Tuesday, March 17, 2009

The Way to Prevent AIG “Bonuses”

Everyone has a right to be very angry about the bonuses given out to executives of AIG and any other large financial house that has received TARP bailout money.

There is a simple way to fix this from ever happening again:

• Consider any company’s execs who receive taxpayer-supported bailout money as “public servants” and pay them accordingly.

Before you think this sounds like a draconian proposal (which it is intentionally), let’s think about the mechanics behind such a policy:

  1. Any American is free to set up their own business, hire people, and invest their life savings in an uncertain enterprise. Anyone.
  2. This same person is ‘entitled’, by our very own Declaration of Independence and U.S. Constitution, to work as hard as they want and, if their business succeeds in meeting a need in the marketplace, make as much money as possible.
  3. Aside from having to pay taxes and abide by certain regulatory standards such as environmental protection, OSHA or ERISA, this person/company has the freedom to make as much profit as humanly possible.
  4. And in the process, provide jobs for the rest of us to raise our families on.
  5. But the moment that a company such as AIG and their executives take $1 US Dollar in taxpayer-supported and guaranteed bailout money, they should be regarded as “public servants’ in the strictest sense of the word.
  6. They no longer are completely free and independent businesses because they have used the taxpayer protection afforded them through the federal government to socialize their losses amongst the rest of us.
  7. Therefore, they should be allowed a total compensation package not to exceed that of our federal elected public servants in Congress until every cent is paid back to the government. And they should operate under a contract, if any, that only makes incentive payments for exceptional performance, subject to renegotiation each year.
  8. And then, they can go back to making as much money as they want, given they have the trust of the marketplace in which they compete.

Perhaps there are some contractual obligations that are currently preventing companies such as AIG from not paying bonuses to their executives from the work they did in 2008. Some divisions of AIG must have had good years in some aspect of their business.

But when a company reports a $61 Billion loss in one quarter, the last 3 months of 2008, the largest one quarter loss in the known modern business history, and then runs to Congress for help, then something “draconian” has to be put in place to prevent it from ever happening again, or even reverse what is happening now.

And when a chairman of a company begs for ‘forbearance and understanding of why we have to pay these enormous bonuses’ on the pretext of “having to keep and retain good talent”, your ears should shoot straight up in the air like Mr. Spock’s on “Star Trek” as you ask: “What good is great talent when you lose $61 billion in a quarter?” And in today’s financial world, able and honest people would line up to take replacement jobs on terms the situation demands.

That’s a little like the Yankees telling their fans year after year that we have to spend the most amount of money on our players in order not to get to the World Series ever again. And then, when we don’t win, we will reward the manager regardless.

Draco was an Athenian law scribe who issued overly severe penalties for seemingly innocuous minor crimes.

This one policy change by Congress would vindicate Draco by saying overly severe crimes will be treated in the future with the ultimate penalty these Wall Street and AIG executives could ever imagine: Being paid what a U.S. Congressman is paid and subject to “re-election” at least every two years in terms of staying employed at the damaged firm.

Then, maybe they would never make an overly risky, highly leveraged investment ever again with someone else’s money.

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