Wednesday, March 25, 2009

The Other Side of AIG

Meagan McArdle has a great post about the whole AIG bonues debacle. What we are starting to learn is that things are not what they seem.

According to the popular rhetoric, the people getting these bonuses are the same ones that got us into this mess. But the reality is less clear. McArdle links to this letter op-ed letter from one person who recieved these bonuses. Before you start throwing tomatoes, you might want to hear him out:

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself...

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down...

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you...

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need...

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Meagan then makes these statements:

Are we better off because a skilled trader has left, and his book will now be wound down by someone who doesn't know it, or the markets, as well? What trader with any alternative job opportunities would voluntarily walk into the mess at AIG Financial Products? Normally you would attract outside talent into the disaster zone by promising to pay them better than normal--but of course, AIG can't do that any more.

Moreover, presuming these accounts are basically accurate--and I've no doubt that AIG is painting itself in the best possible light--could we really expect him to do otherwise? I've heard a lot of complaints along the lines that the AIG people who didn't immediately volunteer to work overtime and be paid in cigar bands are not merely immoral, but unpatriotic.

I know and like some of those commentators, and I do believe in their fervent love of their country. I do not, however, believe that this love would actually keep them working long hours for little-to-no pay at a company that was failing because people in another department, people long since given the sack, had screwed up royally. Not when there was no possibility of saving their job, but only of salvaging some shreds of value for remote and hostile shareholders.

I know that there are some who would say "cry me a river," to the op-ed. But I have to agree with Meagan, that in the end, we are shooting ourselves in the foot by wanting to chop off the heads of these folk. Not everyone who works at AIG is a crook, and some of them are trying to do good. The other thing is that after these people leave, why in the world would anyone come in and try to pick up where others have left off when they might be the next one to be targeted by self-righteous politicians?

In good times, we love the captains of Wall Street to the point that we might ignore some of the more shadier dealings. In bad times, we do the exact opposite, all the players of Wall Street are villians who steal lollipops from the mouths of babies.

But the fact is, neither of these views are correct. There are fine, upstanding people who play by the rules and do good and honest work. There are others who are greedy crooks. Both exist, but to paint anyone and everyone who works at AIG or any other group is shortsided and wrong.

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