Barney Frank has a solution to AIG's apparent contractual obligation to pay bonuses:
"Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs. ... In high school, they wouldn't have gotten retention (bonuses), they would have gotten detention."
It's worth noting that AIG basically responds to this argument in CEO Edward Liddy's letter (pdf) to Geithner and in the firm's white paper (pdf) on compensation practices. And it's worth noting because AIG's argument for why it can't lose certain employs takes an interesting and perverse form:
AIGFP's books also contain a significant number of complex -- so-called bespoke -- transactions that are difficult to understand and manage. This is one reason replacing key traders and risk managers would not be practical on a large scale. Personal knowledge of the trades and the unique systems at AIGFP will be critical to an effective unwind of AIGFP's businesses and portfolios.
That's from the white paper. Essentially, the complicated contracts that resulted in huge losses in AIG is being used as a reason why the the people who wrote the contracts can't be fired. (They understand the belly of the beast!) I don't really know if this should be convincing. But I do find it interesting that this argument takes almost the same form as the claim that certain institutions are "too big to fail." Size isn't a question of merit, and neither is complexity. But both size and complexity are now being used as a defense of the status quo.
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