Keep the money, boys

I was as outraged as anyone (see earlier post) when I heard of the AIG bonuses. But this afternoon I read in the local paper that ACORN had held a protest against AIG in my hometown.

About thirty protesters were bused in to stand in front of AIG financial products headquarters. They chanted, "Who are we? ACORN! What do we want? JUSTICE! When do we want it? NOW!"

Another chant was, "AIG gets bailed out, the people get sold out!"

All of a sudden I had a little less desire to see those bonuses returned.

Put yourself in an AIG executive's shoes. What would you do if given, say, a half million dollar bonus? You had been promised this money a year ago, before the sky came falling down, and you are legally entitled to it. In fact, this is part of the reason you stayed at AIG rather than taking a job at JPMorgan. You work in the financial products division, but you had nothing to do with the credit default swaps which brought AIG down. So far you've managed to save $2.7 million, including the equity in your house. This would give you a nest egg of roughly three million, after taxes. In the meantime, it's not clear if you'll even have your job six months from now, and if you do, it certainly won't pay as much as it does now. You have three children, one currently in college and the other two on their way. AIG has just suffered about the worst publicity any company ever has, and if you do lose your job, at age fifty there are no guarantees you will be able to find another. Would you give the money back?

I'm not sure that I would.

And I would like to thank ACORN for helping my thinking evolve on this matter.

This, of course, begs the question of whether or not, as an AIG employee, that choice should be up to you. If the firm had been allowed to go bankrupt, wouldn't those contracts for the promised bonuses have been abrogated? So should they be honored now? (No, they shouldn't.)

Perhaps more to the point, should all those contracts with Goldman Sachs, Deutsche Bank, et al, also have been honored at one hundred cents on the dollar? None of these contracts were given even the slightest of haircuts. All of the firms which took out credit default swaps with AIG were sophisticated financial entities which essentially made a bad bet. (When you make such a large bet, you're also betting on your counterparty's creditworthiness.) The government simply should not be in the business of bailing out people -- or firms -- who made bad bets.

But if they are, I want to be compensated for my stock market losses. Where do I get in line?