Government v. AIG: Hypocrisy Speaks

March 18, 2009 by  
Filed under Economics

finger_pointingI do not like that AIG paid bonuses of any size to employees who orchestrated the high risk transactions that brought AIG to the brink of collapse.

On the other hand, I am fed up with the sanctimonious expressions of anger and threats of retaliation emanating from Washington about the AIG bonuses. This is true hypocrisy in action.

Operating AIG as a Business

According to news reports, the AIG bonuses in question totaled $165 million. Presumably these payments included money voluntarily injected into AIG by the Treasury and Fed in exchange for an ownership stake. The government is now the majority shareholder. If the government doesn’t like the way AIG is being managed, the proper course of action is to call for an election of a new board of directors, who can then replace AIG management.

That is not what the politicians are screaming for. They all know (or should know) that booting the entire AIG management team will almost guarantee that AIG will not recover and the entire taxpayer investment will be lost. Yet these same politicians want to publicly excoriate the management team for the bonus program. This has caused some AIG managers to leave already. More are sure to follow, leaving a management void at AIG. These are retention bonuses after all, and retention is what is needed while AIG divests itself of certain businesses.

If these politicians knew how to operate a business, they probably wouldn’t be politicians. Most of them qualified for their present jobs by graduating first in their class from charm and glad-handing school.

Point those Fingers at Yourselves

Compared to all of the taxpayer money that Congress has wasted in recent weeks, the AIG bonuses are “chump change.”  (I borrowed that phrase from a Congressman who used it while defending all of the pork in the spendulus and omnibus spending bills.) The complaints about AIG are a convenient way for Congress to focus attention away from themselves.

Now, if you want to talk about employment behaviors that cost taxpayers millions of dollars, there are plenty of places to look in the government sector. But we don’t hear any Congressmen or White House officials bloviating about them. I will mention a couple.

First, there is this story about an “epidemic” of disability claims being filed and approved by retirees of the Long Island Railroad. Apparently, the game being played in that business is that you retire (young and able-bodied) with a generous pension, then tell the LIRR that wait – you forgot – you are actually now disabled. Your disability claim is then rubber-stamped by complicit government railroad officials, which almost doubles your retirement income.

Get this – in one recent year 97% of new LIRR retirees applied for and received disability payments. Some of these bogus claimants are receiving $280,000 per year in combined benefits. 

Now if you are thinking “who cares – that’s the railroad’s problem” you are overlooking the fact that railroad disability benefits are paid with taxpayer dollars by the Social Security Administration.  Because the robotic morons on the Railroad Retirement Board approve almost 100% of these impossibly high disability claims, Social Security had to contribute $3.6 billion to cover railroad disability costs in 2007 alone.  Most of them are likely phony claims.

Do the math – $3.6 billion compared to $165 million. 

That bothers me a lot more than do those AIG bonuses. Read the article – I think you will agree with me.

Another example of taxpayer money run amok in the employment domain:  Rampant “double-dipping” by government employees at all levels. In this article, we read about employees who “retire” for 30 days, receive a pension, then are promptly hired back by the agency where they had worked before “retiring.”  Bingo – pension and a salary all at that same time. The article discusses state employees but this occurs at the federal level as well, although double-dipping federal retirees are often called “consultants.”

Don’t tell me this is fair. Government employees already have the most generous compensation and retirement benefits in our economy. Here is the hard truth from Forbes magazine and the Bureau of Labor Statistics:

In public-sector America things just get better and better. The common presumption is that public servants forgo high wages in exchange for safe jobs and benefits. The reality is they get all three. State and local government workers get paid an average of $25.30 an hour, which is 33% higher than the private sector’s $19, according to Bureau of Labor Statistics data. Throw in pensions and other benefits and the gap widens to 42%.

Sweet deal – get paid more to work, get paid even more to retire, then go back to work at the same job!

Final Thoughts on AIG and Government Hypocrisy

Why is there no outrage in Congress about these other wasteful employee-related expenditures of taxpayer dollars, which far exceed the AIG bonuses? The answer is that there are unions involved and unions supply votes. AIG employees – not so much.

I can no longer listen to Chris Dodd or President Obama complain about AIG without thinking they have bigger fish to fry in their own backyards. Unfortunately, they just don’t seem to care.

A final note – why aren’t we hearing from Tim Geithner about these bonuses? Could it be that he actually approved them? 

What are your thoughts about the AIG indignation?

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9 Responses to “Government v. AIG: Hypocrisy Speaks”
  1. I for one agree with the premise. $165 mil is nothing in the grand scheme of things. Americans will get outraged tonight over some American Idol voting scheme and forget all about this. The government will continue to do what it does best, set an awful example.

  2. cjbr549 says:

    I do not agree with your analysis of government employees. I am a civil servant (federal), so I have the inside view. Yes, there is plenty of waste in the government, but double dipping retirees are not one of them. From my experience, they are usually folks that have allot of experience in a narrow area, and are hired back as support contractors after they leave the government to support a specific project. This is done because no one was trained to take their place, either because what they worked on was being phased out in the long run or just the inability to hire someone. So if there is no one else that has the skills that these people have, should we just let that job go undone? Besides, the number of people who want to stay on after retirement is fairly small and even with their retirement and a topped out government salary they are making in the neighborhood of 220k, not unheard of in the private sector for someone with a high level of skill. As for the higher average wage rate, how many laborers or janitors or other similar low wage personnel have you seen working as civil servants? None, because the government contracts out all those low paying jobs. The lowest paying workers hired at my place of employment are the security guards, and that’s only because they have to be government employees by regulation. Also, government employees are limited to a maximum upper pay. So if you look at the average pay in the private sector without all the fruit pickers and grocery checkers and other low income jobs included, which would be a more apples to apples comparison, I suspect the government wages would be slightly lower, mainly due to the upper end cap on compensation.

  3. Matt SF says:

    Where was the oversight in drafting legislation to prevent this sort of nonsense? I see so much time wasted in debates like these when all that is needed is a more intelligent governing body doing their job.

    In the quality assurance world, we have a system known as “corrective action, preventative action”. Which means you correct the problem, and setup a plan to prevent such actions from occurring ever again.

  4. MasterPo says:

    More over, it takes money to find and keep good people. Bonuses are an important part of keeping senior level managers.

    If you think these people haven’t done a good job then the gov should just fire them the same way the gov fired the CEO and installed their own.

    No one is going to do the job of a senior manager or executive for just $50,000 and a 3% 401k match. You won’t get anyone of quality.

    Even middle managers – project managers, regional managers, sales directors etc. – still count on bonuses and contracts to find and keep good people.

  5. MasterPo says:

    ps- After 9/11 the best job I could get was at a federal gov agency. First as labor then I worked up to a supervisor (not a promotion, believe me!!).

    The sheer waste and fraud I saw was INCREDIBLE!!!

    NOTHING like that would be allowed for a micro-second in a private company!!

    Complain all you want about AIG, it’s a drop in the perverbial bucket compared to what goes on in the gov!!

  6. kitty says:

    Yours is one of few voices of reason on this subject. Sure, let’s break all contracts, who cares about contracts anyway. I don’t know much about contract law, but I’d like to believe that a contract that I signed with someone is not going to be broken for any reason other than those outlined in a contract.

    But if we really want to be fair, shouldn’t we also take some salaries back from the former SEC chairman and his esteemed colleagues? Their contribution to this crisis is higher than that of AIG execs. What about credit rating agencies? What about bailed out home owners? I heard a suggestion on CNBC today that if at some point in future they sell their homes with gains, they should pay back the money to both the government and the banks. I think it makes a lot of sense. A whole lot more sense, in fact, then taking back bonuses. There is also a lot more money involved than what AIG employees get. What about congress and their salaries? Do they really deserve it giving the “great” job they do? Why be so selective?

    At any rate, why shall the government try to actually help the economy when they can provide endless entertainment investigating some people who got bonuses? Maybe this is the idea? After all, nothing beats good entertainment during bad recessions.

  7. MasterPo says:

    Kitty is right. How about Congress or the Senate cutting their pay? Afterall they were supposed to be overseeing all these agencies!

  8. MasterPo says:

    Another note:

    So what about the bonues??

    What do people *think* “the rich” do with their money anyway?
    Answer: The spend it!!

    Aren’t we supposed to be stimulating the economy?!

    Maybe “the rich” wouldn’t spend it on the things you want them to spend it on – Merlot instead of McDonalds, Porche instead of public trains, custom suits instead of JC Penny’s – but so what?! Aren’t these business, the ones that service “the rich”, just as real as any other? Aren’t they part of the economy too? Pay taxes? Create jobs??

  9. PT Money says:

    The problem is depending on the US Govt to do anything besides protect us.

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