The Best, The Brightest, The Bonuses

March 15, 2009
Posted by Jay Livingston

The headline today is about the $165 in bonus money going to AIG executives.

I guess don’t understand the concept of a bonus. I thought it was extra money you got for actually doing something. Something good.


Athletes have bonuses written into their contracts. ARod gets $1.5 M if he wins the MVP; $6M if he equals Ruth’s home run total. Steinbrenner figures that these achievements will also bring more money to the Yankees.

AIG is a sort of bizarro ARod, the worst of the worst in the economic collapse. The insurance company leverage rate of 11:1 was about three times that of other firms. But when it came to the really risky stuff – the credit default swaps and derivatives – they were leveraged at 35:1 (my source here is Jon Stewart in his tête-à-tête with Jim Cramer). So guess who’s getting most of the $165 million.

Edward Liddy, chairman of AIG, had two reasons the bonuses had to be paid. One is that AIG was contractually obligated. They had promised the money “early in 2008, before the company’s near collapse, when problems stemming from the mortgage crisis were becoming clear.” To me, this sounds as though the insiders at AIG, when they saw that the company was heading for a heavy fall, stuffed their pockets with as much of the cash as they could.

The second argument for paying the bonuses is even better.

The best and the brightest. Either Mr. Liddy has a wonderfully understated sense of irony or he does not remember the history of that phrase. The Best and the Brightest was the title of David Halberstam’s book about the people who brought us Vietnam. The architects of that debacle, like the financial geniuses responsible for the current meltdown, were men of high IQ and fancy education. Yet their ideas and theories took the US into the most disastrous foreign policy debacle in its history, at the time.

Update: Judith Warner, in her New York Times blog today, discusses the phrase, with references to Halberstam, but also to Shelley and Henry Adams, whose use of if beat Halberstam by roughly 100 and 50 years, respectively.