dodd will wake up with a horse head in bed with him. :-)

Carl | March 21, 2009, 11:38pm | #

"We still don't know how much money - and why."

That has to be the biggest load of horse s**t I've ever heard. Does it matter? These people are being paid (at the very least) high six/seven figure salaries - yet the company is being held up by taxpayer money. That means that WE (as in the tax paying population) are now forking over billions for these exec's unwise decisions.

Well of course we're pissed! It still seems like a no-brainer to me. You can call it "in-contract salary," bonus, whatever the hell you want to call it - it's still irresponsibly spent money. That's why the company is in its current position!

Does it matter when said "bonuses" were contracted? NO! We all make sacrifices in hard times. That means the government should have capped this crap when they had the chance. When the company can stand on its own - spend away!

Personally - I was among the population that wanted these mega-banks to fail. Yes, yes, even if that means we all have to suffer for the next five years. It's irresponsible spending that has us in heavy recession. But of course everyone has to go crying to the government whenever money is scarce. Not one person gets off their asses and starts doing the right thing. That is how democracy works. You pay for the mistakes you make. Now we're paying for the mistakes that everyone makes. Wonderful.

Now, I had scraped all of my money together - I paid my 30 yr mortgage in less than 15 years, I have three cars that are fully paid off, and have a nice 401k. Wait, where is my 401k?! Oh yeah, it's gone. I must now suffer because real estate agents were telling young couples "don't worry - you can afford it - here's your loan!"

I'm losing faith in this country.

Jake Mcinteer | April 1, 2009, 7:34pm | #

i think you guys are gay

David Dzidzikashvili | April 5, 2009, 11:27pm | #

After the government gave AIG bailout money, they should have used ownership rights and cancelled all performance bonuses and laid off the executives who have done nothing but run the company to ground. It is insane how AIG justified their action and rewarded failure. At the end of the day, it's the US taxpayer that is getting screwed left and right. How come nobody is thinking about bailing out the middle class that is losing jobs and homes

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