AIG Bonuses Outrage Obama

That a U.S. president so calculating and cold as Mr. Obama has proven himself to be, has referred to the AIG managers’ bonuses during a public hearing should mean something: or is it that the president is outraged and has not been able to contain himself or is this issue relevant to some hoped for political outcome?

The president himself has indicated that it is not a matter of money, but something that affects “fundamental values.” The situation is that many executives of the failed insurance company aim to collect, under contract, $165,000,000 in additional bonuses to their regular salaries, which is no small matter. The contracts are to be kept unless it is decided, most likely by a court ruling, that the contracts are unfair, which then opens another chapter of responsibilities.

The president has tasked the secretary of the Treasury, backed by the government with almost $200,000 to avoid a frightening bankruptcy, with seeking ways to save the insurance company. If this were to happen, the message to Wall Street executives would be a warning to curb greed and certain practices that raise the salaries of a privileged group to astronomical figures and make them millionaires; figures that seem intent on saying that those who do not reach them are not brilliant executives.

The system of retribution for executives (and sport stars) suffers from innate flaws. Incentives linked to well defined, constant results can be explained, but when committed to without reference they can seem like gifts and abuse. Today for you, tomorrow for me: some pay systems are solved within the family or clan and are all about protecting and leaving one another well covered.

Known cases of investment banks and other troubled companies with executives in the United States and other countries (Germany has also had its blunders) creates what is called “alarm and scandal,” which may explain the president’s meddling in the debate with the will to influence. It is clear that once the president has said that this is not right, something has to be done, because if the leader lets it pass without result, he’ll become an irrelevant charlatan who doesn’t produce consequences.

The declaration made by Obama against the bonuses is not as important as Bernanke announcing that there will be no recession and that the worst has already occurred, but they both must be put on the same page: hand over the trust to the citizens.