figures out what this is going to do to tax collections next year… it isn’t going to be pretty.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031804104_pf.html

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

“They’ve chosen to throw us under the bus,” said a Financial Products executive, one of several who spoke on condition of anonymity, fearing reprisals. “They have vilified us.”

They say what is missing from this week’s hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm’s former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

So AIG stepped in with an offer to employees of Financial Products. Work through all of 2008, and you’d get a lump payment in March 2009. Stick around through 2009, and you’ll get paid through 2010. Almost all other forms of compensation — bonuses, deferred payments and the like — have vanished.

“People are trying to do the right thing,” the same Financial Products executive said. “Guys have worked their [tails] off to try to get value for the taxpayer. This isn’t money that’s being advanced to us. People have performed the work and done it exactly as we asked them to do.”

Pasciucco cringed at the notion, articulated by many lawmakers and even President Obama, that Financial Products is a firm of nearly 400 reckless and greedy derivatives traders.

In actuality, he said, nearly all the troublesome sectors of the business — namely, the risky credit derivatives written on mortgage-backed securities — are now out of the equation, as are the people who worked on them. That leaves a small number of employees to untangle the remaining trades in four main areas: commodities, interest rates, currency and equities — most of which were fully hedged and have caused little problem. The effort also requires a sizable number of “back office” staff, such as systems, computing, accounting, human resources and legal teams.

“Everybody, including my secretary and including the guy down the hall that serves lunch, gets a payment,” said Pasciucco, who added that he received no retention payment and has no contract.

But what about the argument made by top AIG officials that the people receiving retention bonuses have unique skills and knowledge that make them indispensable?

“They are replaceable,” Pasciucco acknowledges. “If we were running a long-term business, we could probably replace them over time, not all at the same time.”

But it would be impractical at best, dangerous at worst, to get rid of everyone at Financial Products, according to AIG officials. If everyone leaves, Pasciucco said, “you don’t have people that really, truly understand the book [of business]. We’re still big enough that that matters.”

If they did walk out the door, who would volunteer to work at the Chernobyl of the financial world? And what would become of the mammoth portfolio that remains?

“It would become the biggest naked position on Wall Street,” one longtime Financial Products executive said, “and everybody would exploit it.”

And here is a fellow who recenly joined Citigroup — who unlike Rubin for example, is not responsible for its bad decisions — wondering why he should continue working past October after he has earned his 250K. http://online.wsj.com/article/SB123776600113009243.html

An angry mob led by Congress and roiled up by the President will kill indescrimately.

Just wait til the ACORN guy shows up to do the “census” and to determine if you should be housing some other families in your house.

The problem that nobody ever seems to talk about is that in one sense there are vast “inequalities” in “wealth” as measured in dollars, but on the other hand most of the people who have a lot of money at whatever level above abject poverty spend it to stay there.

It you want to have a million dollar house, you have to pay million dollar property taxes, million dollar maintenance fees, million dollar upkeep, and you spend a great deal of what you have.

Taxing people for their success isn’t something the government should do: the market does that already by making the price of maintaining that lifestyle every bit as expensive as creating it in the first place.

Having said all that, I guess my basic view of the AIG bonuses right now is that it was a case of piss-poor timing by the recipients. They should have deferred them for better times. Materially they probably would still have been OK and politically, it would have avoided an entire week of Bread and Circuses. Of course, telling someone they shouldn’t take a million dollars in bonuses in an economic downturn is a tough sell: but the executives of these companies should have done it anyway.

You made the point I really meant to make. Furthermore, wait until inflation puts the middle-class household into the $250K or more category.

That was the problem with the AMT. It was never indexed for inflation, so something intended to hit a handful of the super-rich ended up hitting all the rest of us too.

And think of the case where a family is close to the $250K limit. It can easily be irrational to bring in a second income, because it would effectively be taxed at 90% or more.

I think a lot of people have missed this aspect of how financial firms (including AIG FP) work. Most of the people work for a base salary that is a relatively small portion (sometimes a small fraction) of the market value of the work they do.

And the firms designate a bonus pool to be distributed across the whole firm. What happens is that you sit down with your supervisor in November, and you get awarded a bonus (paid in January) that reflects the performance of the firm as a whole, and of your own performance relative to your direct peers.

The whole idea is to engender an atmosphere of internal competition that can easily become unhealthy, but is definitely part of the way these firms have always worked.

If the government decides that high bonuses are just something they don’t want to see in firms receiving government assistance, then firms will start doing what they’re already doing now: doubling people’s base salaries or more, and setting lower expectations on the bonuses they may receive.

But if you accept that the prospect of receiving much or most of your pay on a schedule that depends on your performance creates a more competitive and thus more productive atmosphere, then what the government is doing will make financial companies less productive.

I would have deferred these compensations: How can you award people at AIG big tips? Even if it makes sense legally, it doesn’t make sense morally. The reaction to it is something the Democrats counted on.

I’d keep those suckers on starvation wages with no pension just so I could get them to get the {blank} out of town and never come back.

one of my favorite labor protests in france (and there are many to choose from) occurred about five years ago. the paris firefighters marched in the streets, upset they were unable to retire as early as they wanted.

when could they retire? 55. when did they want to be able to retire? 50.

our system is unsustainable already, and our benefits are fewer and our retirement age higher.

but if we become the next European Socialist State, you can surely expect that the next step will be to increase the benefits further and make the retirement age even lower.

(and, of course, this doesn’t even consider all the life-long benefits, like health care, unemployment pay, etc.)