Kent Pitman

Kent Pitman
Location
New England, USA
Title
Philosopher, Technologist, Writer
Bio
I've been using the net in various roles—technical, social, and political—for the last 30 years. I'm disappointed that most forums don't pay for good writing and I'm ever in search of forums that do. (I've not seen any Tippem money, that's for sure.) And I worry some that our posting here for free could one day put paid writers in Closed Salon out of work. See my personal home page for more about me.

MY RECENT POSTS

MARCH 17, 2009 7:59AM

The Ethical Bankruptcy of AIG Bonuses

Rate: 24 Flag

In a recent post by Chris MacDonald here at Open Salon, a case is made for the idea that money owed should be money paid. It's a superficially plausible argument, but I'm not buying it.

“It's not unethical to pay people money you are contractually obligated to pay them. Even if doing so makes you, or other people, want to pull your hair out. It's the right thing to do. Not always because the person getting the money deserves it, in some abstract sense, but because you promised.”
   —Chris MacDonald,
   A.I.G. Bonuses, Ethics, and the Rule of Law,”
   The Business Ethics Blog

Just to start with, let's note that these companies were not forced to declare bankruptcy before being allowed to take the bailout payments. They were, of course, bankrupt. That's what we mean when we said they were going to fail.

fail•ure   -noun

...
6. a becoming insolvent or bankrupt: the failure of a bank.
...

Random House Dictionary

These companies were not forced to formally declare bankruptcy, presumably, because it would have injured the public confidence. Some in the public might not have understood the difference between Chapter 11 reorganization and Chapter 7 liquidation, and there could have been a panic resulting in a run on the banks. The government wanted to avoid this, so it moved directly to action, bypassing the time-tested ritual acknowledging corporate failure.

The irony is that because of the extreme nature of the failure, the banks were not asked to take legal, ethical, moral, and social notice of the obvious truth: They had failed. No trustee was appointed to manage these businesses. Instead, it was business as usual to be conducted by the people who brought us this problem.

But in the true spirit of “no good deed goes unpunished,” the banks seem to have not taken any kind of observable notice of the fact that they were, de facto, bankrupt. So they paid what they felt were bonuses owed.

Now I haven't read the contract, but when I've been in the lucky position of being eligible for bonuses, those bonuses have been contingent on performance—both mine and that of the company. So you'd think the same would be true of these executives, too. If it's not true, then that would make me want to check more carefully whether there was a breach of fiduciary duty on the part of whoever wrote the contract, since unconditionally promising payment even when there was no performance sounds like a marginal practice to me. It would also call into question the use of the term “bonus.”

bo•nus   -noun

...
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc. ...

Random House Dictionary

However we got there, it's a consequence of how the bailout began that the banks apparently either felt they were not bankrupt, or knew that they were bankrupt and decided to blatantly ignore the fact. The former seems to me to be grossly negligent from an ethical point of view, the latter actively offensive.

Had they behaved as if they were bankrupt, these agreements would and should have been on the table for renegotiation. Indeed, it should have been made clear to these companies that it was a non-negotiable condition of their receiving government aid that the mere paying of anyone at these bankrupt businesses a reward for a job well done was unacceptable. That it was not made clear does not free them of the ethical responsibility to care. It's not like they aren't reading the newspaper. It's not like they don't know that this money is paid at the peril of our nation and the likely expense of our children and grandchildren.

Am I failing to understand the plight of these “poor” employees, who were just trying to make a living and were innocently caught up in this? I don't think so. I don't think they were innocently caught up. If they're due bonuses at this order of magnitude, that's prima facie evidence that they authored the present catastrophe. Before I'd hand them a dime, I'd want to see evidence to the contrary.

Yes, in absolute dollars, these “poor” corporate officers have probably lost a lot of money. But I reject the notion that they have felt the economic crisis in the material way most of the country is feeling it. They are not fearing they will be without heat at night, without medical care, without food on the family's table. [banker absconding with funds from safe] That's not what this money means to them. That they can consider it's business as usual and that it's perfectly ethical to just receive this money and go about life spending it is proof that they are out of touch with everything going on around them.

Perhaps if deprived of the money for cause, their allegedly unparallelled brains and talents would get the hint that in order for them to profit, the rest of the world needs not to be taken into collapse in order to fund their good fortune.

The world is not perfect. But the American people are having at least 2 trillion extra dollars of debt dumped on them. That was not part of any contract the average American signed either. So when we talk about promises and promises broken, let's talk about that too. Americans are being told “Tough, you have to take these extra terms. No choice. They come with being an American.” And yet there are not riots in the streets. Americans are accepting they have to pitch in for the country they love, even knowing they'll be paying for years.

Money is owed and must come from somewhere. Why is it ethical to economically burden Americans who both didn't cause the problem in the first place and also don't have the money to fix it when it's being alleged to be unethical to burden Americans who did participate in the creation of the problem and who do have the money to help fix it?

The real problem is that for some people, society has already melted down or is melting down around them, while for others society is still intact and flourishing. Claiming that continued excessive cash flow is justified because civilized society demands it seems to neglect the tenuous nature of that civilized society. What civilized society really demands is to behave in a way that acknowledges that people are really hurting and that continued excess cash flow is part of the problem, not part of the solution.

Before the economy melted down, I used to refer to it as fragile. People would tell me it was operating fine, and that all indicators were good, but I'd tell my family that this was a temporary state, that the wrong indicators were being looked to, and that it was not going to last. And it didn't. I'd call the “solution” of paying out the bonuses “ethically fragile.” It appears superficially right, but only if you are looking at the wrong indicators. The truth is that we are at risk of soon not living in civilized society. And what civilized society really demands is an “ethically robust” solution.

The bonuses should not be paid. Those that were paid should be reclaimed or heavily taxed. To put it in the terminology of insurance, something I'm sure AIG folks can understand, let's call it “riot insurance.” I think it's something for which we dare not skip our payments just now.


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I don't buy it either and the argument to pay the bonuses isn't plausible to me at all. They should behave as if they are in a bankrupt position, because they are. As one of the reasons for the bonuses, they said to pay in order to retain "talent." Look where that talent got them? The whole AIG debacle is beyond puzzling.
You're right about this. Why should we, and since We the People will be paying for the privilege of bailing AIG out with our hard-won dollars via our taxes going toward funding the stimulus, be paying bonuses to people who obviously are, dare I say it, incompetent. I didn't get a bonus this year and I was competent. Perhaps I'm working in the wrong sector.
Cindy, indeed, even the claim they need to retain such “talent” is a very questionable claim.

Aaron, that's a lot of why I write this blog—hoping that people who are struggling for a way of saying things will find themselves armed with a few conversational options in the face of opposition which, by its nature, is better funded and able to afford professional spin people. It tends to leave people—even very bright folks as I know from other discussions you are—flustered at times when they know in their hearts there should be something they can say and the right argument doesn't leap instantly to mind... I sometimes wish I could afford a full-time job just responding to this idiotic talking points memos. It's painful to see the obvious conversational traps being set and to think of how it will derail rational conversation.

Coyote, indeed. A lot of people don't get bonuses even in the good years, and here these guys are getting all whiny that they might not get one in the year they bankrupted their company and took the entire known Universe down with them.
I agree wholeheartedly that the fact that AIG execs are arguing the bonuses MUST be paid is just a continuation of their reckless, greedy, self-interested mismanagement of the company. If there really is some ridiculous legal tangle that requires paying the bonuses, I would at a minimum tell anyone who took their ill-gotten bonus that they are immediately fired. Although I would have fired the lot of them long before now. Argh.
The American tax payer owns 80% of AIG. Where's our bonus'?
Someone please explain to me why this isnt an "Editor's Pick, on the front page, as Chris MacDonalds piece is?

Although I agreed with Chris, saying that we teach our children "a promise is a promise" I have to absolutely support Kent's premise, especially the part beginning with "The world is not perfect . . . ." There is no contract that says I need to be responsible for payment of these "bonuses" (which do not fit the description of any bonus I have ever been paid or have paid to others).

My argument, which I am glad to see you also thought of, is that we keep the "promise" we made when we threw money at AIG, and then just write a special IRS clause taxing it back into our pockets. Happens all the time in reverse, so it shouldnt be rocket science to make it work in our favor.

Excellent piece Kent.
Kent,
This is a well reasoned article and response to the issue of excessive bonuses being paid with money provided at the expense of taxpayers.

If the “ethics” of what is owed these executives remains the sticking point then AIG should by all means pay them what they contracted to pay them, But not now and not with money provided for by taxpayers.

When and if AIG shows a profit, and after AIG has paid taxpayers back for the bailout funds AIG received then let them pay these executives the bonuses it is being argued they are contractually and ethically responsible to pay them.

Let the bonuses be paid after taxpayers have been reimbursed in full for the bail out funds given to AIG and not one moment before.
Here, here!

I just kept wondering how I could get a job that would allow me a bonus even when I failed to perform. Just perform. These guys bankrupted a company and millions of taxpayers and they are rewarded for it? What the hell is going on?
I was just watching three pundits arguing on CNN about the A.I.G. bailout, and one of them said that the arguments are taking on an "us vs. them" tone. The other pundit asked, "Is it really that simple? Us vs. them?"

My short answer - yes, unfortunately it has become that simple. It is very sad.

I made some points on the other blog about this issue, and tried to maintain some objectivity in the face of what has become an emotional issue, and I still think cooler heads have to prevail to a certain extent.

However, my blood still boils when I hear arguments made such as one made on CNN in the same conversation. To wit - the government should not be interfering in the contracts and dealings of businesses. Well, that boat already sailed long ago. The state and federal government has made many decisions about business operations for years. They have passed discrimination laws, contract laws, trade laws, wage laws you name it. Businesses may not like them, but the idea of government telling them what they can and cannot do is certainly not new. And the attempts by large businesses to flout those laws seems to have become more brazen over the years. I think it takes real balls to play the legal and/or ethical card, when their ethics and even adherance to law went by the wayside long ago. (I am not talking about their financial tricks - those may or may not have been legal - I can't speak to that. I'm referring to the flouting of labor and wage laws for their employees who do not get bonuses.)

Also, as you pointed out, A.I.G. is not privately owned, but is still owned by stockholders, and the government owns 80 percent of that stock. One of the unfortunate aspects of being "taken over" by anyone, especially the government is that they DO think they can get all over your a** in terms of how you do business when you take tax money and often have the clout to back it up.

I don't think any people in A.I.G. management were overly sympathetic to the fact that the government puts all sorts of restrictions and directives on welfare and unemployment recipients, some highly instrusive. Well, they are welfare recipients now. Welcome to the real street!

Bottom line, and this is a reiteration of a point I made in my previous comments, you can't screw around with your lower paid employees or even your customers for years on end and then expect them to back you up when the chickens come home to roost. Middle class employees have been obliged to either eat it or try to fight in court for years for money, benefits or for what they are entitled to under the law. There are still good companies out there, who hold to an ethical standard, but most of them are small businesses and they are almost being totally ignored by the bailout.

Oddly enough, I might feel some actual sympathy for the A.I.G. employees who have to wind their way through the court system in order to get their bonuses if it comes to that, because that means they are actually living a bit of the life many of us have lived for years.
Thank you, Kent. Beautiful post.
I also find McDonald's argument to be one of "internal logic" of the business world which does not embrace the larger issue of ethics. He has entirely missed the fact that it is not business as usual anymore. The business community has avoided ethics for over thirty years and has brought the country, the world, to its knees. Now ethics will be imposed from without. We trust them and their obfuscation not at all anymore.
Thanks!
Some day someone will write a book about this -- and it may take an entire book to explain it all.

Here is my understanding of the situation:

1) AIG has a "retention" program in which key executives and employees are paid a bonus if they agree to stay for another year. People who have received bonus payments thus far as those who were part of that program back in early 2008, and these include people who were employed in the troubled financial products division.

Note that the bonus program is not performance-based; it is a bonus for simply having stayed another year. The idea was that these are the people who understood the complex financial transactions in which the company was engaged -- credit default swaps, and so on. One article I read described these individuals as having the "keys to the kingdom," thus the concern by the company that they not go elsewhere.

This is where you get into the contract problem. These employees were promised money if they stayed. They did stay. Now if it is really true that they have the "keys to the kingdom," then one risk of any plan to take back these bonuses is that these "key holders" might decide to leave the company, thus taking their expertise with them. But I suppose it is possible that these people are the ones best able to unravel the current mess.

Another risk is that these employees might have a legal case against the government if their bonuses are taken back. The basis of the legal case would be that these were "wages" that were unjustifiably withheld by the employer. Of course, had AIG gone bankrupt, whether the company would have had to pay these bonuses is an open question. But as a matter of fact the company did not go bankrupt.

2) My understanding is that the retention program is still in effect for the current year, with payments to be made at the end of 2009. I suspsect that these contracts could be amended. But again, there is the question of whether these people would leave were they not offered bonuses. An additional $230 million is scheduled to be paid out in 2009.

Unlike earlier bonuses, these bonuses will NOT be paid to anyone in the financial products division. They would be paid only to employees in the profitable areas of the company in an attempt to keep those parts of the company intact.

Balanced against that is the risk of public opposition to any further support for AIG and other companies, even if such support were necessary.

3) At this point it appears that we don't know the details of any of these contracts.

Again, this is my best understanding of the situation inasmuch as I have been able to get information.

Over and above the particular AIG situation is the ethical question of compensation in the financial services sector in general. One cause of the growing income inequality in the U.S. has been the loss of the U.S. manufacturing base. Manufacturing tends to pay a lot of people a decent salary and a few a great salary. In financial services a lot of people make a crummy salary, and a few make gigantic salaries. So when a country replaces manufacturing with financial services it basically builds in income inequality into its economic system. And certainly that is, at least in part, a source of the current resentment against AIG.

When a guy with a high school diploma can make $50K a year with benefits working on a production line, he doesn't really care what people at the top make because his own needs are being taken care of. When the same guy is making $25K a year with no benefits working as a janitor, enormous salaries at the top make his own impoverishment even more distressing, and he no long feels that the economy is working to his benefit, and that in fact it is rigged against him and in favor of those at the top.
"Had they behaved as if they were bankrupt, these agreements would and should have been on the table for renegotiation."

Kent- Insolvency law is tricky. KERPs, MIPS, etc. can be couched as incentive laden bonuses when they are, in fact, merely retention bonuses. Given the circumstances, from a strictly legal perspective, if the CEO decided to not offer retention bonuses, then she/he could be found in a court of law to have made a "breach of fiduciary duty".

If AIG had filed Chapter 11, and a judge allowed AIG to proceed under re-organization, then these bonuses would be surprising only if they weren't distributed. In other words, AIG is acting exactly as if it were bankrupt.

A company that is distressed is often better off paying a premium (retention or otherwise) to the executives that are willing to stay with the distressed company rather than trying to find "new" executives who would demand higher salaries (after taking the KERPs paid to the current executives into account) if they left their solvent companies to accept positions with a company that is either insolvent, or likely to be insolvent soon.

In a nutshell- when a company is in bad shape, many of the executives that work for the company realize it and usually will demand retention "bonuses" from top management to stay employed with the failed company. If top management doesn't pay these executives a "premium" to continue their contracts, then they will likely leave. Even though the executives may be guilty of running the company in the ground, a contract is a contract, and these contracts, were they to be challenged, would be honored in a court of law.

Following is a link to a brief description of the AIG retention plan:

http://static1.firedoglake.com/1/files//2009/03/ny12532-_432294-v7-white_paper_-_aigfp_retention_plan.pdf

This isn't a matter of philosophy or ethics or politics. This is a matter of law.
Maddox, I take your point. But, frankly, a friend of mine at a company a lot less important than this was listed as a valuable asset of the corporation and told that if he went to work for anyone else, he'd be sued. Under ordinary circumstances, I'd call that indentured servitude and say there was constitutional protection. In this case, I'm less clear. It almost seems more like being asked not to leave the scene of a crime.

My point is this: For some people, the entire social fabric has broken down and they are being asked to endure real and sometimes life-threatening hardship as a result of what happened. I think these execs can afford to share a bit of that without feeling overly infringed while we sort it out.

To the many others who commented, I'll try to respond in more detail later when I have more time.
Larry, your suggestion isn't too bad. Handing them an IOU due and payable out of remaining funds after the public is repaid, with interest due, for the loan they're offering to get this company through its crisis seems like the right general kind of suggestion. The only sense in which I perceive a potential problem is that it diminishes the value of the company and so reduces the chances that, in fact, the company will come through. But maybe the amounts are enough in the noise that's not a major consideration. In many ways, this is a token/symbolic issue, but I think it has important value to the public in saying what is acceptable.
Sorkin in the NY Times yesterday had a good explanation of why the retention bonuses are in fact needed (which means they should be paid even *if* they weren't legally required, which they seem to be).

The other mistake people seem to be making is the claim that "we own it, therefore we get to say."
That's not how owning a major corporation works. You "own" it through ownership of shares. Those shares give you some control, e.g., the ability to hire/fire senior management, typically via the Board. It doesn't give you control over day-to-day operations. That's what you hire managers for. That's what the US government hired Liddy to do.
Maddox: that's a useful document, but where is it from? There's nothing on it identifying it as AIG policy. I'm not necessarily doubting it; I just don't want to rely on it if I can't verify its provenance.

Thanks
Chris.
Kent,

I agree that under the circumstances, with one of the most pressing crises facing us, we have to demand a re-negotiation of all administrative contracts. Make it the "patriotic" thing to do.....having some highprofile CEO's set an example. As it was said in the thread, we own 80%.....where is the American taxpayer bonus?
They may be contractually bound to give bonuses, like I said in my last blog, but the government should give them all community service to pay us back, cleaning the side of the highways and public restrooms.
Chris, you stated:

Sorkin in the NY Times yesterday had a good explanation of why the retention bonuses are in fact needed (which means they should be paid even *if* they weren't legally required, which they seem to be).

Sorkin's reasoning was absolutely horrifying. I perceived his reasoning to be that the bonuses might be construed as a form of bribery in order to keep A.I.G. workers from leaving the firm and making even more trouble by betting against them.

His one point about keeping people who can untangle the mess, on its surface, seems good, but it still goes back to the idea that these workers deserve some type of bribe or extra compensation to simply do their jobs. Admittedly any worker has this option, in the form of asking for a raise by asserting they will quit if they don't get it, but any other worker would be actually kicked out the door on the asses and blackballed if they asked for an actual bonus in exchange for not leaving and sabatoging the company in the outside world, even if the sabatoge was legal.

I was always under the impression that we don't negotiate with terrorists.
very hard to run a society when you make up the rules as you go along. aig wrote bonus contracts to stimulate effective service, they are in the money-making business, not the care and feeding of fools business. it is now apparent that they were too greedy, insufficiently cautious. it appears their success made them too big to be allowed to fail. this entwined the government in the commercial failure.

can obama say "to hell with the law!? i think not. you might not like the result if presidents said: "today's law is different, for my convenience."

the problem lies in capitalism, and oligarchy. you have said nothing about that, have you?
Susan, as others have noted, apparently the whole point of the bonuses in a number of cases was a retention bonus, to incentivize them to stay. How's that for sad? I certainly can appreciate the need for continuity, but I draw the line at continuity of incompetence.

Mr. Mustard, our bonus is a bonus bill. We each must play our assigned role, it seems.

Tim, thanks for the vote of confidence. I suspect there's some concern about special tax policies being bills of attainder, but I think that's easily fixed by making the tax apply to anyone who is making more than a certain amount in salary or bonus paid out by the government as part of a bailout. That's not singling out anyone, and it allows anyone who wants to opt out (by opting out of the bailout) to do so.
"If they're due bonuses at this order of magnitude, that's prima facie evidence that they authored the present catastrophe."

and, indeed, the argument is now being made that these employees 'need' to be paid bonus, because they are the ones who spun AIG's mess, and hence are the only ones who know how to unwind AIG's mess.

Great post, Kent
I truely just don't know the what or how here, Kent. I heard one commenter say on an online show that he thought the executives should do like the Japanese executives and for go the bonuses and then commit suicide. I don't go that far, but I do think with these rough times for us all something should have been done by the company that does not bring the rage and anger these bonuses have. I do think paying something called a 'bonus' during a period known as bankruptcy is bound to cause controversy and for a good reason. When I can drive downtown here in my small southern town to a tent city, and a corporation is handing out tax dollars in bonus money, in my humble opine something reeks. THIS!!

Very well written post, my friend. You write sooo well!!
I say kill every one of the AIG derivative traders who accepted the bonuses. It's time for the guillotine.
I read this, and I read Mr. Macdonald's piece, and I read the piece in slate. Here's where I come down:

1. The traders ought to have refused the bonuses; they didn't. This could have been an exercise of personal ethics that would have avoided anyone else having to ask the question. I'm sure they all have families and needs - although I bet those needs are along the lines of college tuition, jumbo mortgages, and leases - and not food, clothes, healthcare.

2. The board should have tried to negotiate a modification, or a deferral of the bonuses; they didn't. Why? I think it's two things - one, everyone tries to maintain an impression of business as usual. As if executive compensation remaining at obscene levels is something that will help the American investor have confidence in the industry. The whole incentive thing - "We need to pay the best bonuss to retain the best people" - this is a fallacy that I loathe. We all over-value jobs that we have done or can do, and underestimate the ability of anyone else to do them. I don't know what skills good or great executives or traders (even the shitty ones that we're pretending didn't get us into this mess) have that bad ones or untrained ones or smart guys off the street have - but I'm fairly certain that they're not as rare as hundreds of millions in bonuses and the skyrocketing salaries they got for he past decades - would make it seem.

3. Efficient breach. A contract is a contract; a contract is not a law. Boards and businesses make the decision to breach contracts all the time, and they do so because it makes better business sense to breach and pay the consequences than it does to fulfill the contract. The board should have not paid. Let people sue; let the traders become another bunch of people getting screwed because of unsecured debt.

corporations aren't my field. on this, I'm just hobo-offended-pobrecita - not the lawthing I generally purport to be.
Stellaa, in response to your “Time to break some contracts and some expectations,” yes, I think that gets to the heart of it. The public is having its expectations violated and at the same time the people who are profiting at such a harsh time are claiming immunity from having expectations violated.

Dennis, as with Larry's later suggestion that I already replied to out-of-order, I think this is probably a pretty optimal suggestion. I think they'll know that standing in line is pretty much the same as not ever getting the money. But then, the America public has strong reason to doubt the claims they'll later see a profit on their investment, too.

Julie, you can't actually get such a job. Because if it exists, I'm taking it before you. ;) ... Just kidding. I'll share, of course.

flyover, a nice analysis, both on the question of boats that have sailed and how the other half lives. Thanks!
1. But if these contracts were made while AIG was whining for a bailout, is this not a federal fraud situation? Not being forthcoming about existing bonus contracts as part of AIG's existing debt could also be considered fradulent.

2. If the unions are being threatened with abrogation of contract as part of any bailout, isn't a precedent set, allowing abrogating all contracts?

3. Does AIG reallly want to be nationalized, broken up and the failing divisions forced to go bankrupt? We have lost all confidence in the economy and AIG, anyway, so I'm not buying into the fear of failure excuse, either.
I think those contracts should have been considered null and void the minute that the government became 80% owner. The game has changed and adjustments need to be made. The idea that people deserve a bonus simply because they were promised one is ludicrous and irresponsible, not ethical. Bonuses should be tied to performance. I can't think of a greater example of a performance failure than AIG.

Excellent, excellent post, Kent. I love your clear and concise reasoning. Why was this not on the cover?
o'steph, yep, a definite ethical myopia in that analysis. And I think it's really hard to justify an ethical position without more of a survey than it seems like was done about the various points of impact.

Mishima, thanks for the detailed analyses. Several things come to mind:

One is the maxim I heard once, "If someone is indispensible, you should get rid of them right away." I think the theory is that the longer you retain someone who's indispensible (at least without building up redundancy) the more fragile and dependent you become. I don't totally agree with that, but it has some merit as a point of view, and might be relevant here.

But also, my dad was in the armed forces and we grew up moving a lot. As it was explained to me, they get great value out of moving people routinely exactly to avoid people developing laziness, scams, etc. that would be tripped up by the sunlight afforded when new people are rotated in. That seemed to work well as far as I could tell. And, in fact, I think the thing I think most is that bankers used to be prized for their conservative nature; the mere fact that what is being treasured is some sort of unique dealermaking or ability to understand things others can't as opposed to an ability to just mechanically run the numbers, methodically manage books in a transparent and routinely audited way, etc. is what's perhaps the most troubling. I expect a dynamic kind of irreplaceable flare more from astronauts than from bankers. Any other properly trained person should be able to snap in. Why is it even wise for the company to advertise for or try to retain anyone planning to make a career on more than that? I don't want a scheming/plotting/dreaming person in there—I want someone reilable/predictable/conservative. Same with insurance.
This post juxtaposed against ElaInMay's, convinces me more and more that there are far smarter and more realistic people with a grasp on the issues and the sobering truth of where this country has landed hanging around OS (and writing brilliantly) than almost anywhere else .
Your arguments and reasoning are both to be highly commended. Your writing is impeccable. And, you have a conscience. Hard to find this combo platter at most of our other "sources" for news and information. Highly rated, Kent. I vote for you.
Kent, I actually agreed with your post when I first read it. What kind of a performance bonus is required to be paid, regardless of the performance?

Alas, other commenters have explained that it was a retention bonus for staying the year, and the employees did exactly what was requested of them, hence the name "bonus" is kind of a misnomer and it really is just part of their wage.

The outrage is still there, the but legal requirement makes a lot more sense now.

I agree with you that the main point is that the company ought to have gone through bankruptcy, and then all the various creditors (including the bonus employees) could have lined up to see how much of what they were owed, they actually got. This didn't happen, because the bailout took place too fast.

As to why it was rushed so fast, in some sense it's even worse than you suggest. You wrote: "These companies were not forced to formally declare bankruptcy [...] because [...] there could have been a panic resulting in a run on the banks."

Maybe true in an "overall economy is crashing" sense, but AIG is not a bank! It's an insurance company. And the whole point of the bailout is to ensure that people who bought insurance from it actually got paid out if their bad circumstances occurred.

I think this is a different circumstance than if we were talking Citigroup or Wells Fargo of BofA. Real banks are indeed a kind of confidence game, and even a healthy bank can die from a bank panic and a run on deposits.

But not AIG. Fear of bank runs is not a reason to have avoided bankruptcy. (I think the Fed just wanted to "act fast", to "restore confidence" to the overall financial system.)

Anyway, all good thoughts. It really is a sad situation.
Nicely constructed argument, Kent. I particularly like:

Perhaps if deprived of the money for cause, their allegedly unparallelled brains and talents would get the hint that in order for them to profit, the rest of the world needs not to be taken into collapse in order to fund their good fortune.

And the graphic right next to it fits very nicely.

There seems to be ethical fragility all over the place in this one. I think Geithner's proposed plan to withhold exactly the amount of those bonuses from their next needed $30 B payment seems about the best plan I can see so far, though certainly unsatisfying in that those who received the bonuses would get to keep them.
Kent,

EXCELLENT! In my view, the problem with this entire discussion is the inclusion of the concept of ethics and ethical behavior, in the first place, within the circumstances of AIG paying these bonuses. In fact, I personally find the attempt to say that taxpayers are morally and ethically responsible for paying these bonuses extremely offensive.

The initiating statement for this was Chris MacDonald’s statement, “It's not unethical to pay people money you are contractually obligated to pay them.” Everything else seems to follow from that thesis. And the key phrase in that thesis is “not unethical”.

You nailed the problem when you pointed out that it is a “superficial” statement within the context of AIG bonuses. Ethics do not exist or function in a vacuum. MacDonald’s statement is true, if one does not qualify it by placing it into the current circumstance; a circumstance that creates an entirely specific set of criteria for determining what is “not unethical”.

ethics: a system of moral principles: the ethics of a culture. moral principles, as of an individual;

AIG is a key player in causing the damaging issues confronting our economy today, and anyone who can accept the premise that it is “not unethical” to take money from victims to pay off the perpetrators is not operating within a normal range of what is considered “ethical”. That premise removes the reality of the context, placing the issue instead into a sterile, detached, and distorted realm of illusion that denies any truly functional value in dealing with the real circumstances. Many, many people have been negatively affected by this disaster, and if these AIG people can’t get their bonuses, then they can step in line with all the other victims of the “unethical” practices of AIG and all the other perpetrators of the disaster. Why should only AIG employees walk away with these taxpayer-provided bonuses while the rest of the taxpayers victimized by AIG eat shit?

“Not unethical”?! BULLSHIT! Paying those bonuses IS unethical when one simply considers the source of the monies paying them. It’s not rocket science, nor is it some high-brow, esoteric level of philosophical logic that the average person can’t comprehend; it’s commonsense --- it IS “unethical”.