I’ve held my tongue about the AIG bonuses because I haven’t had the energy to take on the torch-and-pitchfork brigades. But although I can understand the populist anger, and maybe even share it a bit, the frenzied response has turned me off since the day the story broke.
Comes now an AIG executive named Jake DeSantis, who resigned today in a letter published in The New York Times. His message should give pause to the angry mobs. (Hat tip: J.G. Thayer.)
DeSantis didn’t create the credit default swaps crisis — he took a $1 salary to transfer in from another area of AIG to help fix the mess. In exchange for accepting that token salary, he was guaranteed a payout at a certain level if the company survived long enough to pay it.
This wasn’t a “bonus” in any meaningful sense of the word. It was a deferred payment — deferred at great risk by an executive who had other lucrative options.
The letter is worth reading in full, but here’s the part that jumps out at me. Addressing himself to AIG CEO Edward M. Liddy (another $1-a-year man), DeSantis writes:
Youâ€™ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.
As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.
Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.â€™s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.â€™s promises and are not inclined to return the money as a favor to you. …
So what am I to do? Thereâ€™s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldnâ€™t disagree.
That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.â€™s or the federal governmentâ€™s budget.
DeSantis is a titan of finance. He writes that the deferred contractual payment he received on March 16 was “$742,006.40, after taxes.” Before taxes, that means he got one of those “million-dollar bonuses.” It’s a lot of money, but it’s certainly not bizarrely high for a senior financial services executive.
I think AIG or any troubled company could use more thoughtful and talented executives like DeSantis. The company and the economy need experienced leadership, and yes, financial services leaders make a lot of money. I’d much rather trust DeSantis than any of the politicians calling for his scalp.
But the mob has had its say. Best wishes for your future endeavors, Mr. DeSantis.
Update: Holman Jenkins also weighed in on “The Real AIG Disgrace,” in today’s WSJ:
It may be that the full picture was kicked up to [Geithner] only when a political decision was needed, but by then his one decent choice was to insist on the bonuses’ legality. However politically inopportune the bonuses may be, the president only dirtied himself by authorizing a feel-good, bipartisan hate storm aimed at innocent AIG employees. And it’s hard to believe Mr. Obama would have done so, or the subsequent spectacle would have unfolded as it did, without Mr. Geithner’s seminal prevarications (and we say this fully acknowledging that he’s had a rough ride in an inhumanly difficult job).
Barney Frank, who doesn’t have the excuse of being stupid, was last seen bullying Mr. Liddy to do what on any other day Mr. Frank would flay Mr. Liddy for doing — violating the privacy rights of his employees. Charles Grassley? His early bloviating about the duty of AIG executives to kill themselves almost begins to look like a grace note, since it alerted the public to the hyperbolic playacting about to come. …
But the biggest lesson here is the old one that the price of freedom is eternal vigilance — beginning with insistence on the rule of law. Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so.
Which brings us back to Mr. Cuomo, whose office has been implicitly threatening to publish names of AIG employees who don’t relinquish pay they were contractually entitled to.
Mr. Cuomo is a thug, but at least he reminds us: It can happen here.
I think DeSantis’ letter should be required reading for everyone. As usual, the scoundrels who got us into this fine mess are long gone. It’s the responsible people who stay to clean up who get the shaft. I wish I knew Jake DeSantis. I would like to shake his hand.
It was a great letter. The vast majority of AIG's employees are hardworking taxpaying citizens and did nothing to harm anyone. There may have been a few who "sinned" and, if so, they deserve to be brought to justice, but this was all so wrong in so many ways.
For the first time, I was ashamed to be an American, as our leaders became a lynch mob before my eyes.
To read my viewpoint in words far more eloquent than I can phrase, read Michael Lewis Bloomberg piece: http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_lewis&sid=atlHxXH7FweQ
and Andrew Ross Sorkin's piece from the NY Times: http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp
Elaine, Phil, thanks for the comments. I was wondering what the tenor might be of any comments. Because while the right-o-sphere is generally coming down on the side of honoring contracts and respecting a person trying to do a difficult job, HuffPo commenters are in full moonbat mode. I posted a comment to push back, but it’s probably a waste of energy.
The whole furor over the bonuses is nothing but an attempt to distract away from the government actions, which have created the nightmare in the first place. I feel horribly for anyone who works for AIG. Even those who got major bonuses. This whole torch and pitchfork stuff is nothing more than a way to channel people’s anger away from the government, where it truly belongs.
What’s bothered me from the start of this AIG situation is exactly what you point out here, Kirk. These people were supposed to get their bonuses. Look, if it’s written into their contracts and no conditions are placed on the receipt of the bonuses – such as actually turning a profit for the company – fair play to those who are lined up to receive them. The company’s damned if they do, damned if they don’t. If they do, we see the public outcry and the feds breathing down our necks. If we don’t, we’re sued by employees whom we owe money to.
In general, AIG has always been a risk-taking company. Not ten years ago, they were lauded by the industry and secretly envied by other insurers for how they would create product after product in response to the needs of the industry. If there was a need, you didn’t have to go farther than AIG to find the solution. Yes, they took risks. Let’s face it – when companies take risks and it pays off, they’re heroes. When it doesn’t pay off, they’re hung out to dry. Unfair, in my opinion.
I find your site and posts full of interesting material to read. As of 4/1/09, I will be dropping the Entrecard program as it is being banned by my hosting company. I am bookmarking your site so I can continue to visit your site.
Mike, thank you so much for the kind words. Sorry to see you leaving Entrecard, but I understand the issue with the today.com blogs.
Just so you don’t get taken unawares, I’m trying to migrate from Blogger to WordPress, so I will have a different URL. I’m not sure what that is yet, as I’m having trouble getting the databases to talk to each other. I HOPE the blogspot URL will redirect to my new site… it’s supposed to, but it’s not working properly, I’m back and forth with my host’s tech support.
Lori, Casto, thanks for the comments. I think the root of the problem is that many people, particularly liberals, have gotten the idea that there is something immoral or inappropriate about capitalism. So if people (companies) do something in pursuit of profit, and then a problem erupts, they assume that the profit motive caused the problem.
But the profit motive is the most stable and predictable element of the economy. You can’t overrule the profit motive, although various communist governments have tried. You have to guide the profit motive with appropriate regulation. That’s the part that broke down in the credit crisis.
And it’s not a matter of regulation vs. deregulation. Deregulation implies NO regulation, and no serious person advocates that. The left and the right bicker about more regulation vs. less regulation, but what we really need is DIFFERENT regulation.