When the government agreed to bailout American Insurance Group (AIG), taxpayers became shareholders in the company. By accepting government funds, AIG became subject to the American taxpayers'-their new shareholders- review of the company's performance and their decisions.
Many government officials and Americans are angry AIG paid $160 million in bonuses since the company is currently afloat due to government bailout money. People are frustrated with the economic situation and angry at Wall Street. Frustration and anger are two very powerful emotions that may cloud people's ability to think clearly and objectively about a situation.
The American people should take a step back, examine all the facts and then make a judgment call about the decision. It is a much more rational way to handle the situation and certainly beats Sen. Chuck Grassley's (R-Iowa) suggestion of doing one of two things following a public apology-"resign or go commit suicide."
Grassley's reaction perfectly portrays one fact about the United States right now-there is a lot of emotion. People want bloodshed. This was evident by the market's jump following Bernard Madoff's all but certain life sentence for his $50 billion financial fraud case. The markets were happy one of the bad guys got caught and is going to jail. People feel uncertainty, anger, fear and desperation. Everyone knows the possible negative consequences of acting on pure emotion. The words you wish you could take back once you have had the chance to cool down constantly run through your head. The decision you made to stomp out instead of count to 10 replays in your mind. Those actions were not made rationally, but emotionally.
It is understandable that taxpayers are angered about top AIG executives receiving bonuses. They see it as the bad guys winning at the expense of the good, honest and hardworking Americans. But what if taxpayers stopped looking at AIG as the bad guys and themselves as the victims? What if they saw themselves as shareholders in the company instead? Although the general public didn't directly decide to buy AIG stock or invest in the company, government officials elected by the public decided for them. The return on taxpayer's investment in AIG is directly correlated with the success of the company.
So let's look at this as a shareholder for a minute and not just an angry taxpayer. Shareholders want companies to be honest and law-abiding. AIG's CEO Edward Liddy, abiding by contracts written before the current financial situation fully unfolded, is both honest and legal. Honoring contracts is part of creating a strong company, and these bonuses were contractual, not based on performance or given as a reward for creating the current state of AIG.
Liddy's request to his executives receiving bonuses of more than $100,000 to give back at least half the money back is a good start to try and regain shareholders' (taxpayers) trust. In a March 18 testimony Liddy said he wants to preserve and "wind down the unit in an orderly fashion." AIG has done this by reducing over $1 trillion in their financial portfolio. Liddy admits to the mistakes AIG made and wants to move the company forward.
American taxpayers and government officials need to take a minute, count to 10 and try to think about the long term.
President Obama went to Harvard Law. He knows abiding to contracts is not only necessary for capitalism to continue in this country, but also required by law. When the government agreed to support this failing firm they didn't gain the ability to pick and chose when the law would apply. If contracts start to become subjected to interpretation, it will create more uncertainty in the market, and no matter what one's opinion may be on the issue, everyone can agree the last thing Wall Street needs is more uncertainty.
