A big thumbs down to the Times’s Andrew Ross Sorkin for his poorly reasoned column this morning on why we should pay the AIG jokers’ bonuses.
First of all, Sorkin is arguing against a straw man—that the administration wants to break the law because it doesn’t like it (Note to Sorkin: The Bush administration exited two months ago and John Yoo is safely ensconced in a California ivory tower):
So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.
Everyone from President Obama down seems outraged by this. The president suggested on Monday that we just tear up those bonus contracts.
Well, no. No he didn’t. Which Sorkin knows because here’s his very next sentence:
He told the Treasury secretary, Timothy F. Geithner, to use every legal means to recoup taxpayers’ money.
“Every legal means” doesn’t sound like “just tearing up” contracts to me. But that’s just a setup so Sorkin can argue the Wall Street line:
But from their point of view, the “fundamental value” in question here is the sanctity of contracts.
That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.
But, again, that’s not what the government is talking about, so why make this argument? The only explanation I can think of is that Sorkin’s been talking to too many people on the inside.
Like, for instance, slippery executive-pay consultants who help get these outrageous pay packages in the first place (and make big money themselves doing so). They wouldn’t have a reason to push back against this, now would they?
As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.
If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.”
That’s rich. “Bond,” “trust,” and “commitment” are exactly what I think of when I play AIG word-association.
Look, AIG is for all intents and purposes bankrupt. Had the taxpayers not stepped in with—what, $170 billion, now? Eighty times its market cap— AIG would be deader than a doornail and these guys’ bonuses would be as good as gone, since they’d be sent to the back of the long line of creditors. Sorkin doesn’t get around to mentioning this until the second-to-last graph.
Nor does he really explain what’s becoming increasingly clear from others’ reporting: That all roads in this crisis seem to lead to AIG, which played enabler to the junk dealers by “insuring” their securities (without collateral). AIG is the Death Star of the financial industry—and the economy.
And guess who Sorkin’s only other interview was with. If you said an “executive-compensation consultant” you and your loved one have won an all-expenses-paid trip to Wall Street la-la land. You’ll fly Bubble Air (first class, of course), enjoy the comforts of our four-star accommodations in denial, and power lunch with Sorkin, Evan Newmark of The Wall Street Journal, and the entire staff of CNBC—courtesy of the American taxpayer.
Sorkin’s secondary argument, that we have to pay these guys or they’ll bail and use their inside knowledge to make money wreaking havoc on AIG, actually makes more sense. But, hey, I’ve got a solution for that: Pass a law or regulation banning any AIG employee from using his knowledge about the company to bet on or help anyone bet on it. I think it’d be pretty easy to get that through Congress right now.
He ends with what it seems like what could actually happen, unlike rampant law-shredding:
Mr. Cuomo wants to know who A.I.G.’s lucky employees are, and how they have been doing at their jobs. So here is a suggestion for him. Get the list, and give those big earners at A.I.G. a not-so-subtle nudge: Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers.
That was a lot of rigamarole to get to some common sense.
ADDING: I mean, a Wall Street Journal editorial board member poked his head outside the bubble last night on Fox.
Stephen Moore, admittedly last seen going all militia on us, was out for corporate blood:
Now, your question, can we do anything about it? Sure. The government, I think, has the authority to step in and stop — stop these contracts. I mean, how in the world can you pay people a performance bonus when you lose $160 billion? That’s the question nobody at AIG can answer.
Oh the times, they are a-changin’.
ALSO: Here’s my follow-up post on Sorkin and union contracts.