CEPR - Center for Economic and Policy Research

Another $230 Million in AIG Bonuses: Why Don't We Take Our Chances?

Dean Baker
Talking Points Memo, July 14, 2009

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AIG, the basket case insurance company, wants to pay out another $230 million in bonuses to its top executives. The word is that the government contractually obligated to make these payments. Furthermore, if we don't cough up the dough, AIG supposedly will lose good people. The claim is that this will cost us even more money, since the replacements will not be able to fix the AIG mess as well.

Why should we believe that claim? After all, the people who make the claim were either too incompetent or too corrupt to recognize an $8trillion housing bubble. These were the people who at every step along the way said that everything was fine. Even when things started to unravel, they told us that the problems would be contained in the subprime market. The question these people should answer is: "when did they stop being wrong about the economy?"

It seems bizarre that you can't get good people to work on Wall Street for less than several million dollars a year. I have had very bright people put in long hours for me, and I never paid anyone more than $100,000 a year. I realize that these people were motivated by the idea that they were doing something good for the world.

Maybe we can make cleaning up AIG a public service project. We could have public-minded business school students (an oxymoron?) put in two years fixing up the disaster created by the previous group of alleged geniuses, before going on with their careers.

One issue with AIG that need not concern us is the "sanctity of contract" line. AIG is a bankrupt company. Contracts do not survive bankruptcy. This is a fact that has been made very clear to hundreds of thousands of auto workers, who are losing the retiree health care benefits that they worked three decades to earn.

The boys and girls at AIG presumably understood this feature of bankruptcy law. If not, they probably are not smart enough to be of much help in the clean up effort.

In short, the sanctity of contract line as applied to AIG is a great lie detector test. Anyone who raises it to defend the bonuses is not being truthful.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.