So, the AIG Bonuses...are you mad? I'm mad. I could ruin a company with the best of 'em. Will I get paid a couple million if I do? Not likely. So yeah, I see why people get angry about it. But in the big picture I wonder both how much that money really matters and more importantly, what the hell did we expect? Look I don't know if any of those folks that got the bonuses deserved them or not, but in the larger scheme $165MM in bonuses is nothing compared to the Billions that AIG the company received. That's where my outrage lies. First of all there's this fallacy of systemic risk. If you read Peter Wallison's piece in the WSJ yesterday (if not, here it is: http://online.wsj.com/article/SB123725470200650641.html) You'll start to realize how little the government, and the electorate for that matter, really understands here. The sub prime market had put the financial system in shambles long before we started these bailouts. In fact if you believe what Peter says (and I do) you'll recognize that it was the failure of the system that brought AIG, Lehman and Bear to their knees, not so much the other way around. Yes the stupidity they all showed by creating securities without having any idea about the value of the underlying products (read: mortgages...you see they forget about customers) that certainly precipitated the collapse of the system, but letting them fail was not going to bring Armageddon. Armageddon was already upon us. Secondly, what the hell did people expect AIG to do with the money if not pay compensation to keep people working (arguably for most organizations compensation is one of the top 2 or 3 expenses so if you give me money, obviously I'm using it to pay the people who make the place run), and if not to pay counter-parties? I mean the entire IDEA of systemic risk is: If I fail, I'm connected or indebted to so many other players that I won't be able to pay, so they'll fail too and the system will crash...am I right? So why now is the WSJ, Congress and Joe six-pack so appalled that some of this money would indeed flow to those counter-parties? I ain't no economist (my partner is) but what the hell people? We're getting just what we asked for. If we'd just let capitalism work in the first place, let the bad performers fail and the good guys flourish, we wouldn't be talking about any of this.
How about this...all you small business people out there (woman owned small businesses employ more people than the entire Fortune 500 combined) what could you have done with a cash injection of $1BB? how many jobs would you have created? How many innovative products would you have designed? How many of you would have developed a better, faster, cheaper, leaner, more profitable insurance company business model than AIG?
Just food for thought.
JC
I get a sense that there is quite a bit or pride and arrogance at the core of so many of these companies. I understand that those are important qualities to have, but as with most things moderation should be a limiting factor. Capitalism is a complex system that I have no confidence saying I understand, but what I do perceive is the only thing that matters. Perception being our reality.
ReplyDeleteI have first hand experience of the ego that can both build and destroy companies and careers. I get the sense that AIG had created a perception that they were too important to be allowed to fail. Hog-wash.
I agree with your notion that the mom and pop entrepreneur could have leveraged those Gov't dollars into real economic momentum.
Oh, and those guys who built up the company I was referring to are taking a break for the corporate world, and wearing jumpsuits with a number on the pocket. A far cry from embroidered silk shirts.
DG: We think Pride is ok. Arrogance on the other hand keeps you from understanding or caring about other people than yourself. Which leads to myopic and self centered decisions...exactly what brought our economy to it's knees.
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