For those on the left put aside for a moment your loathing of corporate greed (as I think you define greed, i.e. making large amounts of money in absolute terms, irrespective of performance). For those on the right put aside, for a moment, your contempt for public sector employee laziness (as I think you define laziness, i.e. jobs and raises divorced from productivity and protected by political forces).
When I look at the
AIG bonus imbroglio I see a controversy where there's more to it than meets the eye, especially since the "meets the eye" portion of the story is framed by professional politicians in front of microphones and cameras. Allow me to put you inside a trader's mind. Believe it or not, they're not evil. They are however laser focused on minimizing risk and maximizing return. And they, like everyone else, want what they negotiated (which at least in some
AIG cases included getting paid $1/year and a retention bonus for unwinding positions to minimizing the
firm's, and thus the U.S. Government's, exposure). Post bailout they weren't asked to make
AIG money, they were asked to help
AIG lose less. Believe it or not, it isn't easy.
While nearly everyone else may not consider them worth the money, as a compensation matter they're really no different from professional athletes. Teachers are far more important to society than NBA players, but it's much harder to play in the NBA than become a teacher. Moreover, the NBA is designed to reward individual contribution and deliver unambiguous profit. Schools are not. Scarcity and
unambiguity drive wealth toward Kobe Bryant instead of my 5
th grade teacher.
In the context of trading, ethical and honest means living by the rules
ex ante (altering outcomes
ex post is, or should be, poison). Two of those rules are:
- Make as much money as possible as risklessly as possible as quickly as possible.
- If a trader has access to a "heads I win tails you lose" compensation scheme he'll capitalize like there's no tomorrow.
It's management's job to enable Rule #1's upside without exposing the firm to Rule #2's downside. From the
AIG trader's perspective, he took one for the team (getting paid $1/year + a contingency payment) despite having more remunerative career choices. In sum, he did what he was asked to do and the company has the capital to
consummate his contingency payment (a payment known to the relevant regulators BTW). If the company is insolvent, illiquid or in bankruptcy that's a different matter, which is a big flaw in the model, but most grownups understand this.
If management negotiated a compensation scheme that threatens the viability of the organization, that's management's fault. It's the exact same view unions, public sector and otherwise, have taken for years (if management was on both sides of the negotiating table, which
was the case in
AIGFP pre-bailout, that's the Board's fault). Now look at
this story about the U.S. Postal Service. It's losing money like crazy. Reducing service and retiree obligations can help, but management
overpromised to employees so much its survival is in doubt. Don't blame the employees or unions for this, however. Their job is to negotiate the best possible deal for themselves and management is charged with striking a tenable balance. They didn't, so now the organization is in peril.
It's easy to understand the perversity of advocating paying some dude at
AIG a million bucks while cutting the hours of a $35,000/year postal clerk. But the
AIG trader is harder to replace than the postal clerk and the
AIG retention payments in aggregate don't threaten the long-term viability of the company, particularly since it's being wound down (the comp
structure at
AIGFP helped kill the company, not the absolute amount). At USPS the combined
amount of retirement benefits for employees does threaten the organization's future, political protection notwithstanding.
Markets pay up for that which is desired and scarce, even if we don't like it. Calling someone lazy, stupid or greedy doesn't make any difference.