Marcus and the Sanctity of Contract

by publius

Ruth Marcus devotes her valuable op-ed space today to a defense of the sanctity of the AIG bonuses.  That’s annoying in and of itself, but that’s her prerogative.  The part I found most irritating (and revealing), though, was her absurd attempt to distinguish the sanctity of the AIG contracts from the UAW contracts with the Big Three:

But, you ask, what about autoworkers who are being squeezed to renegotiate their contracts?  [Yes, I do ask that.] Those renegotiations mostly involve the future terms of employment, though, it is true, they also could affect retiree health benefits. If an autoworker doesn't want to show up on the assembly line under the terms of a new deal, he or she doesn't have to. That's different from telling AIG employees they're not getting the amount on which they agreed for work they've already performed.

Big heart on that one.  If Detroit’s workers don’t like being forced to accept lower wages, they can just not show up.  But anyway, the logic of her argument doesn’t work.  For one, there’s the health benefits (which she basically concedes).  But second, the idea that the UAW is negotiating only for “future terms” is disingenuous.

The automakers and unions agreed to an existing contract for existing employees promising a certain amount of wages and benefits up through a future date.  The UAW workers have now completed past work (obtained seniority, etc.) under the expectations (and promise) of specific future benefits.  That existing contractual promise, however, is being changed at the barrel of a political gun.

I don’t see the difference between that situation and the AIG bonuses.  From what I gather, the bonuses go to currently-employed people who signed a contract agreeing to certain terms.  Just like the UAW workers, the AIG wizards performed past work with certain expectations of benefits.  There’s no reason, though, why these contracts can’t be renegotiated just like the UAW contracts were and are.  I don’t think the concept of “past work” is as neatly divisible as Marcus assumes it to be.  (Indeed, I would argue there's a class dimension to this conceptualization). 

That said, you may agree or disagree with the bonus renegotiation.  That’s a somewhat different fight.  My point, however, is that it’s hypocritical to deify the AIG contracts, while ignoring the fact that the UAW contracts (that cost the government fractions of the AIG bailout) are being changed willy-nilly, sanctity of contract be damned.

What’s really going on here is simply ideological bias.  Marcus apparently thinks unions are icky and get too much money.  That is, she probably disagrees with the merits of the contract.  She’s not so concerned with the compensation levels of the AIG division that helped pull the global economy down the toilet.  These people are simply getting an honest day’s wages for an honest day’s work.

After all, financial jobs are really hard and full of really really talented people who deserve a lot of money.  If they don’t get that money, just imagine the horrors that could befall us.

Comments

[AIMAI]

My god that op ed takes the cake for stupid special pleading. If I thought Ruth Marcus could feel shame, I'd try to shame her for it.

aimai

[jdog]

The difference is that an AIG executive can resign, comfortable in the expectation that the millions earned in prior years will afford a very comfortable life (even accounting for personal portfolio losses in the past two years). An autoworker, or course, likely has no such luxury. Some guns only work in certain directions!

[Hogan]

If UAW members had managed to bring down the global automotive industry, would Marcus be so blase about allowing them to decide whether to stay in their jobs?

[bedtimeforbonzo]

As has been the case throughout the bailout express, auto workers have been routinely painted as greedy, overpaid, and, in some cases, useless. So this Marcus piece -- or any putdown of UAW workers -- no longer surprises me.

What made me tune in just now before picking the boy up from school was to see reaction here from AIG CEO Edward Liddy's just-completed Congressional testimony.

Personally, I feel for the guy (the guy, mind you, not AIG). He was brought in not that long ago to clean up the mess others created and is doing so for $1 a year. I thought he explained the whole mess as well as I've heard from anybody, all the while being the easy CEO target from Congressmen showing off for the folks back home.

Come to find out, the Federal Reserve knew about these retention bonuses as they were being written and, thus, by not doing anything about it, gave it the government stamp of approval.

So, once again, we are being screwed by our own government (this happened during the Bush Administration).

Also, if we want to direct anger at other targets other than AIG -- although I certainly understand it is easy to attack Arrogance Ignorance Greed -- Tim Geithner continues to look small.

Turns out he knew about these bonuses a couple of days before they were to be given and, just as with his tax problems, stayed mum on the subject until it was no longer possible -- not even bothering to update his boss, President Obama, on the bonuses until two days after he had found out. Isn't it time he goes? Fwiw, I nominate FDIC head Sheila Bair as someone who could come in and do a good job on behalf of taxpapers, not Wall Street.

One last thing: The Congressmen, both Republican and Democrat, are looking stupid going from camera to camera talking about putting after-the-fact taxes on these bonuses. They might want to consult the U.S. Constitution on that one before they look any dumber.

Take 'em to court. It may not be a good option. But if they're as outraged as the rest of us -- and they certainly are acting that way -- take 'em to court. Maybe some judge out there will read the Constitution differently than I do.

[paulo]

Just think, if the AIG workers - umm I mean executives - were unionized, we could probably get some of our money back.

[bobbyp]

In my business (construction) contracts are routinely bent, broken, or ignored. It is not unusual to see the parties wind up in court--well, actually, these disputes clog our courts.

In order to keep legal expenses down, renegotiated "outcomes" are common.

Sanctity of contracts....snicker. What unmitigated pablum.

[MikeF]

Isn't it time he goes?

You don't get rid of the fall guy until the crisis is starting to pass...

[rea]

See, the mass of mankind were born with saddles on their backs, and a favored few were born booted and spurred, ready to ride them legitimately, by the grace of God.

[ThatLeftTurnInABQ]

At this point I'm sick to bloody death of this AIG bonus story. We are reshuffling deck chairs on the Titanic. Trillions of dollars are at stake, either in terms of additional debt we will take on to prop up the existing financial system until it can safely be dismantled and replaced, or in terms of the decline in both global and US national GDP that a true Depression would produce.

At this point the folks who benefit most from our continued focus on this story are the cable news networks and most especially CNBC which otherwise would be imploding as we speak after both their credibility and their relevance was totally destroyed by Jon Stewart. The rest of us are just taking our eyes off the prize at a time when we can least afford to do so.

The public should be focused on the following issues:

1 - Should taxpayers continue to recapitalize the banks with additional public funds (above and beyond what has already been spent), or do we let them stand or fall on their own? What are the range of possible consequences in either case?

2 - If the answer to question 1 is a full or partial yes, then by how much and via what mechanisms (e.g. under what terms and conditions, and subject to what sort of regulation and oversight?), and who pays for it and how?

3 - Depending on the answers to the questions above, how do we prioritize the distribution of the assets of failing banks, or the haircuts distributed to debtholders if the latter are expected to shoulder some of the burden of getting the banks back to a healthy level of leverage? This is a particularly acute question with regard to the bondholders of debt issued by the failing banks.

These are literally multi-trillion dollar questions. Eyes on the prize folks.

[Gary Farber]

"At this point I'm sick to bloody death of this AIG bonus story."

Me, too. And the title of this post makes me think of this:

Marcus Cole: [noticing Ivanova's not paying attention to his report] There's always the threat of an attack by say, a giant space dragon. The kind that eats the sun once every 30 days. It's a nuisance, but what can you expect from reptiles? Did I mention that my nose is on fire? And that I have 15 wild badgers living in my trousers?
[Ivanova glares at him]
Marcus Cole: I'm sorry would you prefer ferrets?

(For Andy, among others.)

[John Thullen]

It's past time that those riding in the wagon get down off the wagon and join the rest of us, including those single welfare mothers thrown off the wagon back in the day, and start doing their part to pull the wagon.

With the added horseflesh, we can speed up the wagon, the better to give Phil and Wendy Gramm a more exhilirating ride as they're dragged behind it, after being tarred and feathered.

Plus, we need to make the wagon go faster to outrun the creditors who want their wagon back.

We could ambush the wagon and feed the ones riding in the wagon to the horses.

Sanctity of contracts: How come every contract I sign is open to abrogation in millions of sneaky ways because of weasel-worded information contained in illegible small print written in disappearing ink and attended to by oily attorneys?

Didn't the Republican Party bring the holy-rollers on board all those years ago to tell us all contracts would end in the Final Days?

Did you ever watch Chico Marx sell his brother Groucho .... just about anything?

We have been Chico-ed in the most magnificent scam of all time.

I'm thinking of getting a job with FEMA as a camp counselor at the secret prison camps where Glenn Beck and the powers-that-be in the Republican Party (and the Bernie Madoff Democrats) spend their final days.

Glenn Beck has a dream.

I hope it comes true.

[Andrew R.]

Left Turn,

I for one kind of think that what's going on is that the bonus outrage is a prophylactic on the part of the president and our elected officials. We're still going to have to borrow a few trillion more dollars from the PRC et al (or have the Fed government the money into existence) to keep the whole system from collapsing around us. Now, no matter how necessary it may be to give gobs of money to the folks who caused the problem to begin with, there's a basic moral outrage that comes with it. So as long as congress and Obama present a "killed virus" outrage, they can go about their business of unf*cking the financial sector.

[Sebastian]

I object to the attempt to differentiate between the unions and the bonuses, but in the other direction. Both companies should be effectively treated as if in bankruptcy for the purposes of renegotiating the contracts. It is interesting how many people try to treat the cases differently though—it may not be a definite sign of hackishness to want to break the AIG bonuses and not be willing to renegotiate the UAW contracts or vis versa. But is certainly is suggestive evidence.

[byrningman]

Publius, much as I love you babe, I just don't think this banker/auto worker equivalency has any bearing on making real decisions in the real world.

Certainly there is some dead weight, but by and large the key staff at AIG are being paid retention money because if they leave the whole company is totally fracked. In contrast, if auto workers were to lose their jobs, it would benefit their companies, and this was true even before demand for carmakers' product really bottomed out.

This doesn't mean AIG finance guys are 'better' people than autoworkers, or more 'valuable' in some kind of moral, existential sense. It's just the hard truths.

[Eric Martin]

byrnie: You don't think that in this market, AIG could find qualified people willinge to work for less?

[Sapient]

"You don't think that in this market, AIG could find qualified people willinge to work for less?"

Sorry to interrupt. I don't think that the AIG people are inherently smarter than other people. But there's a huge learning curve in some industries and professions, especially those involving deal-making, relationships, etc. People who have worked at a company that's been merged into another, or acquired, can often see what it means to get rid of folks who have institutional knowledge. Although things may seem from some perspectives to be running smoothly, the details are lost. In this case, I imagine the details are pretty important.

That's not to say that there might be many instances of nefarious stuff going on. But it's probably not quite that simple.

[gwangung]

byrnie: You don't think that in this market, AIG could find qualified people willinge to work for less?

Qualified as in skilled or qualified as in "informed"?

[bedtimeforbonzo]

What Eric just said.

---

LeftTurn: If the AIG scandal was what it finally took to get the public's attention on just how much the financial sector -- not the UAW or GM, mind you -- fncked the economy into a Great Recession, then I'm all for the story sticking around.

You can bet your ass or mine, or maybe Thullen's, that any further bailout money will not be given without strict, iron-clad terms and well-thought-out legislation now that Congress knows voters are paying attention at last.

Instead of Congress being focused on AIG, Citi, Bank of America and the rest of the Wall Street scum when they were getting billions upon billions of taxpaper dollars, most of the outrage was being directed at the Detroit's Big 3 CEOs taking private jets to Washington, a minor matter compared to the raping and pillaging of the economy that AIG has so deftly performed.

I say keep the story in the headlines and don't let these Wall Street fncks get away with any more bullsh!t.

---

MikeF: Good point.

---

Just finished watching President Obama's entire California town hall.

Usually I start to dose off about halfway through these town halls. But this one was different -- because of Obama. His special combination of charisma and command of the issues at least gives some reassurance that we will be out of the woods someday.

Cheers.

[Brett Bellmore]

Qualified, in the sense of being able to hit the ground running? Probably not.

Byrnie is right about this, even before the collapse, the automotive companies were paying employees to go away. They were offering ANTI-retention bonuses.

That wasn't exactly a strong negotiating position for the UAW to be in.

[matth]

Before we gave AIG the bailout money, we could have demanded that they re-negotiate these bonuses.

What would have happened? For a lot of these guys, it sounds like the bonuses were worth more than continued employment at AIG was. Now, if they really believed that the federal government wouldn't bail out AIG (so they wouldn't get their bonuses anyway), then they might have caved. But they probably wouldn't have believed that: not bailing out AIG would have done tons of damage to everyone.

The UAW agreed to renegotiate because what the auto companies were offering --- continued employment --- was worth more than what they were asking for --- some pay and benefit cuts. For many of the AIG guys, AIG had nothing to offer worth more than the bonuses.

So yeah, AIG could have and should have tried to renegotiate. But it probably wouldn't have made much difference.

[Johnny Canuck]

I listened to the hearings. What appalled me: Liddy answered a question; subsequently other Congressmen would ask the same question, including in their comments/questions the same incorrect information Liddy had previously corrected. Must have been at least 8 or ten times that LIddy had to tell them the total amount AIG owes the US -less than $100 billion, not $170 billion; that the people being paid the bonuses were not the people who created the problem; that the credit swap problem dates back to 2005 and AIG stopped doing new ones in 2006- That there are 3 parts to the division and that the people they were paying the retention bonuses to were in the good divisions. That LIddy expects all money advanced by US will be repaid in full provided markets don't deteriorate further. That there is still $1.6 trillion to be managed as they wind down the division over the next 2-3 years. That the people still employed may well return their bonuses and submit their resignations. Leaving AIG in a mess, and increasing the risk that US may not get all money back. As far as I could tell most of the Congressmen were incapable of understanding the answers.

[Gary Farber]

"As far as I could tell most of the Congressmen were incapable of understanding the answers."

No, they just want video of them asking those questions so they can be seen on their local news asking those questions, and the video can be used in campaign ads.

[Johnny Canuck]

"As far as I could tell most of the Congressmen were incapable of understanding the answers."

"No, they just want video of them asking those questions so they can be seen on their local news asking those questions, and the video can be used in campaign ads."

You may be right; one would have thought they would correct misinformation so that they would appear more insightful.

[publius]

byr - first, sorry to have missed you last weekend.

second, i agree with eric -- do you really think there's no one else that can do this? i mean, there are a lot of highly-trained people w/out jobs right now. i realize they lack the institutional k-ledge and face learning curves. but at this point, i'm not sure that's such a bad thing. i have to think the current AIG people may be the LEAST likely able to right the ship.

[Gary Farber]

"No, they just want video of them asking those questions so they can be seen on their local news asking those questions, and the video can be used in campaign ads."

You may be right; one would have thought they would correct misinformation so that they would appear more insightful.

Actually, I would have been more accurate if I'd noted that it's not an either/or proposition.

[John Thullen]

The Cunning Realist believes Barack Obama should take a page from Ronald Reagan and do an air-traffic controllers type of mass firing.

I agree.

It should be brutal, huge, and game-ending.

Set the tone.

Haven't conservatives been telling us for 20 million years that EVERYONE is expendable?

Chop their heads off and walk away.

Maybe quant types can land airplanes from control towers.

I doubt it. There would be planes falling from the sky like worthless credit swaps.

[gregspolitics]

Publius, this is just another example of the cluelessness of the media about so many things. The point of the op-ed appears to be to attack Obama for "stoking the populist rage" and blaming him for any problems he may encounter in trying to get more bank rescue funds. HUH!?
I actually think we may have found someone who is proportionately more overpaid than the AIG bonus babies.

[Johnny Canuck]

Publius:"there are a lot of highly-trained people w/out jobs right now."

Liddy's point was that they are managing $1.6 trillion portfolio and there were several hundred very individual contracts; needed to adjust every day to manage risk. During the period for new guys to get up to speed, potential for mistakes/omissions. Reason to give retention bonus to guy you know is reduce risk of mistake. seems rational to me.
Also as Liddy was forced to repeat ad infinitum. The bad division- that caused the problem is all gone. The remaining derivative portfolio is being managed by people who didn't mess up.

In other words misdirected anger of Congress and taxpayers pointed at innocent scapegoats has potential of destroying what Liddy has been striving at no financial benefit to himself to rescue for the last 6 months. namely to save US govt 100 Billion plus potential damage to markets if AIG were to fail

[bobbyp]

"that the credit swap problem dates back to 2005 and AIG stopped doing new ones in 2006"

They stopped? Why? Did they sense a problem? What did they do to climb off that limb? Nothing as far as I can see. They booked the profits. They seek to pass the losses off to the public. It is this essential truth that has the public in an uproar. The bonus controversy is only the visible manifestation of that rage.

"That there are 3 parts to the division and that the people they were paying the retention bonuses to were in the good divisions."

My heart breaks. I guess collective guilt and the accompanying punishment is only reserved for those less well off. Blaming the poor for their condition as a class is OK, but rich folks deserve more discriminating analysis? Pure unadulterated BS.

It is this blinkered kind of thinking that tends to really set me off. But I'm a crazy radical.

[gregspolitics]

Another example of media cluelessness is in another article in todays WaPo- President's Budget Strategy Under Fire - how dare the President try to find a way to implement his campaign promises by majority vote, which is now a shortcut of some sort. Again, this person totally misses the point of Obama's bipartisanship, which is to be open to the best ideas, wherever there may be from, in crafting legislation, as opposed to the WaPo's idea of bipartisanship, which is apparently that you should only try to accomplish what the party that lost the election is willing to let you accomplish. Of course, this article also gives us more examples of the shortsightedness of some of the Dem senators as well although I suspect that at least some of these senators secretly welcome the prospect of reconciliation being used so that the legislation can still pass while they vote against it. I especially enjoyed Sen. Conrad that this was just supposed to be for the tough tax and spending choices-I didnt know the Bush tax cut was a tough choice or that health care and acting against carbon emission didnt require any tough choices.

[Tony P.]

Forget comparisons with auto workers. Let's talk waiters.

Wall Street wizards have this much in common with waiters: they assiduously cultivate the notion that they are entitled to a percentage of the gross. There's something appealing and something appalling about that paradigm.

The appealing part is the idea that individual effort gets rewarded. An industrious, efficient waitress serves more parties and collects more tips than her lazy, inefficient colleague in the same restaurant. The appalling part is that a tuxedoed waiter at an expensive restaurant collects much bigger tips than a waitress at IHOP, despite the fact that he cannot possibly "work harder" than she does. What's being rewarded is position, not effort.

Wall Street handles vast amounts of money. For their "effort", the wizards of Wall Street merely ask for a tiny percentage of that money -- not remotely the 15% waiters expect, but a percentage. Of course, a tiny percentage of trillions of dollars is still a huge income. If you can get yourself astride a big money stream, scooping out general ladles-full of cash for yourself is easy. It's akin to collecting tips on the price of lobster and champagne, rather than pancakes and coffee. Nonetheless, the Wall Street wizards have spent years claiming that they "earn" their money.

The general public has swallowed this percentage paradigm for a long time, with respect to both waiters and financial wizards. Now, it's choking on the implications, at least with respect to Wall Street. It is to laugh.

For me, the outrage is that our free-market-worshipping, regulation-denouncing, right-leaning friends who spent years defending the percentage paradigm for Wall Streeters, and shouted "class warfare" any time somebody suggested that maybe Wall Street wizards were overpaid (not to mention undertaxed), are now shocked (shocked!) by the fact that those wizards took them seriously enough to structure Wall Street "compensation" around what amounts to lavish tips.

--TP

[KCinDC]

I do worry that popular rage is going to lead us to do some counterproductive things, but I'm not sure I believe that very many people on Wall Street are really "innocent scapegoats". The whole environment there seems to be deeply sick and devoted to short-term gain at the expense of the future and individual gain at the expense of everyone else including one's own company, so I doubt there are many who have been successful there who are innocent.

That means I'm extremely hesitant to entrust our economic future to them (though options seem limited), because I'm not at all sure that their goals align with the country's. It doesn't mean I want them all shot.

[russell]

This doesn't mean AIG finance guys are 'better' people than autoworkers, or more 'valuable' in some kind of moral, existential sense.

You got that f'ing right.

It's just the hard truths.

The hard truth is that money talks, bullshit walks, and people who spend their working days doing simple stuff like making stuff and performing simple, basic, useful, tangible services get sh*t.

Nothing new there.

My heart actually goes out to Liddy. The man is working for one US dollar, and is taking a ration of crap for stuff he had no hand in creating. IMVHO he deserves some kind of medal, and I'm not being sarcastic.

Likewise, the folks who are actually sticking around at AIG to untangle the mess get my good wishes. As opposed to the folks who are taking the money and running, who get my utter disrespect. FWIW.

Investment banking can be a very, very demanding line of work. It also pays unbelievably well. If you're not greedy, you can work for a couple of years and never have to work again.

People like folks in the UAW will work 20 to 30 years to have, if they're very lucky, a modest level of security.

And, of course, they will have folks like byrningman offer an acknowledgement that other folks aren't 'better' than them, except better will be in quotes.

Not picking on you in particular byrningman, it's a common enough attitude.

The Cunning Realist believes Barack Obama should take a page from Ronald Reagan and do an air-traffic controllers type of mass firing.

I'm not there yet, but I'm getting there.

Let's see what happens when the rest of AIG's books are opened up.

At some point, things will be so freaking bad that just taking them the f**k over will simply not make things worse, because 'worse' won't have any real meaning.

It's hard for me to see that point being very far away.

Hey, guess what I haven't heard in a few weeks:

"Let the market sort it out".

[Johnny Canuck]

BOBBYP: "They stopped? Why? Did they sense a problem? What did they do to climb off that limb? Nothing as far as I can see. They booked the profits. They seek to pass the losses off to the public. It is this essential truth that has the public in an uproar."

Seems they recognized some risk and held their breath. If economic meltdown hadn't happened in 2008 they might have escaped.
AIG is not trying to pass the losses off on the public. Libby, a retired insurance exec, came in sept, is working for no salary or bonus, is trying to unwind the business- and thinks he can do so, paying back taxpayers every penny by 2012.

Ignorant rage is jeopardizing his efforts.

If one were not part of the group that screwed up, why should one stick around unless compensated (real problem is size of payments negotiated by prior management obscenely large)-

[bedtimeforbonzo]

"My heart breaks. I guess collective guilt and the accompanying punishment is only reserved for those less well off. Blaming the poor for their condition as a class is OK, but rich folks deserve more discriminating analysis? Pure unadulterated BS."

BobbyP: Count me in as a crazy radical, too, since I'm in agreement with the sentiments you voiced.

Thullen: You might be onto something.

Gary: In so far as campaign material from today's hearings, I don't think any of the Congress folk could top New York Rep. Spencer Ackerman, the Dem who always wears the carnation in his lapel. Man chews scenery off the wall like the late Rod Steiger.

Russell: The only thing the market has been sorting out for a long, long time is taxpaper money.

[hilzoy]

"Also as Liddy was forced to repeat ad infinitum. The bad division- that caused the problem is all gone. The remaining derivative portfolio is being managed by people who didn't mess up."

I'm not at all sure this is right. It seemed to me that Liddy was saying that the 20 or so people most responsible had left. That's quite different from saying that all the people responsible left. Moreover, since he didn't admit to knowing the names of more than one person who was responsible, it's hard to see how he could be so sure.

[bobbyp]

Dead wrong, Johnny. We are currently engaged in a kabuki dance wherein we are paying off the winners of AIG's losing bets. There is no "sorting this out". AIG simply does not have anything near the dough needed to cover the "insurance" they sold.* If they had been smart, they would have desperately sought counterparties to this lunacy and hedged their risk. After all they are so effing smart, right?

Apparently they did not. Funny thing what easy money does to one's judgement, eh?

AIG is now hapless...but the big counterparties are insisting on their payoff (Goldman Sachs, et al). They do not want to take a haircut. I don't blame them for trying, but hey, if folk can cavilierly blame idiots with no income for buying $400k houses, why should we feel sorry for smug bankers for offsetting risk with a countraparty that could not possibly cover if things went south?

Your plea for sympathy is utterly misplaced. I suggest you call Rush. I hear that 'populist' is now defending Wall Street bonuses. Methinks he is losing his touch.

*discount any conceivable future profit stream from their good lines to the present and convince me you can come up with $150+ billion. Give it your best.

[Johnny Canuck]

Hilzoy: "It seemed to me that Liddy was saying that the 20 or so people most responsible had left. That's quite different from saying that all the people responsible left.
- He explained that there were 3 divisions, credit swaps were all the bad stuff happened and is now virtually wound down; I think the other two were currency and derivatives. Derivatives were virtually all of the $1.6 trillion that is being wound down remains

"Moreover, since he didn't admit to knowing the names of more than one person who was responsible, it's hard to see how he could be so sure."

-earlier in his testimony, it came out that there have been death threats made against him. In response, I think it was to Franks request, He refused to release the names of those who had received bonuses without a guarantee of confidentiality (which Franks declined to give). He cited the physical safety of these individuals. So when that very obnoxious representative asked him for the names of the 20 from credit swaps he declined. I understood him to be doing so on the same basis of the physical safety of these people.

Moreover, since the bad deals were made in 2005, and 2006, and Liddy didn't arrive until Sept 2008 I think it likely that he wounldn'd know many of them.

[KCinDC]

New York Rep. Spencer Ackerman

That would be Rep. Gary Ackerman. Spencer Ackerman has not been elected to Congress, though it might be interesting to have him there.

[bobbyp]

"I think the other two were currency and derivatives."

Well, actually, they do sell real insurance for which they had real reserves at one time and may still actually make money, from those few still able to purchase it.

[Gary Farber]

"New York Rep. Spencer Ackerman"

Gary Ackerman.

Spencer Ackerman is the blogger.

[Johnny Canuck]

"Well, actually, they do sell real insurance"

But all the problems were with the financial products division

[gwangung]

But all the problems were with the financial products division

We hope.

[byrningman]

People like folks in the UAW will work 20 to 30 years to have, if they're very lucky, a modest level of security.

And, of course, they will have folks like byrningman offer an acknowledgement that other folks aren't 'better' than them, except better will be in quotes.

If you really want to run with the auto worker-banker comparison, then frankly I think auto workers have a lot more to be criticised for the bankers. Auto workers have been knowingly running their companies into the ground for decades, after all.

There's a double standard alright, and that is to assume that banking is somehow immoral because it's lucrative and that being an auto worker is moral because it's less lucrative (even though it is a still a comparatively cushy number, for more so than the firms concerned can afford).

[publius]

i think you could argue though (following TonyP's point) that waiters and waitresses have run all failed restaurants into the ground by demanding such high wages. the truth is that the restaurants just sucked or faced some bad circumstances.

It's too late to go digging links, but I also think it's not right that wages are responsible for Detroit's decline. management made some terrible terrible decisions -- it's not simply a matter of cost. if the cars were good, people would pay more for them. they just weren't that good for a while.

but there's more empirical stuff that I can provide at some point.

[byrningman]

second, i agree with eric -- do you really think there's no one else that can do this? i mean, there are a lot of highly-trained people w/out jobs right now. i realize they lack the institutional k-ledge and face learning curves. but at this point, i'm not sure that's such a bad thing. i have to think the current AIG people may be the LEAST likely able to right the ship.

I think in practical terms you can't just replace all these people without seeing many of the assets they are managing implode in the interim.

But there are greater problems still with this idea. First off - who would take a job in AIG, knowing that the previous gang had been stiffed by the government contrary to contract law? Surely anybody with any brains would demand payment up front in cash given that precedent, and even then there's no guarantee the government wouldn't subsequently bow to calls to send in the SWAT team to take the money back and put your wife and children in stocks to have rancid fruit pelted at them.

Moreover, anyone qualified to take on the job surely has better offers in saner firms with less or no government involvement. It's simply wrong to think that there are loads of qualified financiers for the taking: valuable people are being hired by other banks every day still, people who can do the job will always be hot commodities, and have far better options than a dead-end AIG with an untrustworthy employee.

Finally, apart from the fact that these assets do require constant management, and might implode while you are transition to a new team wholesale, you have to think about the market's reaction. Believing that the government is now running AIG into the ground, which is 100% guaranteed how the market will perceive any action that causes a mass exodus of current staff, all those firms holding AIG's obligations will come under immense press once again. Likewise, every other firm was substantial government involvement at this point, which is a lot of them, will begin to seem like untrustworthy counterparties (in fact this is already happening to a certain degree, which is why several banks actually took government funds unwillingly and want to give the bailout money back).

In other words, you run a great risk of starting another round of mass panic concerning AIG and the possible exposure of its counterparties, PRECISELY THE OUTCOME THE GOVERNMENT HAS SPENT $170 BILLION TO AVOID.

Do people really want to risk another round of falures after having spent hundreds of billions of dollars already, all for the sake of a couple of hundred million dollars' worth of bonuses, only a fraction of which is going to individuals in senior strategic positions who might justifiably be accused of being responsible for AIG's ills in the first place. I'm sure most goes to the whizzes you need to run the shop.

My position has always been that there doubtless be undeserving people who come out of all this smiling, and the media will have a field day with that. But it would be epic folly to undermine everything else in a self-defeating rush to punish those people. The Iraq War was going terribly for the first few years, but I didn't hear anybody demanding that all the American soldiers who served there, or all the officers at least, be thrown out and replaced with a hypothetical cohort of equally experienced and trained officers waiting in the wings. You face the market with the AIG you've got, not the AIG you wish you had ;)

If you really do care about the auto workers, then save their jobs by saving the financial industry that keeps carmakers afloat, and don't get distracted by small stuff.

[byrningman]

It's too late to go digging links, but I also think it's not right that wages are responsible for Detroit's decline. management made some terrible terrible decisions -- it's not simply a matter of cost. if the cars were good, people would pay more for them. they just weren't that good for a while.

Right, I'm sure the cause of Detroit's doom is debatable and I don't claim to have an informed opinion on that. The fact is though, now that Detroit is in the woodshed and the farmer's gun is loaded, I don't see politicians, the media, the public or people on this blog up in arms demanding that autoworkers give up substantial portions of the remuneration out of some supposed patriotic duty to help their firms.

It's just not realistic to expect people to take one for the team en masse if their company is failing, whether it be AIG, GM, or Sun Microsystems, say. I'm sure most people think to themselves, "it's hardly my damn fault, and I've got my family to think about, and besides, a deal's a deal, and I'd like to be paid what I'm owed."

[byrningman]

end italics

[TruthOfAngels]

"If you really want to run with the auto worker-banker comparison, then frankly I think auto workers have a lot more to be criticised for the bankers. Auto workers have been knowingly running their companies into the ground for decades, after all."

Ah yes. The evil production line worker and the innocent yet hapless multi-millionaire.

I won't parody this. It's beyond parody.

[byrningman]

Well, sorry to question the lazy Calvinist assumption that labour = virtue.

[liberal japonicus]

Trying to stop the italics

[TJ]

These bonus wizards wrote $1.6 trillion of contracts they knew they couldn't fulfill and are trying to unwind now? They shouldn't be receiving bonuses of any kind; they should be in Gitmo as financial terrorists.

And how much skill does it take to pay off foreign banks at 100% when they come asking for their money? Let's face it, AIG financial products division is never going to be worth bupkiss again. And paying money to extortionists is never a good idea.

[Anarch]

Well, sorry to question the lazy Calvinist assumption that labour = virtue.

I don't think anyone's talking "virtue" here, just "fairness".

[bedtimeforbonzo]

"Spencer Ackerman is the blogger."

That must have been in the cobwebs of my brain somewhere. (I had to keep reminding myself not to call Liddy Libby yesterday.) Thanks, Gary and KC -- I was just about to correct myself this morning having seen a repeat of the news late last night.

Meanwhile, I think it was Johnny Canuck who mentioned Barney Frank's flat-out disregard of Liddy's mention that just not his employees -- but their families -- had received vile death threats. Hard to respect Barney after that.

[TJ]

Meanwhile, I think it was Johnny Canuck who mentioned Barney Frank's flat-out disregard of Liddy's mention that just not his employees -- but their families -- had received vile death threats. Hard to respect Barney after that.

Were you guys listening to the same testimony? Frank condemned it, said they would look into Federal action later, and stated the local authorities should follow up on any threats. The only thing dismissive he said was something to the effect that Congress gets death threats all the time.

[russell]

It's just not realistic to expect people to take one for the team en masse if their company is failing

Just from my own circle of acquaintances, I can introduce you to a generous handful of folks who are taking one for the team because their company is facing hard times.

My brother in law owns a printing business in OH. His whole damned company is down to a four day week. They're taking one for the team because the company is facing hard times.

It's pretty damned common.

People aren't mad at the folks in AIGFP because they're wealthy. They aren't mad because they work white collar jobs.

They're mad because many of the folks who are insisting on being paid retention bonuses are the same people who made the deals that bankrupted the company and left the rest of us holding a hundreds-of-billions-of-dollars bag.

Their job was to analyze and understand risk and to create financial products that provide a hedge against that risk.

They failed. They failed because they thought they had stumbled across the easy money, and they just couldn't say no.

And in failing, they bankrupted their company and put the economy of the entire freaking world at risk.

But if we don't pay them millions of dollars, they will take their bat and ball and go home.

Because they have their families to think of. Unlike the rest of us.

If these folks are the only ones who understand the deals well enough to sort them out, and we have to pay them millions to stick around, then let's all hold our noses and pay. Amazingly enough, numbers with less than three commas are more or less noise these days.

But it bloody well sucks.

[KCinDC]

Well, sorry to question the lazy Calvinist assumption that labour = virtue.

What about the lazy assumption that everyone who's paid millions is necessarily an irreplaceable superman? Doesn't the current disaster caused by some of those godlike beings suggest that perhaps the system doesn't quite work like the capitalist ideal?

[Jim]

If these bonus es are for retentiton, then these people are going to have to stay. Stop Loss them.

[Jim]

"Meanwhile, I think it was Johnny Canuck who mentioned Barney Frank's flat-out disregard of Liddy's mention that just not his employees -- but their families -- had received vile death threats. Hard to respect Barney after that."

If these people had been acting like citizens, they might not have gotten these death threats. And if these people had been acting more like citizens, I might have cared more.

So maybe Barney condemned them, but I'm like "meh..." If the law of the jungle is going to apply in the financial markets, why stop there?