Monday, March 16, 2009

Who Cares about Losses?

So you are the leader for one of the biggest companies in the world. You screwed up and the company almost collapsed. Your company post a record loss and the government had to step in to save your company.

What do you get at the end of it all? If the company is called American International Group (AIG), you get a multi-million bonus for your ‘good’ work.

That’s what happening in America right now as leaders in AIG are now in line for their year-end bonus (which come to about US$165 million) and there’s nothing the U.S government can do about it. Leaders of the White House economic team, with Treasury Secretary Timothy Geithner leading the way, have tried every legal means they have but could only managed to get AIG to reduce the bonuses.

The opposition Republicans is now bellowing about the bonuses, conveniently forgetting that the bailed-out of the insurance giant was done under their leadership, but there’s nothing they can do also.

Although I don’t really mind high salaries for our ministers, but don’t this kind of remind you of Singapore?

7 comments:

Anonymous said...

One of the problems with the financial industry - particularly in the US - is the focus on the short term. Many of the investment bankers who are responsible for today's mess were paid on the basis of a low salary (relatively speaking ...) and a very high bonus component that gave them the incentive to focus on creating profit in the short term rather than worrying about the long term.

This is why some banks, like UBS, are now considering giving their bankers a raise (in terms of base salary) while cutting bonuses.

I think we can all agree that it would be better to have our Ministers focused on the long term rather than the short term.

Ghost said...

The big problem with our Ministers focused on the long term is how 'long term' it is. Another 15-20 years Citi investment?

Ju said...

AIG = Allowing Irreversible Greed.
AIG = All in Greed.
AIG = Arn't I Greedy.
AIG = A$#holes, in general.

This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the "average joes" taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:

http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/

Not to make excuses for these people, but the bailouts are making crooks out of everyone that touches the money.

Anonymous said...

AIG claims that it is contractually required to make the bonus payments. If that is indeed the case, then what do you think - should AIG breach the contract? That would probably end up in lawsuits and AIG might end up paying legal costs (no joke in the US) on top of the bonuses.

On the flip side - what would you do if you are a high level AIG executive who is contractually entitled to a large bonus? You probably have a family to feed, a mortgage and other loans to pay off. The economy is in the toilet and you might lose your job soon, and when that happens you probably won't be able to find a job with equivalent pay - if any at all, given the current job market for mid/senior level people. Not to mention that the public is already viewing you with hostility and you certainly won't be getting any sympathy. Would you willingly surrender your contractual bonus?

Anonymous said...

If the US repudiates its national debt, what do you think will happen to the creditors like - oh, China, for starters?

Ghost said...

Washington has no choice in the AIG bail-out. If they didn't do that, the bloodbath on Wall Street (and the world) would have destroyed the world's economy.

Anonymous said...

Similar to the problems with the US auto giants. Badly run companies should fail. Unfortunately, they would bring down too many people with them.