The reason why the AIG bonus scandal matters

Yves Smith of Naked Capitalism concisely identifies a reason for its significance:

I agree, as others have said, the bonus affair seems overdone, but on another level, it makes perfect sense. Intuitively, the public knows the execs and troops of the big financial firms were overpaid in recent years since the earnings were overstated, due to phony accounting and insufficient loss reserves. They can't get that money back, but the idea of even more going out the door, even amounts small relative to the bailouts, now that the companies are bust, is offensive.

What likely offends most common folk is not the size of the AIG bonuses per se. Nor is it their size when compared to the bailout payments the government has already made to AIG. Rather it is likely the size of these bonuses when compared to the job compensation most Americans enjoyed even in the best of times. Obviously few feel secure in the midst of a crisis. It appears to these individuals that AIG's executives got the lion's share of the rewards from the destruction of this company but have suffered little from their catastrophic mistakes. Nor, for that matter, will these well-compensated executives need to personally manage the risks generated by the AIG bailout. Their wealth can save them from a bad fate if they are prudent. The risks will mostly fall upon the taxpayers of the present and the future. Most American taxpayers are not well-compensated and will not be so any time in the future if the current crisis is a manifestation of America's secular economic fate.

The compensation matter poses, then, a question of justice (what share of the burdens must be given to these executives if justice is to be served), on the one hand, while it presents the world with an instance of a class-specific injury (the exploiters accumulate and the exploited suffer because of this accumulation). It ought to be interpreted as a path that leads to more pressing political problems and not to the pressing issue of the moment.

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