As more details emerge as to bonuses paid by bail-out insurance giant AIG, the nation’s outrage is growing. According to figures released by New York Attorney General Andrew Cuomo, no less than 73 employees received bonuses of $1 million or more. Seven received more than $4 million. One employee received more than $6.4 million.
To be fair, little is known about the circumstances of each case – we don’t know the names of the recipients, never mind the unique value of each. Many are no doubt engaged in unwinding AIG’s obligations, saving the firm – and taxpayers – money. We just don’t know.
Nonetheless, the general picture hardly fits a firm in financial distress, supported only by massive infusions of taxpayer money. Taxpayers are right to be upset.
Outrage of course, is the easy part. The hard part is figuring out what to do about it, especially since many of the payments were apparently required by contract. Bad ideas abound. Several members of Congress, for instance, today suggested retroactive taxes of 91 percent or more targeted to AIG employees receiving bonuses.
In addition to being legally suspect, such ideas hardly get to the root of the problem. As pointed out by the Wall Street Journal in an editorial today, the real AIG outrage goes beyond bonuses. It’s the bailout itself. Altogether, taxpayers have committed $173 billion to “rescuing” AIG, including $30 billion still in the works. Yet, it was only this weekend that AIG officially reported where that money was going. And while the whole exercise has been justified by the risk posed to the global financial system of an AIG failure, that term has never been defined. Moreover, the exact nature of the threat has only been vaguely defined, at least to the public.
This is not to say the bailout was not justified – it may have been. But certainly taxpayers deserve a better decision-making process, and more oversight and transparency than has been provided so far.
The Obama Administration has already indicated that limits on bonuses will be attached to the next payment to AIG. It shouldn’t stop there, however. Taxpayers also deserve a detailed, critical – and to the extent possible public — justification for the support and of the alternatives. And any aid that is provided should be subject to strict oversight by Congress as well as the executive branch, and fully disclosed to the public.
Such steps of course won’t ‘solve’ the problem: one should always expect unexpected consequences whenever government plays the bail out game. But that makes them no less necessary.