Why do we often distrust or dismiss the lessons and instincts that have proven so true and valuable in the past?
American International Group is fumbling around as it tries to explain why it would grant $165 million in bonuses to employees of the financial products division.
That division has been largely blamed for the companys problems that have resulted in more than $180 billion in federal bailout funding. It now also bears responsibility for crafting a solution to the problem AIGs CEO Edward M. Liddy told a House Financial Services subcommittee on Wednesday which makes retaining those employees essential to the companys recovery.
And Washington is trying to understand the entire mess while threatening to either take back the bonuses or create new tax penalties which would take most of the money away.
I witnessed AIGs mode of operation about 10 years ago. Back then I thought the AIG executive I dealt with was an aberration. Turns out he was pretty much the norm.
I had put together a newspaper company that consisted of mostly small-circulation weeklies and a couple of small dailies. We started with a bang doubling almost tripling the companys profits in the first year. New investors were hearing about our success and clamoring to get in on the action.
One of our most ardent suitors was AIG. When I met the representative for breakfast in New York I was stunned by his lack of business acumen. Clueless" came to mind within the first few minutes..
He was convinced AIGs stature as a business was the best of the best and we should consider ourselves lucky to have the company pursuing an investment.
OK" I said. I am so flattered by the wonderful opportunity being afforded me by the brilliant AIG I will sell you an interest at a 33 percent premium of what original investors put in the company."
By virtue of his companys investment the AIG employee got a seat on our board. My hope and expectation was he would add value about running our business.
Heres one suggestion I remember. We faced a dilemma of trying to attract experienced and educated sales talent for what I must add were low wages.
Hire waitresses or helpers or whatever you call those girls at McDonalds" he said. They have great customer service skills and they always ask if you want fries with that burger."
So its taken 10 years for AIGs practices and problems to put it on the brink of insolvency.
Now with the horse out of barn House Financial Services Chairman Barney Frank D-Mass. and Paul E. Kanjorski chairman of the committees Capital Markets Insurance and Government Sponsored Enterprises Subcommittee are trying to close the barn door.
First anyone who believes either of these two men have the financial expertise to fix a major problem or even oversee its rescue is mistaken. Kanjorski is a popular congressman from a district in Pennsylvania where I live and work. His favorite type of quote about the U.S. financial system since the fall of 2008 is that his inside perspective showed him that nobody knew how close we had come to the abyss."
A few weeks ago he was talking about the AIG bailout and told Reuters the companys failure would have precipitated the failure of the European banking system." Hes never explained in any meaningful detail how this would have happened.
Well how about asking our congressmen and Treasury Secretary Timothy F. Geithner where they were when these bailouts were approved? They may call the money a rescue" or a bailout" but whatever it was and is none should have been spent without due diligence. Thats customary; no businessman or woman would either invest money or loan money to a company without it.
These committed bonuses to the 418 AIG executives would have shown up then as a liability." And that was the time to stop them.
I do not deny that the federal government has a right to try to retrieve the bonus money. Taxpayers are now owners" of 80 percent of AIG and when someone loans money there are always strings attached. AIG invited the government to set up operating rules when it accepted the bailout money.
Good luck in getting any of it though. By and large you can assume these are not big-hearted people. When I was arguing for prompt payment of severance to someone who left our company my AIG board member said he could not care less about the mans four children or his mortgage.
Screw him" he said. Make him wait."
Heres how you might fix AIG.
You know how many hedge fund managers and other financial men and women are out of work? Offer to hire a new team of leaders who have a new perspective and who have to take a 25 percent pay cut from their predecessors total compensation.
You wont have time to interview all of the applicants. Theyll be lined up for blocks.
Richard L. Connor is the chief executive officer and ownership partner of the Wilkes-Barre Pa. Publishing Co. which owns a group of daily and weekly newspapers. A newspaperman for 40 years he previously was president and publisher of the Fort Worth Star-Telegram in Texas. He has written a column for most of his career and has served on two Pulitzer Prize for Journalism nominating committees.
Why do we often distrust or dismiss the lessons and instincts that have proven so true and valuable in the past?
American International Group is fumbling around as it tries to explain why it would grant $165 million in bonuses to employees of the financial products division.
That division has been largely blamed for the companys problems that have resulted in more than $180 billion in federal bailout funding. It now also bears responsibility for crafting a solution to the problem AIGs CEO Edward M. Liddy told a House Financial Services subcommittee on Wednesday which makes retaining those employees essential to the companys recovery.
And Washington is trying to understand the entire mess while threatening to either take back the bonuses or create new tax penalties which would take most of the money away.
I witnessed AIGs mode of operation about 10 years ago. Back then I thought the AIG executive I dealt with was an aberration. Turns out he was pretty much the norm.
I had put together a newspaper company that consisted of mostly small-circulation weeklies and a couple of small dailies. We started with a bang doubling almost tripling the companys profits in the first year. New investors were hearing about our success and clamoring to get in on the action.
One of our most ardent suitors was AIG. When I met the representative for breakfast in New York I was stunned by his lack of business acumen. Clueless" came to mind within the first few minutes..
He was convinced AIGs stature as a business was the best of the best and we should consider ourselves lucky to have the company pursuing an investment.
OK" I said. I am so flattered by the wonderful opportunity being afforded me by the brilliant AIG I will sell you an interest at a 33 percent premium of what original investors put in the company."
By virtue of his companys investment the AIG employee got a seat on our board. My hope and expectation was he would add value about running our business.
Heres one suggestion I remember. We faced a dilemma of trying to attract experienced and educated sales talent for what I must add were low wages.
Hire waitresses or helpers or whatever you call those girls at McDonalds" he said. They have great customer service skills and they always ask if you want fries with that burger."
So its taken 10 years for AIGs practices and problems to put it on the brink of insolvency.
Now with the horse out of barn House Financial Services Chairman Barney Frank D-Mass. and Paul E. Kanjorski chairman of the committees Capital Markets Insurance and Government Sponsored Enterprises Subcommittee are trying to close the barn door.
First anyone who believes either of these two men have the financial expertise to fix a major problem or even oversee its rescue is mistaken. Kanjorski is a popular congressman from a district in Pennsylvania where I live and work. His favorite type of quote about the U.S. financial system since the fall of 2008 is that his inside perspective showed him that nobody knew how close we had come to the abyss."
A few weeks ago he was talking about the AIG bailout and told Reuters the companys failure would have precipitated the failure of the European banking system." Hes never explained in any meaningful detail how this would have happened.
Well how about asking our congressmen and Treasury Secretary Timothy F. Geithner where they were when these bailouts were approved? They may call the money a rescue" or a bailout" but whatever it was and is none should have been spent without due diligence. Thats customary; no businessman or woman would either invest money or loan money to a company without it.
These committed bonuses to the 418 AIG executives would have shown up then as a liability." And that was the time to stop them.
I do not deny that the federal government has a right to try to retrieve the bonus money. Taxpayers are now owners" of 80 percent of AIG and when someone loans money there are always strings attached. AIG invited the government to set up operating rules when it accepted the bailout money.
Good luck in getting any of it though. By and large you can assume these are not big-hearted people. When I was arguing for prompt payment of severance to someone who left our company my AIG board member said he could not care less about the mans four children or his mortgage.
Screw him" he said. Make him wait."
Heres how you might fix AIG.
You know how many hedge fund managers and other financial men and women are out of work? Offer to hire a new team of leaders who have a new perspective and who have to take a 25 percent pay cut from their predecessors total compensation.
You wont have time to interview all of the applicants. Theyll be lined up for blocks.
Richard L. Connor is the chief executive officer and ownership partner of the Wilkes-Barre Pa. Publishing Co. which owns a group of daily and weekly newspapers. A newspaperman for 40 years he previously was president and publisher of the Fort Worth Star-Telegram in Texas. He has written a column for most of his career and has served on two Pulitzer Prize for Journalism nominating committees.
