Watching AIG CEO Edward Liddy get grilled by Congress this afternoon, I had to feel a bit sorry for him. Mostly, I was just unimpressed with the quality of questions that were posed to him. Mr. Liddy took over at AIG last September as the size of the company’s financial problems were becoming clear. He clearly is not responsible for the failure of AIG and yet many congresspeople, like Rep. Steven Lynch (D-MA), treated him as if he were a common criminal and a total incompetent. I understand populist anger about the retention bonuses that were paid out, but people should get their facts straight before they blast a man who has agreed to take on the thankless task of trying to save AIG from bankruptcy.
On the other hand, some congresspeople, like Bill Foster (D-IL), were thoughtful enough to ask why it was important to have people familiar with the toxic contracts in charge of winding down those contracts. In other words, why would AIG want to pay someone who was responsible for creating the mess to clean up the mess? And that is the heart of the controversy we’re experiencing over AIG bonuses. AIG was contractually obligated to honor these bonuses and was likely to lose in court if they refused to pay them. But the reason they agreed to pay them in the first place was because they needed people familiar with the crime scene to clean up the crime scene. All of this was decided in January 2008, well before Mr. Liddy took over as CEO. All he did was honor those decisions.
Now, it is pure political gold to criticize a decision to pay millions to people that performed miserably and that ruined their company and the national and global economy in the process. But a lot of this criticism is self-defeating. The American taxpayer nows owns about 80% of AIG and has a compelling interest in the return to health of this major insurance corporation. We will lose our investment if AIG fails. Most majority stockholders are smart enough not to destroy the brand name of their company by making incessant criticisms of their company’s performance and competency. This is not the case, apparently, for our Congress members. They would rather score cheap political points than safeguard our investment.
The CEO of AIG can best serve the American people by returning his corporation to profitability quickly and by selling off their assets at a decent price. Nothing that happened today on Capitol Hill is going to make his job easier.
It might make everyone feel better about themselves to complain about a few hundred million dollars in bonuses, but the company has a couple of trillion dollars of potential risk to the taxpayer. Whatever makes them less of a risk should be our foremost concern.
I don’t absolve people for being politically tone-deaf. But I don’t think we should praise people who are politically smart but economically stupid.
