Did AIG’s retention payments save the firm?
Posted by Marc Hodak on March 19, 2009 under Invisible trade-offs, Scandal | 
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The question originally was whether the infamous AIG bonuses hurt the taxpayers. Certainly not, at least from a bread and circus approach, the cleansing nature of the two minute hate, and all that. I’ve gotten my share of $165MM in entertainment watching the blowhards in Congress making fools of themselves, again.
But now, we’re hearing that we didn’t even need to pay these people, because…they had already completed what was required of them! Who gets worked up that a company would pay exactly what it promised to people who did exactly what they were paid to do? The Washington Post (picked up by Reuters):
The work of defusing the most dangerous bets placed by American International Group Inc was largely concluded long before the company gave bonuses to employees it said it needed to retain to avoid a financial meltdown…
The most explosive contracts largely were the creations of AIG’s Financial Products unit, and employees of that division — the recipients of the controversial bonuses — worked through the fall to unwind old deals, the report said.
By the end of December, the outstanding volume of risky and highly complex derivatives had been reduced to roughly $13 billion from $78 billion, the Post said, citing the company’s financial filings.
So, at some point early last year AIG realized that this group of brilliant but clueless financial engineers, the Rain Men of financial services, had created a ticking bomb in their midst. When they saw what happened at Bear Stearns in March of ’08, AIG panicked, and offered their Rain Men fixed retention payments–what the media insist on calling “bonuses”–to stick around for a year to defuse the bomb they had created. Most of them stayed. By the end of eight months, they had largely finished that task. And–this seems to be the gist of this article–the company paid them at the end of the year anyway.
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