Government involvement in AIG positive

Credit: Jessica Thurston/Art Editor Credit: Jessica Thurston/Art Editor

American International Group (AIG), once the largest insurance company in the U.S., has been in the news ever since its initial collapse in September and the consequent taxpayer bailout of $170 billion that it received from the Treasury and Federal Reserve.

A week ago, AIG announced that it would be paying bonuses to its executives, in total worth around $165 million. What is even more stinging than the fact that American taxpayers’ money is being used to beef up already high salaries of executives is the fact that the executives being offered the bonuses are the same ones primarily responsible for the collapse of the company.

Bonuses offered by companies are often performance related; if the company makes a profit, the employees receive more bonuses. AIG’s bonuses seem to completely defy this logic. AIG is defending its decision, saying that the bonuses were promised to the employees last year before the company collapsed, and by the contract, the company is obliged to pay the bonuses.

According to a statement made by Edward M. Liddy, the chairman of AIG, in The New York Times, the bonuses are being awarded in order to “retain the best and the brightest talent” in AIG. It is hard to see how the executives responsible for making the faulty judgments that brought the company to collapse in the first place can be termed as the “best and brightest talent.”

Many taxpayers, however, as well as President Obama, did not agree with AIG’s strategy of retaining key employees by paying them with taxpayer’s money. Taking heed of angered citizens’ complaints, Obama promised to do everything he could to keep the bonuses from being paid out.

And he certainly kept his word. We believe that the Obama administration is taking the right steps to counter this situation. Soon after the announcement of the bonuses, President Obama ordered the Treasury Department to try to block the bonuses. Last Thursday, the House approved a 90 percent tax on bonuses paid to employees of firms receiving large amounts of bailout funds.

We are pleased that the government is responding to public sentiment in this way and is taking an active role in managing the money of the people. Using the bailout funds for awarding its employees bonuses is an extremely irresponsible move on AIG’s part, and it is heartening to see that the government is taking measures to block the bonuses and also to prevent other companies from misusing the bailout funds in this way.

Editorial Dissent, Amanda Cole: Public sentiment has no place in business, and a large tax should not be instituted just to appease the public.