Tuesday, March 17, 2009

The Bonus Con

Andrew Ross Sorkin of the New York Times mans up this morning to give us -- oh so reluctantly, don'cha' know -- the bad news that "Wall Street types and compensation consultants" are quite sure the sanctity of contracts requires that Americans pay A.I.G. executives as much as "$3 million apiece" in bonuses for their wonderful work in bringing the nation's economy to the brink of ruin.

Sorkin is a wanker. Worse, he's a dangerously lazy journalist. The entire article relies on quotes from two identified sources he might as well had been having drinks with at the Mercantile Bar.

One is "Pearl Meyer, a compensation consultant." The other is "Robert M. Sedgwick, an executive compensation lawyer... who represents a number of employees of banks that have taken government money."

It's painfully obvious that both of these "sources" -- excuse us for laughing -- are conflicted. They're firmly in the toilet for Wall Street bonuses because they make their living off people who want higher and higher bonuses. But you don't see Sorkin mention anything about that, do you?

Step away from the Times. Sorkin is bad for your brain. For a better notion of what should be done with the mobsters in A.I.G.'s "Financial Products Division (AIGFP)" read Josh Marshall:
[P]robably the building should be razed and the ground salted. AIG is a ward of the federal government. Our only financial interest in it is in chopping it up and getting the best prices for the valuable parts of it. I don't think AIGFP is going to have a lot of takers. And as a matter of policy I think we probably want to close it down.
Extreme? Not really. If you want extreme, check out what one Iowa Republican proposes:
Sen. Charles Grassley suggested in an Iowa City radio interview that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.
Grassley is the ranking minority member of the Senate Finance and Budget committees. We suppose he didn't really mean what he said. But it's telling that he focuses on the A.I.G. "executives" as the root of the problem.

Those are the same executives who told the Treasury Department that nothing could be done about the bonuses because of the "sanctity of contract." Which is nonsense. As law professor Sandy Levinson pointed out yesterday, perfectly legitimate legal avenues for stopping, or clawing back, the bonus payments are "broad enough to drive a Mack truck through."

No, what we think is really going on is a con game. The bonuses are hush money. Some get more than others, but everyone gets something.

And as long as that's the case, everyone at A.I.G. has an economic incentive not to disclose who thought up, who designed, who implemented, and who managed the company's ruinous strategy of always selling and never buying credit default swaps.

These are the same people A.I.G. now claims are the "best and the brightest" and who need bonuses so they can be retained. Hahahahaha.

Yes, they should be retained. Behind bars.

Dept. of Amplification
3-17 pm

Sorkin late today repeated on NPR the same shameless arguments in favor of million dollar bonuses for AIG thieves. This time, however, he threw away his two "compensation expert" fig leafs and owned up that this was his opinion.

There are two things wrong with this. First, of course, it makes transparent that his entire article was a lie. It wasn't a "some say" type of column. It was purely a Sorkin Knows Best story.

Second, two of his principle arguments now have been exposed as myths, too. As his own newspaper is now pointing out, there are plenty of perfectly sound, legal grounds to avoid paying, or claw back, excessive bonuses for bad performance. And, it turns out, paying undeserved bonuses doesn't do much to keep the loyalty of talented employees. Out of 17 million-dollar bonus babies at A.I.G. , 11 are no longer there. They drew up to $4.6 million as or after they quit!

If there is a bonus kitty at the New York Times -- doubtful, we're sure -- Sorkin's salary would be better spent if it were thrown in that pot.

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