Let's admit it- it's just good old greed

Like most of the sane people in this world, even I am outraged at the US$167 million being used as bonus payout at AIG. Almost as if it wasn't enough that the company had single-handedly kick started one of the worst financial crisis ever, it now has the audacity to use the bail out money it received to make bonus payouts to its employees.

I do not even want to get into the debate over whether AIG was under an "iron-clad" contract to pay these out or no, all I know is that bonus is ALWAYS performance based and is always conditional to certain goals being achieved. So no person who is working at the finance division of the company, could have met goals, unless the goal was to take the company bust. And what about following the law not just in letter but also in spirit? Which employee of the division can look the average man in the eye and say "I am sorry but I am going to take that 100K and go for a vacation to Bermuda while you wonder whether you can afford a baby-sitter for your child!"

I decided to check out the AIG website to see if there were any comments from them about the payout and any press release to counter all the news in the media. But there was NOTHING. They think it is business as usual. But what I did find was a list of counter parties - people who were getting the promised payouts that AIG was obligated to under the CDS (credit default swaps) that it had created. Now this payout I can understand is a contractual obligation that HAS to be met. After all a CDS is an insurance policy disguised as a financial instrument. AIG had simply agreed to pay a certain amount to a lender if the borrower defaulted. So now if banks like Goldman Sachs, Morgan Stanley were asking them to pony up- AIG has to meet those obligations. And it was to meet those very obligations that the bail out was being done.

So why are so angry at this list? The outrage I feel is more because suddenly it all seems like a big nexus. The SAME banks that owed money to lenders and were being bailed out, were getting paid out by AIG. So we as ordinary people are baffled at how closely knit the whole nexus is and it seems that all of these financial institutions simply made a host of loans to each other and now were simply passing out the bail out bucks to each other and rewarding themselves in the process. The 401Ks of millions of ordinary people was mindlessly used as collateral in this huge experiment of financial hybrids, and there is nothing any of us can do, because we had signed off on a paper that said we could not hold them responsible for losses due to market conditions. Their's was merely advice. The action was ours.

So then do we say that the failure is not of the financial institution, but of the regulatory system? Did it fail to put in place basic checks that would prevent such incestuous deals and allowed such risky business? But then again what is regulation? Is it an independent entity that just lives on its own? No, it is born of the collective minds of people who are empowered to take such policy decisions. And unfortunately for almost five years America had no short-fall of people who believed that "leverage" is good and if you were not borrowing against your assets to earn money somewhere else, you were just a financial dud.

My husband went to an Ivy League college for his MBA degree. The institution shall go un-named, but I remember him coming home every weekend from the class with ideas that we should atleast borrow 2-3 times of our annual income. We, like most Americans believed that the low interest rates would always exist and that there would always be opportunities to use borrowed money and multiply it quickly. if all those financial whizes were teaching this to the most brilliant minds in America how could it be wrong?

So to me this failure, this brash misuse of funds, is not a regulatory failure, it is a failure of our common sense from prevailing and of the take-over by plain old greed.