As a management story, it just doesn’t get any better than this. It has all the elements, good guys, liars, betrayal. How did we get here, and how do we put up with all of the excuses being thrown around? Most of us are feeling buyer’s remorse. We spend too much money to bail out a big bank and now we want a refund. Unfortunately, it is past the three day limit and we are not going to get a refund. Even if AIG paid all of the money back tomorrow, Congress would find some other rat hole to throw it down, all under the auspices of doing the “right” thing. What we as a people struggle with is sometimes doing nothing is the right thing. If we had not bailed out AIG, we would have had mortgages and other subprime assets on the books a while longer. They would not have been able to foreclose on homes as the staff necessary to complete those tasks would no longer be employed. The loans would have been either written down or off as part of the bankruptcy filing and the assets would have been acquired by either a Chinese, Dutch or British bank.
We keep making excuses for failure, and this is why we fail. It is not considered polite to actually say that someone failed. We all know that there are always extenuating circumstances. What we have seen over the last week has been outright lying, on the part of Geithner, Congress and AIG. The week started out that no one knew anything and by the end of the week we knew that the bonuses were actually spelled out in the deal. I actually am siding with AIG on this one, since they had the deal signed and everyone knew that these bonuses are in line with the industry and that they were within the standard compensation packages, I think the government’s team should be explaining how that language made it through in the first place. The only reason anyone said anything about this is the fact that it was leaked to the news and thus the political engine took over. Had none of this been reported then no one would have ever known. The reaction was evident in the wall street journal article “The WSJ’s Future of Finance: The Problem With Populism”. The finance community feels betrayed by the obvious playing to the gallery grandstanding that congress has engaged and Obama is trying to mitigate.
If you look back at my previous entry, I noted that the financial group bailout was done in the back room while the auto manufacturers were completed in full view with the posturing up front. Now as the details of these deals become available, people are suddenly shocked, and those involved are looking for plausible deniability. They are also looking to take the outrage and channel it into the authority to take greater liberties with the tax code and target individuals. This is a very dangerous activity. Unfortunately, most do not see the danger. By “punishing” the people who took approved bonuses (under the guise of excessive bonuses) they will establish precedence. This precedence will allow them to target any group for any reason that may be unpopular. See “AIG's Bonus Unit Now in IRS's Sights” is an example of the lengths that business go in order to minimize the tax burden, and why the tax law is currently untenable. It is very simple for Congress to initiate rules that would add penalties for some and loopholes for others. With millions of lines of legal code how would the average person understand or know was or is being taxed. As an accountant, this level of complexity guarantees that people and companies will not be able to comply. Thus making the decision as to whether or not you will break the law into which one will you least likely be caught breaking? AIG did not break any laws, they paid bonuses they were contractually obligated to pay. Whether this was a good decision or not will never be determined because of the emotional fury being spent. Things that Congress could help fix would be to allow shareholders to write-in board nominees during shareholder voting, and to hold board members liable for at least a limited amount of damages. Unfortunately, we are looking at the problem and spend little time talking about realistic solutions rather than punishing the inappropriate people. If we wanted to hold the people responsible for the AIG bonuses accountable, at least a dozen members of congress, a good delegation from the Treasury department and a number of AIG executives would all be out of jobs tomorrow. Unfortunately, most people will forget about this a week after the media stops reporting. The 24 hour news cycle keeps us so focused on the immediacy of what is happening without being able to focus on the root causes that we never complain about everything and solve nothing. But it does sell advertising time.
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