Like you, I've been watching this AIG bonus story unfold over the weekend. And though I did not see it at first, I think it may prove to be a turning point, both for AIG and the government.
I don't believe the bonuses themselves are the heart of the matter, nor the fact that they're going to the
very executives who caused AIG's implosion or even the galling reality that, since all money is fungible, they're being paid with taxpayer dollars. What's really driving this forward -- and what makes it such a dangerous moment for the White House -- is the jarring image of the administration's impotence.
Secretary Geithner found out about the bonuses. He told AIG CEO Edward Liddy it wouldn't fly. And Liddy, in a curiously imperial letter, tells Geithner that much as he is pained by the situation -- to blow it out his ass. Which he apparently proceeded to do.
There's really no other way to describe it. From the Journal
Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit -- whose woes caused massive losses at the giant insurer -- are due on Sunday, and added "quite frankly, AIG's hands are tied."
Mr. Liddy wrote in the letter to Mr. Geithner that it followed a conversation between the two men on Wednesday about "compensation arrangements" at the financial products unit and AIG in general. "I admit that the conversation was a difficult one for me," Mr. Liddy wrote.
In the letter, Mr. Liddy wrote that "outside counsel" had advised that the previously agreed to payments to employees at the financial products unit are "legal, binding obligations of AIG." He wrote that there are "serious legal, as well as business, consequences for not paying."
"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Mr. Liddy wrote, but added, "Honoring contractual commitments is at the heart of what we do in the insurance business."
Few exchanges have so captured the disconnect that makes this situation so politically explosive. We're collectively taking our country's future in our hands, spending vast sums of money to keep these companies from suffering the consequences of their own folly and (in many cases) criminality. And in return we're receiving cavalier dictates about pay-outs and bonuses from executives who by any reasonable measure work for us -- dictates we promptly accede to. There's a beggars can't be choosers problem there. And the disconnect is so mighty that it fuels the impression that the whole enterprise is not what it seems, not what we've been told, that in addition to picking up the tab we're being played for fools.