Bonuses as bad bidness

Seven weeks ago in a fit of rage I wrote a post about giving the bonuses back. Although there's nothing controversial whatsoever about asking companies that have received hundreds of billions in taxpayer bailouts to give back the more than $20 billion (and counting) in bonus candy they handed out to the thieves working for them, writing about it did little to bring down my blood pressure.

Now there's a big stink being raised, seemingly from all directions, about a mere $165 million in bonuses recently paid out by AIG, by far the largest pig feeding at the TARP trough. And it has been correctly pointed out that this story is simply a smokescreen to distract us from the real outrage that AIG is doling out much larger quantities of cash to all the other TARP pigs to cover their bad bets at 100 cents on the dollar.

Whether this AIG bonus outrage is real or fabricated, and whether or not we should care about millions (with an 'm') when billions and trillions of US taxpayers' hard-earned dollars are being tossed around like candy falling from the busted pinata formerly known as the US economy, I still can't get over the fact that giving bonuses for failure is unbelievably bad business.

Now I'm not an MBA, but I understand enough about human behavior to know that when you reward people for poor performance, you are virtually guaranteeing more of the same. And if there really is popular outrage over this $165 million drop in the wall street bonus ocean (and my once-again boiling blood tells me there is), it has to be due to the fundamental unfairness of paying huge sums in bonuses to the very people who wrote the CDO contracts that torpedoed AIG's otherwise profitable business. The very contracts that all the other pigs used to hedge their bad bets that caused this whole mess. Meanwhile, regular people all over the world are hurting because they lost their jobs in the continuing economic fallout of all this bad business.

While many have concerned themselves over blame: whether Geithner should have stopped the bonuses, or whether modifications to Dodd's amendment were made by some phantom to allow this, or whether the contracts could have been broken by AIG, they seem to be missing the big question:

Who wrote the employment contracts that required AIG to pay huge bonuses to its employees, even in the face of huge losses?

This was not, by definition, a bonus. What it was is unbelievably bad business.

[And Rep. Barney Frank is right when he suggests that we go after the bonuses using shareholder lawsuits.]

One other thing: anyone who tells you that we should get the bonus money back from AIG probably thinks you are stupid. We need to get the money back from the individuals who received the bonuses, not from AIG. In case you forgot, we as taxpayers now own AIG, so unless you find it gratifying for your right hand to take money from your left, we should call this BS for what it is.