My thoughts on the AIG fiasco

As I watch the AIG circus unfold, I don't whether to laugh or cry. First, the people running these banks must be tone-deaf not to recognize that once you appeal for government bailouts (and get them), the rules have changed. If something appears unseemly, it is so. And when there people are scared - about losing their jobs and seeing their savings meltdown - the notion that AIG paid bonuses in the millions strikes many as unfair.

There do seem to be two separate components to the AIG actions. One relates to the billions that AIG supposedly funneled out to investment and commercial banks. I noticed Goldman Sachs at the top of the list. I really have no idea what these payments were for but if these institutions were counter parties on positions that AIG had taken, I see nothing wrong with this. After all, was this not what the bailout money was supposed to be for? To ensure that AIG did not default on its obligations and bring other institutions down with it!

The second story (and the one getting press) comes from the retention bonuses that AIG paid out, after it received the bailout money. While the payments may fail the political and populist tests, they too may have been merited. Why should you reward those who created the problems with bonuses, you ask? Remember that the vast majority of the employees at AIG did their jobs and added value to the organization. They had no role in creating this mess. A handful or risk takers brought the firm down. In the aftermath of the crisis, the firm had to do everything it could to keep the good employees from fleeing. After all, what would be the point of saving the institution, if its biggest asset (human capital) departs? I don't know enough to pass judgment, but methinks that the legislators protest too much.