America's Wasted Outrage

It's Friday and the great wave of useless outrage over the AIG executives receiving $165 million in bonuses has smashed upon the political shore and receded to gather strength for the next violent storm.

Looking back, the clack and clamor, the fireworks and finger pointing, was all so overdone, pointless, and unconvincing. An American public that can munch popcorn while watching a naked, young woman hung upside down being sliced to death with scythes by a naked, older woman who bathes and drinks the showering blood in "Hostel II" has plainly lost the capacity for real outrage. (We all know you need red wine to go with red meat.)

In the midst of this "strum und drang," AIG's new CEO, (Edward M. Liddy, the former chief executive of Allstate, who—for a salary of $1 per year—took over as AIG's CEO after the federal government stepped in to rescue the giant insurer) trotted out the litany we shall hear for the near future. In response to any threat to the status quo we shall hear that fill-in-the-blank's executives must be paid like kings because they are too valuable to lose.

Unfortunately, the house subcommittee conducting the hearings during which Liddy spewed this bilge was more intent at lashing the hapless Liddy with their tongues rather than gathering real information. Otherwise someone might have asked Liddy just what these financial geniuses had done which justified, in many cases, multi-million dollar bonuses.

Obviously Liddy—who did not even know how many executives had left AIG and subsequently received retention payments—would not have been able to answer that. He would have doubtless said it was all very complicated (as he said the bonus contracts). By our concentration on our gleeful outpouring of outrage we lost the opportunity to for either real learning (gaining an understanding of why these payments are valid) or for putting a fork into the overinflated ego of these executives.

Evidence from the Asian banking experience indicates that Liddy and his ilk are wrong, that cleaning out the financial industry's executive Aegean stables and running off all the horses asses who made the mess may be a good first step toward financial stability. The problem is that Liddy and other financial executives have grown so used to the status quo that they are incapable of imagining other alternatives.

Take for example Citigroup's 10 million dollar remodeling of the executive floors of its New York Office building. Citigroup defends the action as ultimately being cost-saving, since it will double the office capacity of the remodeled space and allow a newly vacant floor to be rented out.

What the current Citigroup CEO, Vikram Pandit, doesn't understand is that most of us suspect the same job could be done much more cheaply. At times like these, a hard-nosed CEO would double the floor's occupancy by cutting each office in half with a partition. Each new occupant could bring as much of his/her old furniture as would fit.

Pandit probably would protest that such treatment would led to employee loss, and he is another CEO would holds that the executives who sank his company are too valuable to lose.Of course, if he admitted he could hire new talent who could bring in new ideas and do a better job, he might have difficulty justifying making about 38.2 million last year while the value of Citigroup stock feel from $25 to about $1 currently. Now there is a performance worth a bonus.