Tax Lawyer's Blog

Yesterday Kay Bell wrote a post provocatively titled AIG . . .  WTF?!? in which she castigates taxpayer bailout recipient, AIG, for paying bonuses to the key executives who ran a division partly responsible for the sub-prime debacle:

The insurance giant is totally shameless.

Since we, the taxpayers, bailed out AIG last year — without, I must add, being specifically asked whether we wanted to do so — our stake in the company has risen to $170 billion.

And what has the firm done with our generosity?  Used our money and abused our trust. 

Now we learn that AIG is giving $450 million in bonuses to employees.

Even more infuriating, these aren’t just any employees. They are part of the financial products division, that same operating group that underwrote many of the risky sub-prime mortgages that set off our current economic nosedive.

Of course, Ms. Bell isn’t the only one who is outraged that AIG plans to pay bonuses to its executives and employees. See The Motley Fool’s AIG Bonuses are an Absolute Joke and Yahoo News’ Chorus of Outrage over Millions in AIG Bonuses

I think the outrage is emotional and not rational.

Here’s why:

• The AIG board of directors wants AIG to survive and prosper. If the feds didn’t believe this, it would not have bailed AIG out. Consequently, then, we must defer to AIG’s judgment on how to use its funds. (Remember, the money became AIG’s the moment the bailout check cleared the bank.)
• No trust should mean no bailout. If we (i.e the federal government) didn’t believe AIG had the ability to make correct and wise decisions about the use of its funds, then we shouldn’t have bailed it out in the first place
• What should bailout funds have been used for?  What does Ms. Bell believe the funds should have been used for? And how is it that she or any other taxpayer is more qualified to make that determination than the AIG board? 
• Do taxpayers know more about running AIG than the AIG board does? If AIG believes the best use of its funds is for the retention of key employees, than who are we to second guess that determination? Do we really want to substitute the collective, uninformed judgment of the electorate for the considered judgment of individuals who are intimately familiar with the inner workings of the business?
• Bad PR doesn’t mean it’s a bad business decision. I agree that from a public relations point of view paying bonuses to highly paid executives appears callous and arrogant. But bad PR alone doesn’t render that use of the funds unwise.
• The purpose of the bailout was to ensure AIG’s survival. The idea behind the government bailout of AIG was to ensure the company’s continued survival - a goal, I think it’s safe to assume, the board of directors, the shareholders and the employees of AIG share. Consequently, the AIG Board must have determined that the use of the funds to pay executive bonuses was the use that would most ensure AIG’s survival.

Of course, if the AIG Board is actively trying to ensure AIG’s collapse, then we should take each of them for a little stroll down the Green Mile and shout “dead man walking.”

I have little doubt that I could examine the post-bailout general ledger of AIG and find any number of expenses that I, personally, would consider wasteful or unnecessary.

But that kind of micro-analysis is meaningless when done in a vacuum.

The truth is I, like Kay Bell and every other taxpayer, am wholly unfamiliar with AIG’s corporate culture and the dynamics of what has made AIG one of the most successful insurance companies in the world.

Simply put, I am not qualified to substitute my judgment regarding the use of AIG’s bailout money for the judgment of those who have intimate knowledge of the company and its business operations.

If we are going to wallow in the dirty business of government bailouts, we simply must get a thicker skin.

Either we trust these companies to do what they believe is right with the bailout funds or we don’t bail them out at all.

Related Posts

Is AIG Wrong for Pursuing IRS Claim After Receiving Bailout Funds

Bookmark & Share: