Economic Update — AIG Sparks Outrage Again

It could be that executives of insurer American International Group (lately known as the “Notorious A.I.G.”) have been living on Neptune during the last six months, and haven’t heard that large bonuses are passé. More likely, a sense of entitlement, built up over years of being too big to fail, is too big to let a thing like taking $165 billion in guarantees from the federal government get in the way of bonuses. Which only total $170 million, just a bit above 1 percent of the bailout total (so far), after all.Various members of the Obama administration and Congress took to their bully pulpits on Sunday to denounce the A.I.G. bonuses. The company says that it’s legally bound to pay the bonuses, and in an open letter (technically to Treasury Secretary Tim Geithner) the government-appointed CEO, Edward Liddy, did say, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.” Legally bound because the company had promised the bonuses before it began its slide into financial black-hole status. If so, that means that it was operating on the paradigm that bonuses are to be paid, no matter what.In the same letter, Liddy also hauled out the notion that talented staff would be lost if bonuses aren’t forthcoming. “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses… if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.” The term “best and the brightest” might not be the best choice of words for a massive failure like A.I.G. The Federal Reserve’s policy committee is meeting on Tuesday and Wednesday this week, and are expected to approach the economy like the wounded animal that it is: no sudden moves. A policy statement will be issued by the Fed on Wednesday afternoon, but it’s unlikely that interest rates will change or any new balance-sheet initiatives will be unveiled. It was a zig-zag of a day on Wall Street on Friday, but the indices ultimately ended up by the final bell. Prognosticators are already calling the recently upward trend, which latest most of last week, a “fool’s bounce.” In any case, the Dow Jones Industrial Average was up a modest 53.92 points, or 0.75 percent, while the S&P was up 0.77 percent and the Nasdaq was up 0.38 percent.