The scrape over AIG bonuses is an indication of the core problems of the current financial crisis—a complete lack of due diligence, a reliance on the fact that no one is paying attention and a media and public attention span of a two year old.
How else can Congress and the Administration express shock over these bonuses that were known beforehand. Futures Publisher Ginger Szala blogged back in January regarding AIG bonuses yet those whose job it was to look over the details of the various government sponsored bailouts express shock and anger!
The House of Representatives have gone so far as to pass a bill taxing bonuses of firms receiving TARP money at 90%. The 90% tax on Congress people expressing shock and anger over things they knew or should have known apparently is still in committee.
Go back a year to the Bear Stearns blow-up that started this. The Bear Stearns executive bonuses were saved by the Federal Reserve and U.S. taxpayer sponsored bailout. If Bear had been allowed to go into bankruptcy those bonuses would have had to have been returned. Fed Chairman Bernanke and current Treasury Secretary Geithner assured us during Congressional hearings that there was no risk of moral hazard because no one would seek out such a predicament. But seeing that the firm faced bankruptcy or a government backed fire sale, basically a worst case scenario, and executive punishment was a multi-million dollar golden parachute, why would other executives not see this as a viable option?
One wondered at the time why such bonuses weren’t restricted as part of the deal. And surely with that experience in hand, any further government bailouts would be accompanied by restrictions.
Tags: AIG, Wall Street bonuses
As 80% owner of AIG, we should be able somehow to wrangle a vote of the AIG board to issue a special dividend to our class of shares in the amount of the aggregate bonuses, assuring that no bail-out funds are used for that purpose. BTW, I have shared this thought with the WH.