Unintended Consequences
posted in Business |As expected, spurred to quick action by the wave of outrage, the government has begun to counter the A.I.G. bonus situation with what are probably some really bad reactions. 538 has a great write-up of some of the unintended consequences of the bill the House passed the other day. I do think something should be done about the A.I.G. bonuses, again, because I think that while $165 million is just a drop in the ocean of the multi-trillion dollar crisis, I do think this goes to the fundamental credibility of whether the industry is set up to work in our societies best interest in fixing the mess they created, as opposed to continued short-term cashing out while the getting is still good.
Although its obviously coming with its own set of political grandstanding, the approach taken by the NY Attorney General, Andrew Cuomo seems more reasonable. Rather than pass a law that has lots of side effects, we likely have plenty of existing laws that make a situation like this- executives signing contracts with each other that set up guaranteed payments, irrespective of job performance and from an (effectively) insolvent organization. I would hope that this would be sufficient to get the involved parties at A.I.G. to realize that its in their own self-interest to give the bonuses back, as well as make sure that similar situations will not happen again in the near future.
Meanwhile the one thing that I’d love to see more of is scrutiny of the actual work that this group has been doing unraveling their toxic deals. Have they been using the government money to cut good deals in the interest of A.I.G. and its shareholders (the US taxpayer), or have they been doing their own sweetheart hand-outs to the other Wall St. companies like Goldman. Are they just paying out these insurance policies at 100% despite the underlying bonds still being in fine shape, or are they striking an appropriate hard bargain so that no one walks away unduly profiting from the governments assistance?
Goldman is still claiming they have no exposure to A.I.G. but if that is true, among all the other government largess to Goldman why do they have more than $12 billion in payments from A.I.G. and other unwinding of these contracts?