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The AIG Mob Mentality

Anthony Randazzo
March 17, 2009, 1:21pm

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:

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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