Here’s the most troubling thing about the developing furor over bonus payments to AIG executives: It demonstrates that Tim Geithner is more concerned with appearances than solutions. Like it or not, AIG CEO Ed Liddy made a good point in his letter to Geithner responding to Geithner’s concerns about the size of AIG’s bonus pool:
…I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today. On the one hand, all of us at AIG recognize the environment in which we operate and the remonstrations of our President for a more restrained system of compensation for executives. On the other hand, we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.
David makes the point below, and he is right, that AIG forfeited its right to complain about executive- compensation caps when it took a massive government bailout — $150 billion and counting. But it’s precisely the size of the bailout that makes the size of the bonus pool — half a billion or so — such a trifling matter. The company’s executives could give up all of their bonuses and it wouldn’t make a dent in the size of AIG’s debt to the American taxpayer. As for moral hazard, we crossed that bridge several bailouts ago.
What the country badly needs from Tim Geithner is exactly what he said it needed at his confirmation hearings: A clear set of rules for the orderly dissolution of large banks and non-depository financial institutions. But so far, in lieu of solutions, Geithner has offered image-management. Big bonuses for bailed-out executives just don’t look good, so he asks AIG to alter already agreed-upon terms of compensation for its executives, even if this reduces company’s ability to repay its debt to the taxpayers.