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Amid all the drawn-out discussions regarding whether or not we will let the auto industry survive -- and with it, literally millions of mostly blue-collar jobs -- comes news that American International Group, Inc. (AIG) has lost another $10 billion on bad derivative bets. The government has already chipped in $153 billion in aid to AIG.
The double-standard here is simply breathtaking. At the same time, AIG is paying out bonuses -- sometimes multiples of base salaries -- to its executives. The 'retention bonuses' range from $95,500 to as much as $4 million and cover 168 executives.
The argument is that if they don't pay the bonuses, the top talent will walk. This, of course, raises two key questions: 1) Walk where? It's not like there are lots of financial services companies looking to hire right now, or that there are not experienced people available. 2) What talent? Honestly, could 168 people picked at random out of the phone book have done a significantly worse job?
While I agree that we cannot let major financial institutions fail, I don't see why the U.S. taxpayer should be paying out millions in bonuses to these bozos. The outrage that is expressed over the pay packages for UAW members ($29 per hour in cash -- and if you throw in all vacation, overtime, and benefits like health care and taxes pensions, and social security taxes, about $55 per hour) seems totally out of place.
Failing to bail out General Motors Corporation (GM) would cost the government far more in lost taxes and increased expenditures for things like unemployment insurance -- not to mention the hit that the Pension Benefit Guarantee Corporation would take -- than the $34 billion that the Big Three were asking for. Keeping existing jobs from going away might be a relatively cheap stimulus package. Paying millions to a bunch of people who lose billions does not seem to have the same protective effect for the economy.
Then again, the folks at AIG don't belong to unions. The bankruptcy of GM would drive a stake through the heart of private organized labor in the U.S. That factor, more than any principled stand seems to be behind the opposition to help for Detroit. It's OK if Detroit dies, but Lord help us if there is any pain at all in Greenwich or Far Hills.
Read the full analyst report on AIG.
Read the full analyst report on GM.
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