The growing furor over AIG executive bonus payments has President Obama concerned enough that he’s even speaking out against them now, The New York Times reports. Obama told small business owners at the White House today that he’s directing Treasury Secretary Timothy Geithner to use every legal avenue possible to block payment of those bonuses.
Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”
“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”
White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the executives.
I’m not really sure how that last strategy may work. As Hilzoy points out, those AIG derivatives experts may have tied everyone’s hands. It may be that only the people who put credit default swap agreements together know how to unwind them. If so, demanding bonuses could be a form of blackmail. From Hilzoy:
If I ran someone down in a car on a deserted road, it would take a lot of gall for me to ask him to pay me an exorbitant price to take him to the hospital When you run someone down, taking him to the hospital is the least you can do, and payment shouldn’t so much as enter the picture.
Likewise, when you run the world financial system the American taxpayer down, it takes a lot of gall to ask for not just a performance bonus, but a retention bonus as well. Any remotely decent person would stay and try to unwind the damage s/he had caused, if s/he was the only person who could do so, and would be content with his or her salary. (After all, it’s not as though people in financial services are generally ) If the people in the AIG Financial Products felt this way, they could have made all these legal issues about contracts vanish by simply their bonuses. And they could solve the retention problem by agreeing to stay around as long as they’re needed, at their existing salaries. Instead, they are using our predicament to extract even more money for themselves. And that’s obscene.
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