4 ms·

A couple of points to consider here. First, for all of the people who think that AIG should have gone bankrupt: go look at www.aig.com under "individuals and f

by bwd 18y ago

A couple of points to consider here. First, for all of the people who think that AIG should have gone bankrupt: go look at www.aig.com under "individuals and families" to see what lines of business AIG is in, then check out the "insurance holdings by state" section of the wikipedia page. AIG owns two dozen insurance companies in California and controls 4.7% of the life insurance and 2.7% of the property and casualty market in West Virginia, among other things. IANAL, but I have to assume that policy holders would revert to general creditors in the event that they had a loss and the insurer was bankrupt. Would you want to go to bankruptcy court and stand in line with Goldman Sachs, Societe Generale, etc. to try to get your payout if your house had burned down or your spouse had died and you needed the money to pay your bills? It may be the case that state governments stand behind insurers that do business in their state (insurers are regulated at the state level so this may vary by state) but this converts the problem into one that is much more complicated and expensive to sort out than just giving money to the parent company. I expect that this is why the parent company was bailed out instead of going bankrupt. As for bonuses paid to executives, these people are employed in units that basically trade derivatives, and they know what positions AIG has on its books. It is thus possible that the guy who earned $6.4 million in bonus could earn a lot more than that if he started a hedge fund and bet specifically against the positions that he knows AIG has. If this is the case, then AIG is actually saving money by paying this guy to stick around and help them unwind the book. Confidentiality provisions will not protect a company from a former employee betting against their positions, only from having them disclose information.

erso 18y ago
I don't agree with your position that AIG was in the right by paying bonuses. If the executive in question can be bought so easily I don't think they'd stick around when they know they can make more money elsewhere. Case in point: NYT reported today that according to Andrew Cuomo 52 of the executives that were given bonuses have already left the company. These people took the money and ran.
- anamax 18y ago
  > These people took the money and ran. They got pre-agreed bonuses for what they did. They saw that things were changing for the worse and left. What part of that do you have a problem with? Thanks to the handwringing, started by people who knew about the bonus months ago, AIG is going to have trouble hiring people. Since we're hoping to get tax money back, it's unclear why that's a good thing.
  - erso 18y ago
    Again, Andrew Cuomo: "AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous." Are you saying AIG is only now going to have trouble hiring people, since they won't be handing out lavish bonuses to people who don't deserve them? I'd have thought they'd be having trouble hiring people for other reasons.
    - anamax 18y ago
      I don't know about you or Cuomo, but when I'm considering a job, I don't say "the company is going to have a bad year, so I'm going to take a pay cut and stick it out". I say "If I can do better elsewhere, I'm leaving". (Interestingly enough, I say that even if the company is going to have a good year.) AIG was and is going to have trouble hiring good people. We're telling folks that AIG won't live up to its agreements. Who is that going to help? Apart from shoveling money to Goldman Sachs, AIG is in the process of unwinding a lot of transactions. AIG is going to lose money and go under no matter what. However, that doesn't imply that good people aren't needed. The amount of money lost depends on how well the unwinding is done. Me - I'd like the unwinding to be done so as to lose as little money as possible. If you agree, how do you propose to do that without hiring good people? Of course, you may think that good people can be had for less than AIG thinks. Do you have evidence for that theory beyond "you can't do any worse" and "AIG went into the toilet"? As I pointed out elsewhere, AIG's mortgage portfolios have performed as advertised....
      - joe_the_user 18y ago
donw 18y ago
Good, then let them leave and invest their (and their friends' money) as they see fit. Don't hand them my tax dollars so they can then leave and do as they see fit. I sincerely doubt that the sum total of all burned down houses, deaths, auto accidents, and so on that are handled by AIG-backed companies is within two orders of magnitude of the bailout. So let AIG crumble, have the federal government handle the insurance payout to the insured as an emergency measure, and for the people who lost their policies, they can go to another insurance company.
Rod 18y ago
Thank you for an insightful analysis. It's somewhat interesting that HN'ers believe they are super smart but downvote anything that goes against the mainstream dogma. Finance is complex. Even a smart guy like Philip Greenspun made a fool of himself in this article. Better not make strong statements when one is treading outside one's area of expertise... I would argue that many allow emotion to cloud their judgement. Of course that taxpayers are not happy to see their money being wasted on bonuses, but shouldn't we analyze the situation in objective terms? Your analysis was one of the most balanced I have read in recent times. Sometimes one must choose between two evils. Things are seldom black & white. I liked your take on the need to compensate and keep AIG's traders, in order to avoid them going elsewhere and start predatory practises against their former employer. Makes sense. I wonder why no one had mentioned it before.
rrhyne 18y ago
>Confidentiality provisions will not protect a company from a former employee betting against their positions, only from having them disclose information. Right. Like current AIG employees aren't already helping others do this right this second. Great post otherwise.

by bwd 18y ago

erso 18y ago

I don't agree with your position that AIG was in the right by paying bonuses. If the executive in question can be bought so easily I don't think they'd stick around when they know they can make more money elsewhere. Case in point: NYT reported today that according to Andrew Cuomo 52 of the executives that were given bonuses have already left the company. These people took the money and ran.

anamax 18y ago
> These people took the money and ran. They got pre-agreed bonuses for what they did. They saw that things were changing for the worse and left. What part of that do you have a problem with? Thanks to the handwringing, started by people who knew about the bonus months ago, AIG is going to have trouble hiring people. Since we're hoping to get tax money back, it's unclear why that's a good thing.
- erso 18y ago
  Again, Andrew Cuomo: "AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous." Are you saying AIG is only now going to have trouble hiring people, since they won't be handing out lavish bonuses to people who don't deserve them? I'd have thought they'd be having trouble hiring people for other reasons.
  - anamax 18y ago
    I don't know about you or Cuomo, but when I'm considering a job, I don't say "the company is going to have a bad year, so I'm going to take a pay cut and stick it out". I say "If I can do better elsewhere, I'm leaving". (Interestingly enough, I say that even if the company is going to have a good year.) AIG was and is going to have trouble hiring good people. We're telling folks that AIG won't live up to its agreements. Who is that going to help? Apart from shoveling money to Goldman Sachs, AIG is in the process of unwinding a lot of transactions. AIG is going to lose money and go under no matter what. However, that doesn't imply that good people aren't needed. The amount of money lost depends on how well the unwinding is done. Me - I'd like the unwinding to be done so as to lose as little money as possible. If you agree, how do you propose to do that without hiring good people? Of course, you may think that good people can be had for less than AIG thinks. Do you have evidence for that theory beyond "you can't do any worse" and "AIG went into the toilet"? As I pointed out elsewhere, AIG's mortgage portfolios have performed as advertised....
    - joe_the_user 18y ago

donw 18y ago

Good, then let them leave and invest their (and their friends' money) as they see fit. Don't hand them my tax dollars so they can then leave and do as they see fit. I sincerely doubt that the sum total of all burned down houses, deaths, auto accidents, and so on that are handled by AIG-backed companies is within two orders of magnitude of the bailout. So let AIG crumble, have the federal government handle the insurance payout to the insured as an emergency measure, and for the people who lost their policies, they can go to another insurance company.

Rod 18y ago

Thank you for an insightful analysis. It's somewhat interesting that HN'ers believe they are super smart but downvote anything that goes against the mainstream dogma. Finance is complex. Even a smart guy like Philip Greenspun made a fool of himself in this article. Better not make strong statements when one is treading outside one's area of expertise... I would argue that many allow emotion to cloud their judgement. Of course that taxpayers are not happy to see their money being wasted on bonuses, but shouldn't we analyze the situation in objective terms? Your analysis was one of the most balanced I have read in recent times. Sometimes one must choose between two evils. Things are seldom black & white. I liked your take on the need to compensate and keep AIG's traders, in order to avoid them going elsewhere and start predatory practises against their former employer. Makes sense. I wonder why no one had mentioned it before.

rrhyne 18y ago

>Confidentiality provisions will not protect a company from a former employee betting against their positions, only from having them disclose information. Right. Like current AIG employees aren't already helping others do this right this second. Great post otherwise.