AIG Bonus Outrage Is Bogus

Don't fall for the widespread wailing and gnashing of teeth engendered by the AIG (NYSE: AIG  ) bonuses. Or, at least, don't fall for the disingenuous line that our government is trying to put on us.

If you read the headlines and the comments from the president and Congress, you'd think that AIG and its executive ninjas had snuck this bonus program by their watchful eyes. In reality, the government's outrage is a pretty distasteful combination of a populist pandering and lack of diligence than anything else. 

The bonuses at AIG shouldn't be a surprise to anyone -- the company finalized the program back in late September and filed it with the SEC shortly thereafter. Furthermore, back in December AIG's CEO sent a letter to Congressman Elijah Cummings, a senior member of the House Committee on Oversight and Government Reform, walking him through the bonuses and the reasoning behind them.

So there's no reason that we should be hearing the outrage now -- besides, of course, the fact that now that the payouts have been announced our elected officials assume we need to see them shake their fists in a mouth-foaming rage.

But that's only the half of it
The feigned anger is only part of the problem here -- it actually gets worse. Despite the fact that the AIG bonuses weren't a secret, some prominent government officials were clueless about them anyway. Here's the AP with the call:

Explaining the sudden burst of official outrage, the White House for the first time on Tuesday night said Geithner learned of the impending bonus payments a week ago Tuesday; he told the White House about them last Thursday, and senior aides informed President Barack Obama later that day.

Here's a good question: Why did Timothy Geithner, head of the Treasury, only hear about these bonuses a week ago? Call me crazy, but given that the government has forked over some $170 billion to the insurer -- putting it up there with Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) in terms of government cheese banked -- you'd think the Treasury Secretary would want to be well briefed on every detail of the situation. But maybe not. After all, what's $170 billion between friends, right?

But it's all so darn frustrating!
If that's what you're thinking, then you have company. The country, if we break out a trusty cliche, is right between a rock and a hard place. Tim Rutten of the Los Angeles Times recently wrote of the bonuses:

All this for the guys who pushed over the first boulder in the current financial avalanche. And for what? So that American International Group Inc. can "unwind" its disastrous investments. It's a bit like a bank robber insisting he's entitled to a finder's fee for telling you where he buried the loot.

While law enforcement may not pay robbers a finder's fee for such information, they may give them other types of concessions for cooperating. In the case of AIG, we may all feel like holding our noses, but if we're going to spend $170 billion bailing them out, doesn't it seem worth it to spend less than one-half of one percent of that money making sure the company's financial products group is wound down properly?

And while we're at it
We might as well also put a lid on the other outrage that's come out of the AIG bailouts -- that is, the billions it doled out to counterparties such as Goldman Sachs (NYSE: GS  ) , Bank of America (NYSE: BAC  ) , Deutsche Bank (NYSE: DB  ) , and Barclays (NYSE: BCS  ) .

Where did everyone expect the money was going to go? It was well known that a, if not the, major problem at AIG was its exposure to credit default swaps, so should it really be such a shock that when the company received its bailout money, it spent a good chunk of it making good with the counterparties on those contracts? As above, either the outrage is purely political brownnosing, or the government is confused as to why it's giving AIG money at all.

We should be angry!
But there is legitimate reason that we should be angry. We should be angry that if these bonuses are not warranted, that they were not handled right from the outset. After all, they were put in place right around the time the government made its initial investment. Maybe we should be even angrier over the fact that instead of putting their heads together and working hard to find a reasonable solution to the financial problems, Congress and the president are busy climbing up on soapboxes and making sure we know just how angry they are.

Either way, I'm angry, but it's not at the folks at AIG.

Related Foolishness:

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2009, at 4:25 PM, nerd1951 wrote:

    All of this outrage is just theater for mass consumption. The real outrage is that FED, the SEC, and everyone else who might have prevented this fraud let it happen in the first place. The current outrage is that all of these politicians are grandstanding rather than working on plans and legislation to fix the current problems and prevent their occurrence. We could start by outlawing naked credit default starts but that doesn't make good outraged headlines.

  • Report this Comment On March 18, 2009, at 5:44 PM, Toxin wrote:
  • Report this Comment On March 18, 2009, at 6:11 PM, richovertime wrote:

    Unlike the people whom make the laws AIG still has to follow the rule of law in this country. Had they went into receivership (bankruptcy protection) then the bets would have been off. All this outcry is doing is pointing the finger away from the real problem onto a scapegoat. It is reprehensible that some of these contracts were not created with performance in mind but shareholders should and do deal with that by selling stock.

    The rationale that the bailout legislation can retroactively negate legal contracts is absurd. I wish the government WOULD try and force this issue under the bailout agreement. The aggrieved party could contest it and I believe it (the bailout bill) would have to be deemed unconstitutional. This in my foolish opinion is why people are posturing about new taxation and reclaiming funds in alternate ways.

    Unfortunately our legislature is more concerned with passing the buck and pandering to the populous instead of actually creating legislation that helps our nation. PORK PORK PORK......and PEACOCKS. I can get a better show at the zoo and it would cost me less too.

  • Report this Comment On March 18, 2009, at 8:20 PM, iamnik77 wrote:

    Most people, when they lose money, are out for blood. The American people are seeing red and their rage over AIG bonuses is misdirected. People just don't care about legal contracts when they have lost money. If we can just sidestep the law anytime the public gets angry enough what do we have? Certainly not a country ruled by law.

  • Report this Comment On March 18, 2009, at 9:14 PM, codesperado wrote:

    Perhaps Matt has forgotten which administration was in power when all the SEC bonus paperwork was filed...

  • Report this Comment On March 18, 2009, at 9:38 PM, erohrer60 wrote:

    Wanna bet?!?

  • Report this Comment On March 18, 2009, at 9:53 PM, kekey11 wrote:

    Yes, the FED GOV. ( not to be confused with the FED RESERVE) anger in this matter is all theatrics... But that's what politics is theatrics... All politicans try to seize power by taking advantage of a crisis or situation, acting like they are ruling in the best interrerst of the PEOPLE though they are not. THEY ALREADY SHOULD HAVE KNOW ABOUT THESE BONUSES AND THE OUTRAGE SHOULD HAVE CAME THEN....

    BUT YOU HAVE NO RIGHT TO TELL US, THE PEOPLE OF THE UNITED STATES THAT WE CANT BE ANGRY ABOUT AIGs USE OF THE BAIL $$$. AS A CITIZEN WE ALL HAVE A RIGHT AND THE FREEDOM TO HAVE AND EXPRESS ANY OPINON ABOUT ANY PUBLIC, PRIVATE, or yes EVEN GOV'T Organization...

    FOOL LISTEN,

    people are not mad because the Gov't officals are mad.. PEOPLE are pisses because they are watching as neighbors, friends, and family are losing homes, JOBS, and overall Confidence in the FREE MARKET SYSTEM...MANY of these people are not LOSERS, they are tax paying, law obiding citizens. While at the same time watching Wall St "STAR" companies like AIG, Goldmansachs, BOA, Are getting massive amounts of govermnet money...then using that money to PAY AIG executive and employees BONUS.. HOW CAN ANY BODY IN ANY COMPANY EXPECT A BONUS WHEN YOUR COMPANY IS ASKING FOR HAND OUTS!.... Shame on AIG executive for thinking that 73 Top level executive deserve a over a MILLION $$$ HOW... IF MY BUSINESS IS ABOUT TO GO BANKRUPT THE LAST THING ON my AGENDA SHOULD a BONUS!

    STOP TAKING UP FOR THESE CLOWNS! I know they are you best friends and you depend on them for INSIDE info, but THE GIG IS UP AND THE GAME IS OVER!

    TRANSPARENCY IS NEEDED AND THAT HAS A LOT OF FOOLS ON WALL ST SCARED... GOOD!

    give back the bonus or GO TO JAIL!

    ALL AIG EXECUTIVE SHOULD GO TO jail... AND THEY SHOULD NOT GET TO PASS GO before their sentance.

    give back the bonus or GO TO JAIL!

  • Report this Comment On March 18, 2009, at 10:12 PM, texjammer wrote:

    If you were to investigate what was really going on here, you would realize that the White House and Holy Roller Politicians are just grandstanding to keep attention off of the real scheme. Have any of you heard anything on the news about the bonuses given to FREDDIE MAC and FANNIE MAE executives??? Of course not! They are all friends or relatives of Washington insiders! More professional politicians taking care of their own, while destroying someone who was just doing their job.

    The true story of the AIG bonuses is that mostly they were Retention Bonuses to keep people working that knew they were to be laid off. Some of them were legitimate bonuses for the multiple profitable arms of AIG. There is still more to the company than just the credit default swaps that tanked most of the company's value.

    As for the AIG execs needing to GO TO JAIL, would you like to be jailed for doing your job to the best of your ability? Unless your a prostitute, most Americans don't have to worry about such threats, especially from fellow Americans. That's more the consequences of the USSR; is that really where we want to go with this? Does anyone remember McCarthyism of the 1950's? Don't let them keep your focus away from the real problems, or we will have the United Socialist States of America before we know it has happened!

    The only way to solve this crisis is to REMOVE ALL INCUMBENT, PROFESSIONAL POLITICIANS IN THE 2010 AND FOLLOWING ELECTIONS. The Founding Fathers were farmers, businessmen and family men. The reason for our problems are the LAWYERS we have elected to represent us for the past few decades. How have we decided that these consumption professionals know how to run the world's largest employer and economy??? No wonder everything is in the tank!

  • Report this Comment On March 18, 2009, at 10:19 PM, texjammer wrote:

    OH - and about which Administration was in charge when TARP happened - do the research and you'll find that Timothy Geithner was responsible for the ENTIRE bailout plan for AIG.

    So, more Washington insiders taking care of each other! In 2008, AIG gave over $100,000.00 each to Senator Chris Dodd (Head of the Senate Finance Committee) and then presidential candidate Barrack Obama.

    By the way, Senator Dodd's amendment to the Omnibus Bill that capped executive salaries at $500K, also EXEMPTED any bonus that was contracted before Feb 11, 2009. More Washington buddies covering each other!

  • Report this Comment On March 18, 2009, at 10:46 PM, cgrifftx wrote:

    I do find it humorous that some ill-informed individuals want to lay the entire financial industry failure at the feet of the Bush administration and hold the Obama Administration harmeless for ANY mistakes and or errors that occur during the recovery. Unlike the radical right, I sincerely hope that the Obama administration succeeds in its recovery efforts, even though I disagree with some of the fundamental decisions. That is what is best for this country and the global economy.

    However, lets get off the group think and/or second-coming mentality and not be afraid to call people out for their oversight and errors. A good start would be some objective news coverage on why we are incapable of getting Mr. Geithner some help in the Treasury Department.

  • Report this Comment On March 18, 2009, at 11:34 PM, TMFDiogenes wrote:

    I'm inclined to think Geitner had other stuff on his plate after reading this article: http://www.nytimes.com/2009/03/19/business/economy/19geithne...

  • Report this Comment On March 18, 2009, at 11:43 PM, warrenrial wrote:

    I am confused, are we in the USA or are we in the USSR?

  • Report this Comment On March 19, 2009, at 1:06 AM, mlaursen wrote:

    re: "the financial is so complex and so far reaching that Geithner/Obama are overwhelmed and a missing bonus is an oversight easily made."

    Are you saying it so complex and overwhelming that Geithner, Obama, members of Congressional committees, Congresspersons, or someone working for any of the above cannot read through disclosure documents from the companies being bailed out? How come they have so much time to think about the bonuses now?

  • Report this Comment On March 19, 2009, at 7:06 AM, Theresamother wrote:

    Big surprise that Matt Koppenheffer is not angry with AIG. Moving right along, those that govern and those that serve our needs, over time, have taken full advantage of their position of power. Remember the old adage .. Power and money corrupt absolutely? Hello? that both AIG and Congress are culpable is a no brainer; it's the cookie jar syndrome at work with the latter crying crockadile tears all the way to the bank. We the people are truly lemming's, so maliable, so trusting in entities who continuely rob us blind; including but not limited to our children, our children's children compounded exponentially. Lift that barge tote that bail ......

    Why on God's earth did we expcet responsible behavior from product's of "Me" generation mentality. It does give pause!

  • Report this Comment On March 19, 2009, at 7:51 AM, lamu202 wrote:

    I laugh at the "they try their best comment." They would have literally lost less money by sitting there setting $100 bills on fire all day long.

  • Report this Comment On March 26, 2009, at 2:31 PM, williamjacobs wrote:

    What if AIG had "in good faith" negotiated 165 BILLION in bonuses for themselves? How about 165 TRILLION?

    Is there an amount that the US taxpayer should refuse to pay the workers at a BANKRUPT company?

    The loons who dish out millions at a company with no clause for reducing the amount if it's simply unable to pay cannot have an ironclad claim to all our wallets?

    If AIG had spent the money on 1 million pink bunny suits for Easter rather than cash for their "invaluable" employees, could we demand the money back THEN? Was the lack of specificity in the bailout money carte blanche to do ANYTHING they pleased if they'd wished to do something just as irresponsible as self-enrichment but less sane?

    Was the bailout money simply a gift having nothing to do with its future health as a company?

    If the money were to produce the recovery of AIG and bonuses are seen as appropriate, shouldn't they be bonuses for what they do from this point forward? Is the chance of reward for a recovery insufficient? Do they lack as much confidence in their abilities as we?

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