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AIG Pays, Then It Is Taxed, Then They Give the Money Back

aig-towerSometimes I can’t stop wondering. First of all, AIG decided to pay bonuses to its executives for about $160 million. Of course, the cash came from the roughly $90 billion government help to the worldwide linked insurer to survive until toady, in a move which was very much debated. Since AIG showed that its fall would trigger a domino collapse of the global financial system, it looks now like the government had little choice about it. And so it did.

Now the show turns sour for the bonuses recipients. Forced by the public opinion outrage (justified or not) and by the 90% taxation bill enforced by the Senate, most of the AIG executives decided to return those money to the company. In its famous book, “The Truth About Markets”, John Kay mentions in one chapter this irrationality of the capital markets – we do not blame a company that it fails under the assumption that all company fail (market crash), but its executives are rarely forgiven by the public. Yet, those people are not invincible. And the executives of AIG might argue that they worked hard for those money, which are not out of the usual payments.

We at might do the same if we would get death threats for a lousy 10%. But the question remains though – why was the public opinion so outraged by something which other banks or financial companies (see for example the recent case of Citibank which was also nationalized and still paid bonuses)? I guess it is about the “winner takes it all” U.S. public attitude – if those executives were reporting profits, and if AIG would not have needed those government money, they would be the heroes of the day. But in this situation, the public tends to blame them.

1 thought on “AIG Pays, Then It Is Taxed, Then They Give the Money Back”

  1. You are oversimplifying this I think.

    Congress caused this mess by deregulating the industry, corp greed did the rest. When the public outrage hit, Congress, like all politicians, sprang into action blaming everyone but themselves. In this case, it was easy to point to AIG bonuses.

    In truth, SOME AIG execs not only need to return their bonuses, they need to prosecuted and/or shot. (Cassana for example). Others, however, played no part in the destruction of the company and should have kept their bonuses.

    Since Congress wont turn on the people that pay them, rather than charge the wrongdoers, everyone gets to suffer.

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