Our financial system is crumbling this week.

[Popeye_Card]

Well, I sympathize with that view. I'm just saying that A) there are bigger fish to fry, and B) I really think that the government's hands are tied as far as the bonuses go. I'm certainly no expert, but I would imagine that the contracts in place are pretty solid, and even our government just can't go in and start nullifying contracts (without some kind of bankruptcy). But again, I'm not an expert.

Where are the bigger fish to fry? There are bigger fish than AIG?

I think their hands are tied too, outside of pulling back federal funds, which might ultimately end up with AIG's collapse, which is what we were trying to avoid in the first place. But this was like handing that bum $5 after he promised that he needed it to eat, then he turns around right in front of you and buys a bottle of vodka. A bit too late to get your money back now.

EDIT: And just because there's not much we can do about it doesn't mean that we as citizens can't be furious about AIG's actions.

[KyCardinalFan]

While it may be serving as a red herring that allows Congress to get around curbing the bigger problem, the outrage over these bonuses is perfectly acceptable. The taxpayers saved AIG from a bankruptcy reorganization that almost certainly would have seen these obligations wiped out, and clamping down on these bonuses will be the first real action the government has taken to insure that the bailout money they're feeding into these corporations is actually going to the purposes they intended.

I understand the outrage, but it just seems so petty when you look at the big picture problems. You know, if they [expletive] up that badly, AIG should fire them. Wouldn't firing the people at AIG who created and implemented the flawed derivative polices be a better solution? Oh, and fire the people who drafted a contract that says you're still entitled to a bonus even if the company has a net lose for the year.

I'll take a line from Obama on the omnibus - these are last year's contracts. I don't like the idea of paying these execs and traders with taxpayer money, but I do think we should honor their contracts. Once that business is done, then you start getting into re-organizing AIG from the top down.

I'm for firing the guy that issued the contracts.

But saying "these are last year's contracts" doesn't really pacify me much. I don't think the demise happened overnight, or even within the last year. If it was so bad that they needed a government bailout, these people have been doing their jobs poorly for quite awhile, and don't deserve a bonus for their efforts last year or the year before or whatever the case may be.

It may seem "petty" by their standards, but to the average taxpayer, it's not petty at all. Those people don't deserve the bonuses........ period. As a taxpayer, I think they money should be given to someone that needs it more, and those people wouldn't consider it "petty" at all.

Well, I sympathize with that view. I'm just saying that A) there are bigger fish to fry, and B) I really think that the government's hands are tied as far as the bonuses go. I'm certainly no expert, but I would imagine that the contracts in place are pretty solid, and even our government just can't go in and start nullifying contracts (without some kind of bankruptcy). But again, I'm not an expert.

Also, it was my understanding when this first broke, that these contracts are with people based in London. It was reported that the reason why they awarded them was because it would've been more expensive to break the contracts under their contract laws. But I haven't heard any more about that. It makes me wonder, though, because some senators have talked of taxing the heck out of those to get most, if not all, of it back. How can they do that if these are people based in London?

[Socnorb11]

While it may be serving as a red herring that allows Congress to get around curbing the bigger problem, the outrage over these bonuses is perfectly acceptable. The taxpayers saved AIG from a bankruptcy reorganization that almost certainly would have seen these obligations wiped out, and clamping down on these bonuses will be the first real action the government has taken to insure that the bailout money they're feeding into these corporations is actually going to the purposes they intended.

I understand the outrage, but it just seems so petty when you look at the big picture problems. You know, if they [expletive] up that badly, AIG should fire them. Wouldn't firing the people at AIG who created and implemented the flawed derivative polices be a better solution? Oh, and fire the people who drafted a contract that says you're still entitled to a bonus even if the company has a net lose for the year.

I'll take a line from Obama on the omnibus - these are last year's contracts. I don't like the idea of paying these execs and traders with taxpayer money, but I do think we should honor their contracts. Once that business is done, then you start getting into re-organizing AIG from the top down.

I'm for firing the guy that issued the contracts.

But saying "these are last year's contracts" doesn't really pacify me much. I don't think the demise happened overnight, or even within the last year. If it was so bad that they needed a government bailout, these people have been doing their jobs poorly for quite awhile, and don't deserve a bonus for their efforts last year or the year before or whatever the case may be.

It may seem "petty" by their standards, but to the average taxpayer, it's not petty at all. Those people don't deserve the bonuses........ period. As a taxpayer, I think they money should be given to someone that needs it more, and those people wouldn't consider it "petty" at all.

Well, I sympathize with that view. I'm just saying that A) there are bigger fish to fry, and B) I really think that the government's hands are tied as far as the bonuses go. I'm certainly no expert, but I would imagine that the contracts in place are pretty solid, and even our government just can't go in and start nullifying contracts (without some kind of bankruptcy). But again, I'm not an expert.

I'm not smart enough to know if there's anything that can be done to stop the bonuses. Probably not. Regardless, those people receiving them should be publicly crucified.

Why can't we fry the big fish and the small fish both?

[maddash]

Well, I sympathize with that view. I'm just saying that A) there are bigger fish to fry, and B) I really think that the government's hands are tied as far as the bonuses go. I'm certainly no expert, but I would imagine that the contracts in place are pretty solid, and even our government just can't go in and start nullifying contracts (without some kind of bankruptcy). But again, I'm not an expert.

Where are the bigger fish to fry? There are bigger fish than AIG?

I think their hands are tied too, outside of pulling back federal funds, which might ultimately end up with AIG's collapse, which is what we were trying to avoid in the first place. But this was like handing that bum $5 after he promised that he needed it to eat, then he turns around right in front of you and buys a bottle of vodka. A bit too late to get your money back now.

EDIT: And just because there's not much we can do about it doesn't mean that we as citizens can't be furious about AIG's actions.

"Fish" as in problems, not people. AIG has catastrophically bigger problems than just a bunch of traders getting bonuses. Problems that aren't, as far as I'm aware, being addressed... yet this bonuses stuff has everyone's attention. As I understand it - and maybe I'm wrong - if an insurance company wanted to, they could do exactly what these traders did and there's no regulation on the books stopping them. Stopping these bonuses isn't going to change that.

And I'm not saying people shouldn't be furious, but it's one of those things where Congress devotes a lot of attention to it because people are mad about it, and gets big press, but it detracts from the big issues at hand - like a system that's, IMO, been de-regulated too far. Outside of the issues with contract laws, I don't have much of a problem with government trying to get that bonus money back... but I also don't think it's a very productive thing to do in the long run.

[greenback44]

As I understand it - and maybe I'm wrong - if an insurance company wanted to, they could do exactly what these traders did and there's no regulation on the books stopping them.

This may seem like a minor point, but technically AIG Financial Products, where the CDSs were originated, is not an insurance company or even part of an insurance company. AIG is a holding company that owns insurance companies and also owns FP. If this [expletive] had been perpetrated within an insurance company, it could've and hopefully would've been stopped by your favorite state regulator; for example, New York, where at least one of AIG's insurance subsidiaries is domiciled, is aggressive at stemming this sort of behavior. IOW the obvious regulation here is a sort of Glass-Steagall that keeps hedge funds like FP from being joined with an insurance company in separate rooms of the same house. Another idea would be to get rid of this notion of "holding companies" as far as financial services regulation is concerned, an issue that will make Citigroup's eventual nationalization a PITA as well. Of course that doesn't prevent another LTCM from popping up.

It's weird that this is getting so much outrage now when Bloomberg published a story on the matter almost two months ago. Grandstanding seems like the appropriate term, since apparently the outrage didn't start until the payments were made, by which time it's obviously harder to prevent those payments. Also note that the article mentions FP had had defections to competitors. As Andrew Ross Sorkin put it, those employees that created the bomb are also the most qualified to defuse it. A year ago when it started looking like AIG was a sinking ship (FP head Joseph Cassano was canned then), the only way they could keep the bomb squad together was to throw large piles of money at them. Hiring temps isn't any cheaper in the bigger picture when there are billions of dollars at stake. Yeah, it sucks that the Wall Street types get heads-they-win-tails-we-lose compensation, but that's the way it's been for a few decades, and before September anyone who complained was branded a socialist.

[Arthur Dent]

It's weird that this is getting so much outrage now when Bloomberg published a story on the matter almost two months ago. Grandstanding seems like the appropriate term, since apparently the outrage didn't start until the payments were made, by which time it's obviously harder to prevent those payments.

Indeed. And at the time, Obama and co. were lobbying to prevent more strict compensation restrictions from being included in the stimulus bill.

[cpebbles]

Well, they were lobbying to prevent more restrictive restrictions on already contractually-obligated bonuses, and there's nothing yet to suggest that anyone higher up than treasury officials were directly involved, but I have to admit that this is a point against the administration. The least-damning interpretation of that is that they're unwilling to play legal hardball to get bailout funds where they were intended.

[Leroy]

Sen. Chris Dodd (D-Conn.) looks like he may be facing a fresh political firestorm.

Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision. .

“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon.

“But for that language, there would have been no language to deal with this at all.”

Awesome.

[KyCardinalFan]

[Hungary Jack]

That's great. Sums up how I feel most of the time.

But I find considerable hypocrisy in Wall Street's argument for "retention" bonuses. First, they argue that the bonuses are necessary to retain senior managers with expertise of financial instruments and markets. These are by and large the same people who made such horrendous decisions that they put the entire company in jeopardy.

Second, they argue that the bonuses represent contractual obligations made up to 12 months ago. But corporations have been sloughing off contractual obligations for years via the bankruptcy code. Promises made to employees in the form of pensions, health care, and other forms of deferred compensation have been vaporized in the name of financial distress.

I still think greed is good in that the profit motive drives innovation and entrepreneurship, which in turns drives job creation and products and services that increase our standard of living. But I think the culture of Wall Street is hopelessly bastardized.