Legal Commentary

Losing the grip on AIG

By Tom Kirkendall

The business blogosphere was abuzz yesterday over publication of AIG executive Jake DeSantis' remarkable resignation letter to AIG CEO, Ed Liddy.

But what was even more remarkable was the reaction of some commentators that makes abundantly clear that common sense often evaporates in the face of big money.

DeSantis is a longtime AIG executive who worked for one of AIG's profitable units. When AIG was going down the tubes last year because of losses incurred in the company's untethered CDS trading unit, DeSantis agreed to stay on at a nominal salary and continue making profits in his unit in return for a substantial, but not over-market, bonus.

Such arrangements are not unusual for financially-troubled companies and might very well have been arranged even had AIG gone into a chapter 11 reorganization rather than become the subject of an ill-advised government bailout. In short, it's a good thing for creditors of AIG -- including now U.S. taxpayers -- that the company retain people such as DeSantis who might make the company profitable and valuable again.

Or course, we all know what happened when AIG disclosed publicly that it had made the bonus payments to DeSantis and other AIG executives. They were demonized in a manner that has not been seen since Enron.

DeSantis' resignation letter lays this all out and notes the indisputable hypocrisy of AIG executives and government officials who knew about these compensation arrangements, but who flamed the public uproar rather than provide the quite simple and reasonable explanation for the bonuses.

I mean really. Who could argue that DeSantis and the other similarly-situated AIG executives were treated in an abominable manner?

Well, up to the plate steps one Brian Montopoli, a CBSNews.com political reporter, who establishes beyond any doubt that he needs to remain a political, rather than business, reporter:

Mr. DeSantis is not a plumber. He is a Wall Street executive who has made millions of dollars. And it’s safe to assume that most plumbers don’t believe he has gotten a bad deal, AIG scandal notwithstanding.

In essence, Montopoli reasons that other people are working just as hard as DeSantis and they would gladly trade places with him if they could have made as much scratch as he has earned over the years. Given that DeSantis made a lot of money while he was at AIG, Montopoli thinks he is "tone deaf" for pointing out the injustice of being unfairly demonized and cheated out of the compensation that was promised to him in return for staying on at AIG under extremely difficult circumstances.

In short, those evil capitalist roaders deserve most of our scorn and they should just shut the hell up.

In the face of such addled reasoning, it's hard to know where to begin. But let's start by pointing out that Montopoli ignores the rather important fact that no one has stopped him or anyone else from attempting to compete with DeSantis in his area of business and make just as much money as he has over the years. The reality is that there are relatively few people who do what DeSantis does well. That's why he commands a larger salary than most of us.

The fact that DeSantis makes more money than we do doesn't mean that it's OK to screw him out of his compensation or that he shouldn't be heard to set the record straight when such an injustice takes place.

Full post as published by Houston's Clear Thinkers on March 26, 2009 (boomark / email).