Why Are We Wasting Our Energy on the Bonuses?

Last week saw an unprecedented amount of corporate CXO-bashing from politicians, public and the media in general. A sudden surge of moral anger seems to have been generated by the AIG bonus news. I don't personally support the AIG bonuses, but nonetheless, I cannot fathom the logic behind doing a witch hunt for the bonus recipients. We are living in a capitalistic economy and hence there's little merit in arguing on the lines of rich-getting-richer/ poor-getting- poorer.

Let's try to look at it from another angle. The past few decades saw unprecedented growth and as a result, an accumulation of personal wealth and a consistent increase in personal spending across most classes in society. This unfortunately came at the cost of lax supervisory oversight and poor market discipline. Everyone shared the gains, but leaders in the financial services space which drove or at least facilitated most of the economic expansion reaped the largest gains through windfall corporate profits and hence astronomical bonuses. We are seeing a drastic correction, which is forcing us to look at the value of fiscal prudence, savings and long-term sustainability. So, all of a sudden the same media and public voices which gaga-ed at Bill Clinton's talk of 'we do it large because we can afford it' turns around and moves to a position of extreme fiscal prudence and conservatism.

I am not saying the correction's not warranted - but I whole heartedly agree with the 'back-to-the-basics' move towards increased savings, financial prudence and controlled markets. However, it has to stop being a witch hunt - if we go overboard with governmental oversight and regulations, we would be committing a big mistake. What gain will come out of revealing the names of individual bonus recipients at Merrill Lynch or for that matter AIG? Even worse, state AGs are investigating why taxpayer money went to honor counter-party obligations of AIG related to its CDS portfolios! The government can and should use more subtle means to discipline firms who received tax payer funds - but stop at being moralistic. Do we REALLY expect businesses to stop honoring legal commitments, contractual norms and focus on reviving the economy and ensuring money flow? I hope not...there's a lot else that's left to be done before we spend our collective energies on discussions around economic philosophy.

• By now, we know that no stimulus/bail out package can succeed unless the flow of money is restored in the larger economy - but we haven't YET seen anything substantial/serious from Tim Geithner and team to revive the financial services sector. While we saw individual firms like Citi (C) forming 'bad money' banks and trying to separate out the wheat from the chaff, we still haven't seen any further light on the ambiguously termed larger 'public-private' partnership that was announced many weeks back. This is imperative to re-energize bank balance sheets and enable them to work 'normally' and do what they are supposed to do - lend money and facilitate money flow.
• We haven't seen any details on revised accounting norms for mark-to-market valuation.
• Nor have we seen any serious/informed discussion on the nature and form of regulations for the Securities and Investments industry that can prevent what happenned.

As a result, we have a financial services sector that's still stuck in a quagmire, with out either the ability or the willigness to circulate government and tax-payer funded money that's flowing in! While the government, media and a lot of us debate whether CXOs deserve the earn their million dollar bonuses.

Stock position: None.

Comments

[Mad Hedge F...:]

This is all a giant waste of time. I’m glad that I’m not counting on an AIG bonus check to clear the bank. CNBC has turned into the AIG channel. I can only imagine how that annual review conversation went down. “The good news is that your bonus is $5 million. The bad news is that you will have to spend $25 million in legal fees defending it”. Thank goodness for small favors. What hath Obama wrought?

Mar 22 10:04 AM

[RWhitney:]

The bonus issue was a misdirection, so a lot of the cognitive surplus would be absorbed. BHO and his handlers did not want the public eye focused on this GIVE program, which is aimed to distribute money to ACORN and George Soros-backed groups, a design to diminish private charity and private volunteering. GIVE is EVIL.

Mar 22 03:12 PM

[grbn:]

you said "I cannot fathom the logic behind doing a witch hunt for the bonus recipients. "

quite simply, it diverts attention away from the failures of Congress and plays into Obama's redistribution of wealth agenda. It sets up bankers, investment bankers, hedge fund managers, and all the other Wall Street scalawags as the evil criminals who are responsible for this so called economic mess. (not the worse economy since the great depression, but maybe since the failed Carter administration, but they won't talk about coward carter).

So next there will be more government regulation and fees/taxes, and they're going to control salaries of all wall street types, not just those who accept govt. money. If they can keep the people angry they can destroy wealth.

It's been clear Obama holds wall street in contempt and cares not if it fails.

Mar 22 04:44 PM

[Warm_Paw:]

The witch hunt is warranted. Faith needs to be restored to investors. Not hedge fund managers, but people with pensions.
These large bonuses became this disgustingly large due to large returns generated by speculation and leverage.
These bonuses were not generated on hard work and intrinsic value.
They were promised to execs to stay after the scam has been discovered. These execs lined their pockets while the scam was in it's day. A bonus goes to someone who deserves to be rewarded for returns above what is expected of them.
Is AIG enjoying those returns right now?
These employees should remain to help clean up this mess not out greed for more money, but to keep the Fed from looking into having them return already paid bonuses on productivity which was no such thing at all. People knew these contracts were dangerous, yet out of greed they kept on writing them. That action should receive a bonus? This is not a waste of time. A witch hunt is the most productive use of time I've seen occur.

Mar 22 08:26 PM

[NYBull:]

There was a time in this country where no self respecting person would in good conscience accept a "bonus" for completely failing in their chosen line of work. If you are a true believer in capitalism then it is impossible to justify these payments given that there is no demonstrable merit based rationale for these transfers of corporate, now taxpayer, funds to executives employed by firms who can't survive on their own legs. What you completely fail to appreciate is the basic moral rationale for the public's outrage. When companies need to run hat in hand to the government for capital injections to avoid financial collapse, the government has every right to stop these unearned and unjustified transfers to these corporate welfare queens. The recipents of these bonus checks should be revile in the same way any right minded person would revile anyone who pulled up to a soup kitchen looking for a free meal while driving a brand new Rolls.. And as to the whole honoring of contracts rationale so prevelant today in the financial press, all I can say is "give me a break." Every 1st year law student in the country learns of the myriad ways that contracts are routinely voided, for instance where there is self-dealing, certain material changes in circumstance or outright illegality. Stopping these offensive payments will not undermine our system of contracts. To the contrary, it will bolster our commitment to the rule of law and a return to fundamential home spun American values that equate reward with hard work and merit.

Mar 22 08:39 PM

[Buy and Hol...:]

The bonuses are a distraction. First, they allow people who want to talk about Obama's socialist goals -- bullcrap if I ever heard it -- to rant about how he's taxing those who are successful and destroying innovation. Uh, success to me generally means that you don't destroy your company. And that's what a lot of the people at AIG did. They destroyed their company.

Second, they amount to less than one tenth of one percent of what we have pumped into AIG. I'm less concerned about the one tenth of one percent these bonuses represent than the 99.9 percent that has nothing to do with these bonuses.

Let's make a deal. Those at AIG who got the bonuses can keep them as long as we get the 99.9 percent back. Let the AIG folks keep their bonuses, and hell, if you want to, they can be tax free.

But they don't get distributed until the government gets paid back.

That, my friends, is the ultimate pay for performance. Tax free bonuses if you pay back the government.

Mar 22 10:30 PM

[biomedlives:]

We can argue about where the current financial mess ranks on the top 10 list, but I would put it very high on the list. In addition, I do place a large fraction of the responsibility on " bankers, investment bankers, hedge fund managers, and all the other Wall Street scalawags" for generating this mess under an administration that minimized regulation and largely gave markets free rein. Bad government policies played a role, but executives in financial institutions got big bucks to, among other things, insulate their institutions from such government policies. They failed big time.

On Mar 22 04:44 PM grbn wrote:

> you said "I cannot fathom the logic behind doing a witch hunt for
> the bonus recipients. "
>
> quite simply, it diverts attention away from the failures of Congress
> and plays into Obama's redistribution of wealth agenda. It sets
> up bankers, investment bankers, hedge fund managers, and all the
> other Wall Street scalawags as the evil criminals who are responsible
> for this so called economic mess. (not the worse economy since the
> great depression, but maybe since the failed Carter administration,
> but they won't talk about coward carter).
>
> So next there will be more government regulation and fees/taxes,
> and they're going to control salaries of all wall street types, not
> just those who accept govt. money. If they can keep the people angry
> they can destroy wealth.
>
> It's been clear Obama holds wall street in contempt and cares not
> if it fails.

Mar 23 10:27 AM

[dkp:]

as

Mar 23 11:14 AM