AIG Gets Their Day On The Hill
Edward Liddy, the maxed-out McCain donor who now runs AIG (when will McCain give the money back?) takes to the Washington Post's editorial pages this morning. I imagine this will also be his opening statement before the House Financial Services Committee, where he testifies today. Here's the part about the bonuses:
To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high [...]
What lessons can we draw from AIG's experience? There must be safeguards against the systemic consequences of failures of large, interconnected financial institutions. Where safeguards are lacking, such companies need to be restructured or scaled back so they no longer come close to posing a systemic risk. We have seen all too clearly where the brink lies; our corporate structures need to be pulled back from that edge.
In America, when you owe people money, you pay them. We are pressing forward with our plan to return money to taxpayers, protect policyholders, and give employees a vision of success and a path for achieving it. With the understanding and patience of the American people and the continued support of the Federal Reserve and the Treasury, we can resolve AIG's challenges and help its businesses contribute to a global economic recovery.
Well, half the people who received these retention bonuses left the company and were thus not retained. His reference to "risks to the company" suggests that the "time bomb" scenario, that AIG Financial Products employees would sue for breach of contract or that they would blow up the credit default swaps part of the business. Liddy is actually not wrong when he says, essentially, that "if it's too big to fail, then it's too big." But of course, the line about how "if you owe people money, you pay them" applies more to executives and foreign banks and even hedge funds who bet on the housing market to fail rather than taxpayers.
This hearing will consist of little more than grandstanding, of course. Right now every member of the subcommittee is being allowed to make a little speech before the questions even begin. The solution will present itself, either with Treasury deducting the bonuses from the fourth bailout given to the company, or from the excise tax plan, whether Charlie Rangel likes it or not.
The larger problem is the crisis of confidence in political leaders who are seen as continuing to shovel money to elites with a lot of fake outrage.