Who isn’t angry about the $165 million in bonuses paid to executives at insurance giant American International Group?
The company, on its fourth round of government bailout money, recently paid millions to executives who created the risky derivatives at the epicenter of the financial meltdown.
The president is up in arms. Federal lawmakers are threatening to tax the bejesus out of the bonus recipients. And the public anger is palpable.
We agree the bonuses are morally indefensible. But the payments should stand for several reasons.
• The bonus contracts were in place long before the insurance giant took the first federal bailout money in September. And the bonuses were paid legally — part of a program that had been disclosed in advance in filings AIG made with the government, according to the Associated Press.
• If the government begins unilaterally ignoring contracts, it will create more turmoil in an economic atmosphere that can’t sustain any more uncertainty.
• And, very practically, we want those AIG executives to stay on the job. The incredibly complicated financial instruments at the core of the economic downturn aren’t so easily understood by outsiders. The people who created the problems that brought AIG to its knees are at work unraveling them so the company can be cut into pieces and sold.
That will benefit taxpayers who have about $170 billion in the company and own roughly 80 percent of it.
Putting a hold on bonus payments might satisfy the public urge for revenge, but potentially could do greater damage to the public pocketbook.
In the nation’s capital on Tuesday, a bipartisan group of legislators took on the issue with a vengeance. Senate Democrats proposed a narrowly tailored “bonus tax” that would recoup more than 98 percent of the bonus money given to AIG executives.
“If you don’t return it on your own, we will do it for you,” said Sen. Chuck Schumer, D-New York. (Even though Sen. Schumer gave it to them in the first place.)
It’s repugnant to think of those executives walking away with big checks as the economy withers, but a bonus tax would be short-sighted.
That said, let it end here. This must serve as a lesson for those in Washington as they consider spending more of our tax dollars to prop up ailing financial institutions.
They need to do a better job structuring any aid so that public money cannot be used for bonuses. When taxpayers know their money is being squandered by companies like AIG, it undermines any effort by President Barack Obama or Congress to get the country back on track.
The administration and lawmakers must ensure that broader economic recovery efforts have every chance to succeed.
