TARP, AIG, and other disasters

Karl at Patterico's Pontifications (not me) links to a few posts dealing with the AIG mess.

Left unasked in all of this is how stories like the AIG bonuses catch fire in the public imagination.

One answer is that the AIG bonus story is “made to stick” — simple, surprising, emotional etc. (okay, maybe not simple, but simple to sell). Storytelling is an effective method of getting messages to stick, one to which the Left frequently resorts. It is why the Democrats name bills after Lilly Ledbetter, Ryan White and so on — and wheel out Michael J. Fox to flack for funding embryonic stem cell research, or 12-year-old Graeme Frost to deliver an address on expanding S-CHIP. Conversely, it is there in the Alinsky-ite formula of “Pick the target, Freeze it, Personalize it and Polarize it.” It is there in Joe Stalin’s observation that “a single death is a tragedy; a million deaths is a statistic.”

On the road back to a majority, the Right might consider trying to become better storytellers and better debunkers of the Left’s stories.

And they cold start with some of these items from the blog, Just One Minute:

I Wish It Were Just This Bad: Henry Blodgett explains one consequence of the new confiscatory tax on TARP recipient bonuses:

....Believe it or not, hidden inside these companies are thousands of decent, competent people whose households bring in more than $250,000 a year. Many of these folks had NOTHING to do with the gambling addiction that bankrupted their firms. Many of them still have a choice where to work. And now that they've learned that their family's pay will be capped at $250,000 indefinitely, many of them will quickly decide that now is a good time to pursue their careers elsewhere. (That is, unless their firm takes the easy and obvious step of just paying them a fatter salary, which just renders the whole thing a farce.)....

....what venture capital firm or hedge fund is going to parnter with the government now that COngres has demonstrated a willingness to retroactively change the terms of a deal? Remember, the initial TARP bailout had few restrictions on compensation; Congress just unilaterally re-negotiates the terms as fits of pique pass over them.

So we will blow up the firms in which we are invested and scare off any potential new government "partners".

The 22nd Book: The Book of the Dead: Some folks are clearly under the illusion that all 370 AIG FP employees spent their days (and nights!) writing credit derivative swaps that were doomed to disaster. Let me just sketch an alternative hypothetical scenario for the outraged to contemplate.

Joe Cassano, who ultimately emerged as the leader of AIG FP after several rounds of managerial changes, was one of several contenders for the top post. His rivals, some of whom may have had serious disagreements with his personal style and professional judgments, could elect to stay on in senior posts at the satellite offices in Tokyo, Hong Kong, Wilton, Paris, and wherever, or they could leave for high paying jobs at hedge funds or other investment banks. Some stayed.

In the spring of 2008 it was clear that the Cassano-led charge into credit derivatives was an impending disaster and Cassano was on the way out. Would it better for the AIG board to (a) sack Cassano and let his disgruntled rivals quit for jobs at other firms, or (b) sack Cassano and guarantee a bonus pool to those who agreed to stay on and attempt to pick up the pieces?

The idea that the only correct answer is (a) is absurd.

Mob Rule: I see broadening support for mob rule on the question the AIG bonuses. Let me single out Felix Salmon, who would rather type than do his homework:

If AIG simply didn't pay the bonuses, would the employees of the financial products arm really fancy their chances in court were they to sue to receive them?

Let's see - first, as Liddy explained to Geithner (or see ABC News or the WaPo), under the applicable law employees could sue for double their wages plus legal fees. If we don't want to pay these people $165 million, how will we feel about paying them $330 million while enriching their legal teams? Believe me or use your imagination - plenty of people at these firms are tough, proud, competitive, and very comfortable with lawyers and legal scuffles, and they will welcome the chance to double their bonus.

There is also this cryptic passage in the Liddy letter - "individual managers who decide to withhold wages that are due are individually liable for violations of the Wage Act." I don't know if that is a criminal or civil liability and I am confident Mr. Salmon has no idea either. Maybe he would like to sign off on the order withholding the bonus pool and find out? How cool would that be if Treasury Secretary Geithner were jailed and personally bankrupted after he loses this lawsuit?

What if everyone who voted for the TARP plan signed off on such an order?

Some Reality for the Reality Based: The WaPo actually makes the long trek to the Wilton office of AIG Financial products and speaks with the guy in charge (Gerry Pasciucco, another dollar a year man brought in with Liddy last fall):

....what is missing from this week's hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm's former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

So AIG stepped in with an offer to employees of Financial Products. Work through all of 2008, and you'd get a lump payment in March 2009. Stick around through 2009, and you'll get paid through 2010. Almost all other forms of compensation -- bonuses, deferred payments and the like -- have vanished.
....
"Everybody, including my secretary and including the guy down the hall that serves lunch, gets a payment," said Pasciucco, who added that he received no retention payment and has no contract.

But what about the argument made by top AIG officials that the people receiving retention bonuses have unique skills and knowledge that make them indispensable?

"They are replaceable," Pasciucco acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time."

I am not going to tell you they need all 370 people to wind down their remaining activities but you can be sure of this - if key people leave, AIG won't be able to hire replacements. Well, not without guaranteed compensation that will eventually outrage Congress. Hmm, they drafted doctors during the Korean War (if I recall M*A*S*H correctly); maybe Obama could institute a draft call-up for derivatives traders to fight this economic war.