Monday, March 16, 2009

AIG: Hey, It's Less Than 1%

So, take $170 billion (so far) in bail out money, then pay out $165 million in bonuses. How can such losers end up "winners"? As the NY Times reports, our government attorneys say AIG is legally obligated to make these payments.

Nice transparency (by AIG in not disclosing the bonuses when they took the bail outs) and way to set up the bailout deal in the first place (I find it hard to believe that a deal guy like Paulson didn't think about this when setting up bailouts). Yet another example of why government should be kept out of nationalizing companies- they get out negotiated when they are putting money into companies about to go under. Would a private firm pay bonuses at an insolvent firm it acquired? I don't think so.

Why the deep fear of bankruptcy for these firms? That would allow the courts to void contracts, such as these bonuses.

Oh, and I thought bonuses were paid for performance. These guys have made a joke of capitalism and private enterprise. If you are big enough, it is all upside, with no real downside.

Now the excuse for these bonuses is "executive retention." CEO Liddy says: "We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury." Unbelievable. The "best and brightest"? How about if we pay them NOT to keep screwing things up?

Remember the U.S. Treasury owns almost 80% of AIG. So what Liddy is saying is that the owners of the business (us, basically) should not be involved in setting up compensation for their employees. Business as usual, in this most unusual of times. Geitner should fire Liddy- or did they also agree to a sweet severance payment to make sure he is around to "lead" the company?

Sunday, March 8, 2009

"Call Your Bank" Week

March 9-13 is "Call Your Bank Week". It is easy to participate.

1) Call your credit card bank, your mortgage bank, etc.
2) Ask the person on the phone how they feel about their bosses taking bonuses while they lay off employees, take government bail out money and rack up record losses.
3) Tell them you hope they record the call and play it to their manager.
4) Then post your experience on Facebook's "Give Back the Bonuses" page.

Friday, February 13, 2009

For Shame

In 1995, I spent several months travelling with my family, including a month in Indonesia. One of my more vivid memories was a discussion with a retired executive who ran a wonderful cafe in Ubud. Harriman told us about Hindu funerals, and of the traditional funeral march to the sea, where the pyre would be lit. If you had not lived a good life, those carrying your remains would tilt the pyre at each turn through the village. This brought shame to the surviving family members. And, in his view, this made people live better lives, because they didn't want to shame their families. By 1995, this custom was disappering, and in Harriman's view, it was a sign of the erosion of shame as an important social norm.

I had never thought about the postive role of shame in society until this conversation, but I have thought about it a lot since. Now in particular. I actually think shame could be used effectively as a tool of social policy. Another way to Nudge. But in a negative way. Call it a "nega-nudge".

One thing I think really sucks right now is the $18.4 billion of bonuses that Wall St recipients of bailout funds gave themselves. Legally, they are allowed to do this. But as I discuss with my students, there are things that are "legal, but unethical." This is clearly the case with these bonuses. But what to do?

In a recent Newsweek essay, Jonathan Alter, briefly discusses "clawback" provisions for legislation, and others have begun to propose either voluntary or involuntary ways to get this money back. But he concludes that "last year's poor performers get to keep their booty." Eighteen point four billion dollars. $18,400,000,000.00 As Alter says, "five times as much as we spend each year trying to cure cancer... twice what is in the stimulus for building mass transit." The way I look at it- more than enough to vaccinate millions of children for childhood diseases, or build and staff thousands of schools in poor countries, or retrofit several hundred thousand homes with solar power. All things we are told we can't afford to do.

President Obama called these bonuses "shameful." But that doesn't seem to have had much effect on these captains of industry.

Here is my suggestion- let's call them out by name. Use laser targeted shame focused on the firms and people, not generic shame aimed at the financial industry in general. And this doesn't need to come from the president. I have started a Facebook group "Give Back the Bonuses" to allow everyone to name names, and to pledge not to patronize these companies until they do the right thing- make the execs give back the bonuses, preferably by hand delivering a check to the Secretary of Treasury.

So, if you know a firm that has paid bonuses, post it, talk to your friends, let people know that this is unacceptable and unAmerican. These executives have adulterated our financial system and deserve to be humiliated. They should wear the scarlet letter "S" for Shame on their pinstripe suits. Instead of a Business Hall of Fame, they belong on a "Wall of Shame."
Let's use shame to "out" those without it.

[originally posted on BOPreneur, but moved here]

Thursday, February 12, 2009

How to Become a Millionaire

Lose $27 billion and get paid big bucks for it! Executives at Merrill Lynch took US money, paid themselves undeserved bonuses and then started layoffs.

UnAcceptable. UnAmerican.

Don't do business with Bank of UnAmerica (who acquired Merrill) until they get the money back!

Join the Facebook group "Give Back the Bonuses" or comment here.