There is nothing congress likes more than an opportunity to grandstand. The AIG and other financial companies payment of bonuses is a perfect opportunity for members of congress to deflect criticism of their own behaviour in this financial meltdown toward others.
Senator Charles Grassley today suggested that financial company executives should apologize or commit suicide for failure much like they do in Japan. Hell, if the senate took Grassley's advice more than half of them would be dead.
The congressional outrage over AIG is made even more preposterous when you look at the roster of congressional leaders who took large campaign contributions from the company. Among them Sen. Chris Dodd of Ct. who is allegedly responsible for including language in legislation that specifically excluded bans on contractual bonuses before Feb. 11, 2009, or long after the government took control of AIG. The exact language:
Crack down on bonuses, retention awards and incentive compensation:
Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.
The issue of bonuses is a red herring for a variety of reasons. The primary one is that financial companies like AIG, Merrill Lynch, Smith Barney and others are made up of interlocking groups of business units. Some larger and some smaller but most sharing the same thing in common. The members of those business units have control of a book of business upon which they produce income for the parent company via a commission structure. The producers are essentially free agents in the market place. If the company they work for becomes unstable or an annoyance there are other competitors that will gladly pay these producers large bonuses in advance to move their production from company A to company B.
Company A has a choice of letting the producers go or they can pay a retention bonus in exchange for a employment contract for a period of time. The bulk of AIG, Merrill and other companies that have taken TARP money are money making enterprises and only smaller portions of the management are responsible for the companies financial meltdown.
Since the taxpayer is essentially the owners of company A, is it really in our best interest to be letting the top talent of AIG bolt to other less contentious places of employment? After all, the best way for the taxpayer to recover the investment in AIG is to have the company return to profitability or to liquidate its many profitable business units in an orderly fashion. So what you say? Let the scoundrels work for small money because the rest of us are angry? Well I have news for you, anyone in the money business that is eligible for a million dollar bonus is a BIG producer and will likely find a new home pretty quickly. Do you think they should hang around and help to pay the taxpayer back out of loyalty?
The public is in an cranky mood over this and other "bailouts" but in reality most of this money going to these firms is at a price that is highly advantageous to the taxpayer. Many of the firms that are eligible for this TARP money are simply saying no thanks because of the terms at which it is being made available.
This is not a simple blank check to the industry. The money comes in exchange for stock, preferred stock, warrants, bonds and other high interest debt vehicles. In a few years when all is said and done, the taxpayer may profit handsomely on these deals. In an age when we are talking in trillions, an extra hundred million or so to pay the people to get the companies straightened out amounts to chicken feed.
