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The CEO of AIG tells the truth, accidentally

So Robert Benmosche, the CEO of AIG, is under fire.

AIG, remember, took a bunch of very stupid bets on the mortgage market, needed a massive bailout from the government (a bailout that was really a gift to the companies that took the other side of AIG’s bets, like Goldman Sachs), and then paid its executives big bonuses for the fine job they did receiving government money.

There was more than a little outrage about that, which Benmosche thinks is “just as bad and just as wrong” as “what we did in the Deep South.” You know, things like this (disturbing image alert):







The thing is, not only does he think that–in a truly spectacular own goal, he went on record saying it.

This is more evidence that, to quote a previous post, financiers are dangerous idiots who have to be watched every minute.

But that wasn’t even the stupidest thing he said. That distinction goes to this (same link):

[Critics referred] to bonuses as above and beyond [basic compensation]. In financial markets that’s not the case. … It is core compensation.

Of course, everybody knows this. “Bonuses” on Wall Street are part of the package as much as salary is. One big reason for that: companies can’t deduct more than $1 million in salary [EDIT: For top executives] as a business expense, but performance-based pay is excluded. This law, which dates from the 1970s [EDIT: 1990s], has had exactly the effect you would predict: companies give bonuses and say they’re based on performance, when really the “bonuses” are automatic. (The amount of the bonus can vary with performance, but there’s almost always some bonus–like overindulged toddlers, Wall Street execs live in a world where everyone gets a prize.)

This amounts to a subsidy for excessive pay, from taxpayers to overpaid executives.

The thing is, it’s always been crucial to pretend that bonuses really do depend on performance and it’s just a coincidence that executives perform so superlatively every year, even as their companies look to outsiders to be falling apart. If anyone ever admitted to giving their executives bonuses that don’t depend on performance, why, that person would also be admitting to tax evasion.

And when Benmosche said that bonuses were core compensation, that they were not above and beyond basic compensation, that’s exactly what he did.

I’m assuming, of course, that AIG does deduct bonuses for its execs as a business expense when the total compensation goes over $1 million. That seems a safe assumption, although I can’t think of how to check it.

Apparently the Superintendent of Financial Services of New York is “in touch with AIG about Mr. Benmosche’s comments“; the nature of the communication isn’t given, but here’s hoping that that some AIG execs, including Benmosche, wind up in jail for tax fraud.

If not, well, the time for pitchforks and torches may yet come.


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