Thursday, March 19, 2009


"WASHINGTON – Cue the outrage.

For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back." -AP Article, via Yahoo News

Every politician around is throwing a fit about these bonuses, arguably in support of the "taxpayers" who are on the hook for the $160-some million AIG is paying in bonuses. In response to the situation, some have suggested the AIG executives should kill themselves.

I don't like the fact that we're on the hook for $160 million in bonuses to under-performing employees of a failed company. But numerous lawyers have indicated that AIG was legally obligated to pay them. People complain that the payments wouldn't have been possible without the government bailouts. That's a very good point, but it's misdirected. Rather than ask why these people won't voluntarily surrender millions of dollars to which they're contractually entitled, why not ask why the government bailed out AIG in the first place?

These bonuses are a straw man, which distracts from the real problem. Consider this - the bonuses make up less than 0.1% of the money the government has given AIG. These bonuses, as outrageous as they are, merely constitute a drop in the bucket.

The fact that the Federal Reserve's new commitment of $1.25 trillion* yesterday received very little attention demonstrates how detached the public is from the real problems we're facing.

Look at this chart. The AIG Bonuses are on the left. The AIG Bailouts are in the middle. The Federal Reserve's money dumping announced on Wednesday is on the right.
I don't know about you, but my prescription isn't strong enough to be able to see anything in the Bonus column. I played with the numbers, and it doesn't even start to show up until it's multiplied by 100.

It's not due to poor eyesight, but rather because of how vanishingly small it is compared to the other two nightmares. Or more accurately, how huge the other two issues are in order to dwarf $168,000,000. The bonuses constituted .000128 of the Fed's money printing plans, but took up 95% of the news coverage for the day.

That's a major problem.

*I can't believe we're to a point where $50,000,000,000 is rounded off for convenience.

1 comment:

Jef Nance said...

hey, Brad, nice post... easy for the media, etc, to demonize the fat cats for getting bonuses, nevermind some were working for a dollar/year, and the bonus was actually their pay.

Sad day in America when we allow politicians to scapegoat people for getting paid--with money that the politicians agreed to in the 'stimulus' bill.