AIG's Liddy: Pay the Bonus Babies Before They Strike Again

If we don't pay the bonuses everything might blow up? Wonderful.

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By Robert Schlesinger, Thomas Jefferson Street blog

Watching AIG CEO Edward Liddy testify right now, and listening to his explanation of why it was important to make the much-discussed bonus payments, two analogies come to mind, one very rough, the other more on target.

Liddy's argument is, essentially: We've been shutting down the division that caused all of the problems and have made progress, but the whole thing is incredibly complicated and we did not want to risk that progress by prematurely shutting the group down, causing the whole thing to expl ode in our faces.

The bonuses are retention bonuses inasmuch as they were paid to employees on the premise that their jobs will disappear, but would they please stick around to finish them up? The fear, presumably, is that if these people weren't paid millions of dollars they would jump ship and go find a better job elsewhere. (Which raises these questions: Who the hell is going to steal these people away from AIG? Is there a strong job market for people whose reported reckless incompetence helped wreck the economy? Are there a lot of job openings in the "Bond villain" industry?)

One poor analogy that pops to mind immediately is Iraq—that simply shutting down the villainous financial products unit would cause chaos, rather like dissolving the Iraqi army caused chaos in that country. This is an overly rough analogy—in both cases it's about taking an action to prevent a larger chaos.

I think a more apt analogy is to an extortionist. The message is essentially that while these people rigged explosives to the global economy, only they know how to defuse the bombs that they've set. The mind reels.

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