Posted in Meltdown on March 14, 2009 |
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I don’t blame AIG for holding itself hostage; like the scorpion on the frog, it is their nature. But I do blame the government for not appreciating the gravity of its position and not extricating itself. Here is the high comedy of Ed Liddy negotiating with Tim Geithner, as if Liddy has anything to offer:
In a phone call on Wednesday, Treasury Secretary Timothy F. Geithner told AIG Chairman and chief executive Edward M. Liddy that the payments were unacceptable and needed to be renegotiated, according to an administration source.
in a letter to Geithner, Liddy wrote that the bonuses could not be cancelled altogether because the firm would risk a lawsuit for breaching employment contracts. “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,” Liddy wrote.
Actually, the businesses are being operated on behalf of their managers. Perhaps this is the major challenge facing a financial team (Obama, Geithner, Summers) that has virtually no private sector experience – they don’t understand that AIG just doesn’t care about anything but the welfare of its own managers. Not the ongoing value of the company, not the interests of the majority shareholder, not even the interests of the minority shareholders and other claimants – they care only and totally about the payments to themselves.
The very senior managers will accept no cash, because they expect a huge payday if either the out-of-the-money option that is their stock pays out or in their next stop along the merry-go-round when some grateful counterparty hires them. The other managers will not stop pushing for more money, because what else would they want?
The administration – each of whom spent their careers working for somewhat nominal wages – needs to grasp that in this instance, not only is there really no market pressure to take these guys, there is no going concern to protect. If we could shut AIG and only lose the $170bn we have pumped in to date – no recovery, but no knock-on effects – it would be considered a huge victory. So let the workers go. Let them unwind the firm by their own actions. The only important decision left is when to pull the plug on the enterprise, and this decision is not being made by anyone at the company.
Zen and the Art of Motorcycle Maintenance makes the point that it is silly to require students to go to class; make attendance optional, and those whose learning is adversely affected will fail themselves out. Stop pretending AIG is some foreign body with whom we must tread carefully. It’s a company we own. We can shut it at any time, we can remove any manager we choose. We have no need to negotiate; they can offer us nothing. Let them scream and yell and take their toys and go home; the sooner the better.
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