More AIG

I think Tom Maguire nails it when he describes most of the discussion about AIG bonuses today as "The Race To Stupid". If you want to get out of the emotional gut reaction and get some perspective then read the whole thing and follow his links.

If you find it satisfying to be Barney Franks'(among others) tool, then don't.

It is unbelievable how many people are willing to throw all principle aside in the rush to collectively punish anyone who works at AIG, regardless of what they did and how nobly, or ignobly, they personally acted. "Fuck them all" seems to be the lynch mob attitude of the day, and it's shameful and quite likely counterproductive, as lynch mobs tend to be.

Not everyone at AIG contributed to the meltdown. Drunk on outrage though, a lot of pundits have apparently decided to lump everyone together and attempt something that may be the equivalent of burning down the house. Well look folks, there's a reason that the government is propping up AIG. As much as I don't like the billions in taxpayer money that AIG customers are getting, the huge cascade of defaults that would almost certainly result from AIG going under would be truly scary. Depression scary. As Maguire notes:

Final thought - if the AIG FP employees simply walk away from their desks on Monday night never to return the market disruption would be stunning.

Careful what you wish for, especially when doing so while both outraged and ignorant. You just might get it.

More:

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

Is that reality? Shoot, I don't know, but it's plausible. The only real way to judge is to talk about specific individuals and what they did in the past, and what they are doing now. That would require a level of sophistication and prudence that seems to be sorely lacking right now.

Oh, well maybe it doesn't matter:

A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all.

"It's a mob effect," one senior executive said. "It's putting people's lives in danger."

Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products' complex trades and who are trying to dismantle the division before it further endangers the world's economy.

"It's going to blow up," said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. "I have a horrible, horrible, horrible feeling that this is going to end badly."

Swell.

Comments

[Rob]

There's a lot of conflicting information coming from every corner in this mess. You have some people saying the senior executives that caused most of it are long gone and then you have others saying "A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it."

Personally, I'm just not going to let anger over all of this consume me like it seems to be doing to others. I have to let people smarter than me sort it out because I don't completely understand the perfect storm that created all of this. I am not the guy anyone should be taking financial advice from.

[Dave E.]

I don't think the two are mutually exclusive. I wonder how many of the people who are still left are really technicians in a way. Three years ago they were told to do A, now they are told to do B. Maybe a personal analogy will explain.

When I was in IT the CTO occasionally made decisions that I didn't agree with. I made my case, but sometimes I lost. Since these weren't ethical issues, I did my job and carried through on his decision. A couple of them blew up, one spectacularly, and I then had to switch gears and help fix them. Somebody else could have come in and done that, but they would have faced a steep learning curve in what was a complicated environment. Much of what I knew that had to be done was in my head and nowhere else. If I walked out the door at that point they would have survived, but not without considerable delay and expense.

I wonder if we are at least partly seeing the same sort of thing with AIG. I don't know that, I could be way off base. I think we should understand that though, before we jump to conclusions and possibly compound the problems.

[Rob]

That's all plausible. I think the outrage now, though understandable, is mostly counterproductive. We're already committed to saving the company. AIG was headed to failure on its own. Most agree it would have been a catastrophe. The only thing that might be worse than that is to pour untold billions of taxpayer dollars into it and have it still fail. Everyone needs to dial down the rhetoric a bit.

[Dave E.]

Agreed on the rhetoric. Looking at the companies that have been getting money through AIG, I wonder if this is not really the right way to work through this mess. It pisses me off to no end, but the alternative of letting AIG fail would probably have resulted in many more failures and a huge nationalization of the financial sector, costing even more including maybe a true depression. There needs to be a full accounting, including the politicians who encouraged this disaster.