A friend who used to work at a major Wall Street investment bank writes in to say we’re wrong on the AIG bonus issue. While he hasn’t convinced us, we think he makes some powerful arguments and wanted to share them with you.
The way I figure it the AIG traders REALLY deserve those bonuses. First lets remember that largest bonus was $6.4mn which while a lot of money, pails in comparison to what John Paulson was able generated with a few well placed CDS contracts. These guys at AIG saw shit unravelling they new where the bodies were buried. By staying with AIG these guys were passing up some serious opportunities.
Second, did you notice the timing on these bonuses? The 1 year anniversary of the Bear implosion? Shit must have been hitting the fan at AIG about this time last year, they were realising all those “uncorrelated” contracts they’d written were now converging. The CDS traders saw the writing on the wall, or should have. The firm had just posted its first quarterly loss, the credit markets were cracking up. They were not going to be making very much money that year at AIG based on performance of their positions. But they could very easily have left for Paulson & Co or any of the banks. Demand for people with understanding of credit markets was spiking not dropping off! AIG realising that the whole team had lots of better opportunities out there were they not well compensated locked the team down with a guaranteed bonus. The fact that this was the team drove AIG into ground was besides the point, everyone who knew the book was poised to walk out the door.
Lastly. This is a point people who never worked on wall street seem to miss. When you hate your job, no bonus is worse than no job. All these people saying the AIG guys are “lucky to have their jobs” have no idea. The only reason those people stuck around AIG during the most tumultuous credit event in the last 70 years, was because of the bonuses. They don’t need the freakin job (well maybe some of them do). These guys would have been on their marry way a year ago, or in September. They could have started their own funds, (depending on timing) joined other firms, spent time with their family. The only reason they stuck around was because of the bonus, they weren’t being paid for performance, they were being paid not to quit.
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