Will AIG bonuses derail economic recovery?

Obama gave financial insurer AIG a massive tongue-lashing on Monday, after it was reported the flailing company distributed $165 million in bonuses to derivative traders as part of its “retention program.”

Then, on Tuesday, came the smack down — a pledge from the administration that it would do all it could to get that money back.

But the question is, will it be enough? Is there really anything we can do to force executives to return that money? One thing I do know: Anything short of a good, old fashioned tar and feathering in the town square will fail when it comes to extinguishing the populous firestorm AIG has ignited.
Obama’s precarious predicament

“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama said. “It’s hard to understand how derivative traders at AIG were rewarded any bonuses much less $165 million in extra pay. How do they justify this outrage to the taxpayers that are keeping the company afloat?”

Obama went on to the say the administration will use every feasible, legal avenue to get that money back and make the American people whole.

Clearly, the president knows just how deeply this situation has offended the American people. The upside for the administration is it no longer has to worry about appearing “anti-business.” That angry populism all the pundits have been cursing for weeks, well, that would now belong entirely to the American people.

With that said, this new financial nonsense puts Obama in a tough position, politically and economically. Rebuilding the economy is entirely predicated on whether the administration can unravel the banking mess. Doing that will require more money. The original banking bailout barely squeaked by Congress, and that’s before we all realized just how recklessly they were going to use the funds. Now, with the boneheads at AIG at the forefront of everyone’s minds, we might as well ask the man to walk on water.
AIG’s ruthless ways

Here’s a little short history lesson about the financial insurance giant. It has take four bailout installments totaling more than $150 billion.

The bonuses it awarded last week, reportedly to “retain” executive talent was, in fact, paid from taxpayer money. The “retention program” gave money to 73 staff members in its financial services division. These are the very folks that brought AIG to its knees in the first place. Eleven of these folks left the company anyway.

But wait, it doesn’t stop there.

AIG also used taxpayer money to high a veritable army of PR firms: Kekst and Company, the lions of New York’s finance spindustry, Sard Verbinnen, Hill & Knowlton and Burson-Marsteller.

Burson-Marsteller, the fifth largest PR firm in the world, is run by Mark Penn — who was Hillary Clinton’s campaign manager during the presidential election. Some of its most notable clients: Blackwater, the private security company accused of killing 17 Iraqi civilians; the Colombian government; and the Nigerian government, when it tried to dispel rumors that it was committing genocide.

They don’t just specialize in spin but crisis management and corporate protection.

In short, we are paying millions to the most expensive public relation firms in the world so AIG can pretty itself up for us, delude us into believing this mess is not entirely of its own making, and ensure no one on the bankroll ever faces criminal charges behind it, ever.

Nice, huh?

Wonder if Burson-Marsteller helped AIG turn bonuses into a “retention program”?

Folks are angry for good reason. The majority of Americans will not blame Obama for it, but it will undoubtedly make them less willing to accept any additional expenditures on behalf of the banks.

And it’s really quite tragic. After all, we own a good chunk of the banks already. If we totally abandon them, it will come back to bite us in the butt. It’s hard to imagine a strong economy, much less our currently weakened mess, surviving that kind of blow.

Devona Walker is senior finance reportet at theloop21.com

3 Responses to “Will AIG bonuses derail economic recovery?”

  1. You know, there are two things that really get me about this. First, I’m growing a little impatient with populist anger, mainly because it’s so reactionary. Yes, where the hell were you people BEFORE the house caught on fire? Oh, but now you’re all fire marshalls are you?

    This isn’t aimed at you, Walkerdev, this is just a general problem I have. Populism is random anger that any half decent politician can direct for their own purposes.

    The other thing is that there is a very simple fix that would put all this to rest, but some greedy folks just won’t do it. Give the bonuses back of their own free will. Seriously. If all these folks getting the bonuses just held a joint press conference and said, “For the good of the nation, we’re going to take this one in the shorts and give back the bonuses,” this whole nightmare would go away.

    What gets me is the shortsidedness of this all. AIG and its employees have to understand that at some point government isn’t going to be there to prop it up anymore. Now, imagine the public sentiment towards AIG and its employees right now. If the economy magically fixed itself tomorrow, and AIG was left on its own to compete in a free market, how well do you think it would fare with all the stink surrounding it? Not very well, I should think.

    Just seems short sighted to me. But what do I know about the economy?

  2. Jmax says:

    The Executives at AIG bring the company to the brink of Bankrupcy then get millions for it. What is wrong with this picture. Why dont we Pay murderers for they crimes; Lets take it a step further and pay Tax Cheats millions for cheating the goverment. These Exec’s should all give the money back willingly, The fact that they would even consider taking it is shameful. If they refuse to give it back the Fed government should tax it 100% They should absolutely NOT be able to keep that money..

    What we are seeing in Corporate America is the spirity of greed and corruption that ruled in capitalism being broken. THis will continue to happen. Capitalism cannot go on as usual it must be reformed.

  3. walkerdev says:

    I think Edward Liddy said some of the employees have offered to give the money back. But he didn’t say how many. He also refused to say who had refused to give the money back. We do know that 53 of them have left the company — they took the money and ran. So clearly, their incentive to give the money back is pretty nil.

    I agree about the suddenly angry populism. But in a way, I think that’s how these things happen. we have been moving in this direction since Reagan was in office. Deregulation, the market rules, growing gap between the rich and poor. I read somewhere recently that even Korea has a more egalitarian society than America. A lot of that has to do with outsourcing and the massive loss of well-paying, working-class jobs and the massive increase in our service economy. But it doesn’t change the fact that the benefit of the doubt and the tax breaks and all of the political clout was at the top of the ladder.

    But, we’re Americans right. We value ingenuity, innovation and success. I think the anger is that people are starting to realize that those things have comes at the expense of the rest of us.

    So. politically I agree with you. But I think it’s kind of human nature, isn’t it?

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