Welcome to another edition of From the Q, written by industry insider Q. Our man Q has worked in the financial services industry for over 30 years, and holds nothing back. His identity remains a secret.
I feel a rant coming on. More accurately, I’ve been suppressing a rant for several days now. A lot of ink, both digital and otherwise, has been spilled over the AIG bonus fiasco. A lot, but not enough. I rarely, if ever, side with the populists or barking congressmen, but it seems this situation has been so badly mishandled, and I believe mischaracterized in the press, that I’m feeling a bit queasy. Maybe a lot queasy.
A Bonus for a Job Well Done?
Let’s start with the idea of a bonus. It’s meant to be compensation for a job well done. Now, if the idea of losing enough money to ruin a world class company and bring the world financial system to the brink of collapse is our idea of a job well done, then, “ka-ching!” Party on! I’d love to see the contracts that even hinted that a bonus was due under such circumstances.
But, frankly, the bonus issue is a red herring for a more important question. Specifically, why the F$#* do these people still work there? Just what do they need to do to get fired? Losing more money than any group of individuals has ever lost in the history of the planet isn’t enough? Ruining a world class company not enough? Destroying trillions of dollars in wealth around the globe not enough? Just how much money does one need to lose before one gets fired? I don’t need an exact figure here; a ballpark approximation will do. And why in heaven’s name would we not only want to retain these people, but also go to the trouble of referring to the bonuses as retention bonuses?
Now, we’ve all read the reason given (and this is where it gets truly nauseating): “The credit default swaps are so very complicated that only the geniuses that arranged them in the first place are ‘smart’ enough to sort them out.”
Several points need to be made here to clear up this utter fallacy.
Are These Guys Really Geniuses?
First, the idea that these geniuses are smart is laughable. I’m sure they all scored well on their entrance exams and did well in school. They probably all have certifiably high IQs. I’m not impressed. I’ve had the privilege of meeting many, many smart Wall Street geniuses in my career. I’m talking rocket scientist, slide-rule-using, smarty-pants-type guys. And the smarter they are, the dumber they tend to act. Why? Because they think they’re smarter than the rest of Wall Street.
Many of these slide rule guys are arrogant enough to let you know that you are not smart enough to understand them. This arrogance completely undermines their intelligence. Not one of the geniuses at the AIG Financial Products Division that financially engineered the demise of AIG will ever, ever create the amount of wealth they destroyed for AIG shareholders. Ever. Whatever any of them do for the rest of their careers, whatever success they earn, they will finish in the red as far as adding value to the system. Oh, they may do fine financially, but their net contribution to the system will be hugely negative.
Second, please do not believe for a second that only these geniuses can sort out the credit default swaps they created. To this the Q sez “Bolshoi!” These deals are not that complicated. What made them dangerous was the lack of transparency, not any inherent complication. Additionally, Wall Street is full of smart guys and any number of them will be more than happy to help out.
Third, and most importantly, why in heck would you allow the jackasses who ruined the company to have a hand in cleaning up the mess? When your surgeon leaves a sponge in your abdomen, do you have him perform the surgery to remove it? Maybe it’s just me, but I’m thinking, “Thanks, but I’ve already seen your handiwork. I’d like to give someone else a chance.”
The populist uprising over the bonuses is entirely justified. The criticism of the outrage arguing that it undermines the recovery and focuses attention in the wrong place may well have merit. But, the situation could not have been handled any worse. If Q had been in charge, every single person in the AIG Financial Products Division above the level of telephone receptionist would have been summarily fired. To the point that the contracts called for mandatory bonuses, I’d let them see me in court. Those very same contracts should contain provisions for a minimum standard of care and job performance. I’d take my chance with the jury.
What’s Really Going on Here?
This all begs the question: Why didn’t these guys get fired in September and why the massive amounts of money (tacitly approved by both the Bush and Obama administrations) in retention bonuses? Is it possible that there’s more here than we care to know? That maybe this mess is bigger or more intertwined than we might guess? That keeping these guys in place kept a lid on the lack of transparency? I’m not normally a conspiracy theorist but I reject out of hand the reasons given for the retention of these losers and the reasons for the bonuses. Draw your own conclusions.