Saturday, March 21, 2009

AIG bonuses - a distraction from the real issues

I'm currently on a business trip in the US and have been bemused and confused by all the attention given to the US$165 million in bonuses paid to a relatively small group of AIG employees. The amount of attention given to the issue has been far out of proportion to what it deserves and far greater than several more significant issues that those attempting to deal with the economic problems should be giving greater attention.

A few random thoughts on the issue:

1. it is hypocritical for the politicians to be pretending to be angry over the issue: they knew there would be incentive type payments and approved the bailout payments with that knowledge. Attempting to impose an unconstitutional tax on recipients only makes them look stupid (as well as wasting more taxpayer money);

2. there is a near complete lack of granularity on what the payments were for. There has been close to zero coverage on this issue. It is likely that even within something as bad as AIG, there will be recipients who genuinely deserve to receive a level of remuneration that is reflected in their bonus payments;

3. the bonus issue is immaterial to the greater scandal of the billions that went to bail out counterparties - many of which had connections to the same regulators/political appointees who approved the payments;

4. the AIG bonus payment issue is insignificant compared to the Madoff scandal and the outrageous and complete failings of the SEC in relation to Madoff;

5. the AIG bonus payments are trivial sums compared to the amount of taxpayer money going to overpaid autoworkers (and retired autoworkers);

6. the AIG bonus payments are a complete irrelevancy compared to the failure of the regulators (including the Senate and Congress) to adequately regulate the mortgage industry, the investment banks and other intermediaries in the first place;

7. the unconstitutional punitive taxes imposed by the Senate and Congress on the AIG bonus payments (among others) are a clear demonstration that political considerations are more important to the elected representatives of the people than the notion that they should actually be expected to focus on addressing important issues - McCarthyism is alive and well;

8. it is puzzling that the AIG bonus payments have received far more attention than the fact that the White House's forecast deficits for the next few years are optimistic by truly staggering amounts (estimates vary, but all the ones I have seen exceed, in aggregate, a trillion dollars. How can the crew of the largest and most sophisticated economic ship in the world get it so wrong?

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