Welcome to the world of foodstamps, gentlemen

The American taxpayers, represented again by Congress, is up in arms about the recent granting of hundreds of millions of dollars in bonuses paid to the executives at AIG after their company was bailed out with hundreds of billions of US taxpayer dollars. The new chairman of the board said they were under contractual obligation to pay the execs, and they had no other choice. Congress is infuriated.

It seems simple enough-- these guys took the company to the brink of disaster. They sold insurance coverage they couldn't back up, so that when the claims started coming in, they were in deep doo doo. The US government intervened with 85 billion in TARP funds, with the option (since exercised) of more in the near term if necessary. That has put the company into the position of being on the dole to the American taxpayer. if you ever find yourself on food stamps, or Medicaid, or AFDC you can experience the mitigated blessing this entails. You must periodically prove to some low level bureaucrat that you're still an abject loser in order to continue to qualify, and that you're not misusing this blessing of taxpayer generosity. AIG broke with that pattern, by ignoring the rituals of demonstrated decrepitude, and carrying on as nothing had changed. Americans are generous with help, but require a bit of scraping and grovelling on the part of the recipients of its largesse. It seems simple enough.

But let's look into the background. The AIG unit which created all the trouble was selling "Credit Default Swaps," a financial instrument which they practically invented. At a meeting or two they handed some paperwork to their sales execs and said, "let's go out there and sell some product!" And that's what their sales execs did! In spades! They sold this paper, and not to rubes in small town savings banks, but to the richest, most well-connected, and supposedly saavy financial powers in the world. They sold credit default swaps to the biggest banks and brokers in the world. They sold them in Britain, France, Japan, and even China for christsakes! They sold so much of this product that when it became evident that first, there were going to be some claims against them, and second that the claims were going to be large, that someone figured out the repercussions could possibly bring on the downfall of the world's economy. Holy cow those guys sold some product!

These men (and, I assume, women), a cufflink popping, tassel loafer, bespoke suited, private jet flying small army-- the special forces of greed-- did their job, fattened the coffers of the company, and racked up hundreds of millions in their own private commission accounts. Did they know the product they were selling was a financial pestilence, that the actuaries were spectacularly wrong when they computed the value and risk of these instruments, that the one possible risk scenario they didn't consider was a drop in the value of American real estate (a possibility so preposterously remote any actuary would have scoffed)? Most likely not. They were told by their supervisors to sell some product, and that's what they did. And their supervisors were much too struck by the dollar signs to try and dig deeper. What they all knew was America was riding the bullet train of greed, they were the engineers and conductors, and the message was clear-- if you're not on the train, well you're just toast.

So meanwhile, back in Congress, our representatives are demanding to know the names of the bonus recipients. The corporate leadership is understandably reluctant to give them out-- these were people who were following the directions of the company, after all, and who did so with a great deal of success. Anyone who can sell investment insurance to an investment banker, can sell freezers to Eskimos, or shorefront property in the Sahara. They're good. On the other hand, I don't believe they should keep their bonuses. It's up to Congress to figure out how to make that happen-- they can seize the funds, or they can tax them out of existence, or they can just dump their investment in the company and let it fall off the cliff, but Congress should do something. Too many otherwise innocent people have lost too much (jobs, homes, investments, 401K's) to think there's any obligation to pay these people. On the other hand, to demonize them, and read off their names in public is too much like auditing the bank account, or checking the wallet, of someone applying for Food Stamps.