AIG Pay, Again

New York magazine has a piece on the pay disputes at AIG which sums up, I think, the core of our dilemma with the financial bailouts.  To wit:  the traders at AIG are threatening to walk if Ken Feinberg pays them what he says he's going to pay them, particularly if the company tries too hard to withhold the retention bonuses they were promised in order to stay on board and clean up the mess.  Ken Feinberg is holding firm.

The company is scheduled to pay another $198 million in retention payments to some 240 remaining FP employees in March 2010. Right now, according to AIG executives and Treasury sources close to the talks, the issue is that Feinberg wants FP's traders to return the rest of the retention money that was pledged to be returned in March of this year under pressure from Cuomo. FP executives say the contracts are outside Feinberg's jurisdiction. Feinberg counters that he could use the contracts as a factor when determining a trader's base salary for next year as indicated in the statute set by Congress. In theory, if an FP employee is due to receive $1 million on March 15, 2010, Feinberg has the authority to compensate by cutting their salary to $1. Of course then, the employee could simply quit.

Senior AIG executives contend that an exodus of traders over punitively reduced contracts risks blowing up the $1.1 trillion derivatives portfolio still left to be unwound, destroying the taxpayers' $180 billion investment in the company and potentially dragging the fragile economic recovery back into the abyss. "I'm trying desperately to prevent an uncontrolled collapse of that business," then-CEO Ed Liddy testified last March. "The financial downside for taxpayers is potentially very large and it's very real." The AIG executives see Feinberg's efforts to save a few million in retention payments, given the billions at stake, as a terrible business decision. "I just don't understand why you would treat people this way," one AIG executive says. "It's economic and financial terrorism on the government's own investment, by the government."

Feinberg, along with everyone in the Obama White House, recognizes the risks. "I'm concerned about that. I don't want to see that happen," Feinberg said as we pulled up to Lincoln Center. But privately, Feinberg has indicated to Treasury officials that he's not sure the FP employees are as crucial as they say. When the crisis erupted last fall, AIG hired McKinsey and Blackstone to study the portfolio and devise a strategy to wind down the trades. If a mass of FP traders leave, advisers might be able to stabilize the positions in time to bring in new traders. "You could triage it," a former senior FP trader told me. Essentially, as long as someone managed risks to interest-rate and foreign- exchange moves, traders could be hired to continue the unwind.


Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis. The only problem? He has to prove it works.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis.

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Faces of #BlackLivesMatter

Scenes from a recent protest in New York City

Video

Ruth Bader Ginsburg on Life

The Supreme Court justice talks gender equality and marriage.

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In