O.K., to be crystal clear on AIG's bonuses….

As the Union-sponsored buses toured homes of various AIG executives yesterday, I was sitting in a small North York TV studio waiting, staring at a camera lens, waiting for a couple of Fox News anchors to come out of their interview break and pepper me with questions about AIG, retention payments, and all things greed-related.

When the interview request first came in on Thursday, my instinct was to say “no”. A New York-based Fox News producer had seen my post about the double standard between AIG & Citibank/Merrill, and contacted Amy about coming on their weekend show with Julie Banderas and Gregg Jarrett. Since I’d already made my AIG/Merrill points on BNN the day before with Kim Parlee (see prior post “BNN interview on AIG bonuses” March 18-09), what was the point?

However, with our firm’s new, North American footprint, there were some who thought that this was not to be passed up. Mat Wilcox, for example, said it was the “big time” and a must-do. Canadians may associate Fox News with right-of-centre political views, but the reality is that it has become the #1 cable news station in the U.S. “If you ever tried, you could never get on Fox,” said Mat. “It’s impossible.” Trust in Mat.

Mr. Jarrett set aside about 10 minutes, and he wanted to talk about two blog posts that I had written over the past 7 weeks. A somewhat prescient piece about how the American Public were working up to their own version of the French Revolution (see prior post “America may be on the verge of its own French Revolution” February 2-09): in that one I suggested that the revolution would involve the tax code and pay caps, not pitchforks. It also predicted that U.S. politicians would figure out that if they didn’t join their fellow citizens marching against Wall Street, the mob would turn on them next.

The second post was my attempt to broaden the AIG bonus controversy beyond the obvious issue of whether or not their execs “deserve” bonuses (see prior post “The AIG / Citibank double standard” March 17-09). Retention payments for the derivative gurus who built the $2.7 trillion bomb, and having them safely defuse it, benefits the U.S. taypayer most than anyone else. It’s not that you want to pay retention sums, but it is better than the alternative. I tried a metaphor: “You pay Tony Soprano the protection money not because you want to, not ’cause it’s fair, but because the alternative is worse.”

Moreover, the red letter crime isn’t the $200 million paid out to AIG employees, it’s the US$3.6 billion that Merrill Lynch paid in bonuses during the last week of December. Neither would have been in business if not for the U.S. Federal Reserve, so why focus solely on AIG?

The dollars involved at Merrill, and the sleight-of-hand timing, is far more galling in my mind than the stay-payments at AIG. If guys took their AIG retention money and left before their contracts were up, then pursue them for Fraud. But if you contracted someone to stay to unwind the book, and they are doing what you’ve asked, then the money is smart (or at least self-interested), even if you have to grit your teeth when you sign the cheque.

As for the idea that “AIG is the cause of the economic crisis”, I would rank that firm below the guys who built the subprime mortgage structures, the agents who stuffed crappy borrowers into the conduits, the agencies that rated the CDOs and CLOs, and the regulators who allowed the investment banks to go from 12x levered to 33x levered in less that half a decade.

My main theme was simple: separate performance bonuses from retention payments. Don’t pay bonuses unless there was performance that warranted them, which is unlikely in AIG’s case. But in terms of retention payments, AIG’s experts still needed to unwind $2.6 trillion of derivative trades (now US$1.7T); you can’t fill those roles at any old job fair. It might make you mad, but the U.S. government has already loaned AIG US$173 billion, and I assume you want that money back. Don’t cut off your nose to spite your face.

Mr. Jarrett was quite kind throughout the interview, even if he doesn’t believe the AIG crew should be allowed (or are uniquely qualified) to unwind their own book. “Someone else out there must be able to do it”, he said. Maybe so. “Who will hire these guys? They’re incompetent!” Some have already fled to greener pastures, but he was on a roll. The American public want blood, and Mr. Jarrett is in that camp, too. Understandably so.

Mr. Jarrett did jump on the point I had made last Wednesday about Merrill’s December bonus payments being ignored in all of this, and we agreed vociferously on the injustice of that reality. “Merrill’s payments are the real crime”, I said, “and Washington is only focused on AIG.”

We signed off, and the producer said it was “fantastic”. I guess my Saturday afternoon was well spent. Not looking like a complete idiot is all one can hope for.

And them Amy got this email within 15 minutes of the interview:

From: c wright
To: Amy Olah
Sent: Sat Mar 21 17:08:31 2009
Subject: High as a F(*^ing kite.

Listening to that Jackass, Mark McQueen on tv the other night defending the retention of a bunch of fucktards was disgusting. I know a lot of those people, people at Goldman, Merrill, Soros and others. They’re not particularly bright. I went to school with them and took a different path, thank god. What a spectacular way to show what incompetent idiots they are in front of the world. Mr. McQueen only reinforced his own retardation by attempting to defend. Thank god I have an inheritance that’s not based on Street Bullshit. I always figured my peers headed in this direction were gonna F(*&K it up. What a shame. Tell McQueen he’s not doing himself or the company any favors by attempting to defend. At least Cramer was contrite in front of another idiot, Jon Stewart.

Hope you lost mucho,

Chris

Now, was Chris actually listening to what I was saying? The headline of the blog piece that Mr. Jarrett referred to was “The AIG / Citibank double standard“. No where does it say that paying bonuses for screwing up is a sensible thing to do; or that it should happen. What it does say is that once you’ve invested US$173 billion to keep AIG from blowing up, you’ve got spend some money to retain the derivatives specialists you need to defuse the bomb.

But the larger point was pretty clear, and by choosing a December 31, 2008 cutoff date, Congress still hasn’t dealt with it: both Citibank and Merrill have their hands far dirtier than AIG.

Chris, that’s the ultimate point. And yes, I have lost “mucho”. But I didn’t cause the economy to melt down, either. So why is that deserved? Is your plan to put everyone who wears a suit and tie in shackles?

The American version of the French Revolution really might be upon us. And, irony of ironies, it’s a trust fund baby who is leading the riotous crowd.

MRM