Despite all that has happened there are still some good businesses at AIG. 21st Century – an auto insurance company largely based in California is one.
AIG was not fraudulent from top to bottom – and not everyone working there stuffed up the real economy though AIG FP was probably ground zero for bad lending.
I have no idea what the guy who runs 21st century is paid – and I haven’t looked. But if 21st Century were private – and I controlled it – I would have no problem paying a good guy there 15-20 times average earnings – that is something in the 1-1.5 million range. Those sums would make the said executive extraordinarily wealthy by the standards of the average American. If he is good – and I was a shareholder – I would just wear it.
I might make a fair bit of the salary bonus – and make it contingent on some performance metric – but I would have no problem justifying it.
I would have an awful time justifying paying the guy 50-100 times average. There is just nothing that the guy could do that would justify that incremental level of salary.
We have executives paid 30 million a year and executives paid 1.5 million a year and they generate the same level of outrage on Main Street where (compared to say $65000 in household income) both numbers are incomprehensible. That said – 30 million per annum is enough money that you can’t spend it unless you run multiple houses with servants and fly private jets fractional share. 1.5 million per annum buys you an upper middle class life in Manhattan – or an opulent existence in Los Angeles – but multiple houses with servants are still out of the question. Private jets are unthinkable.
The bonuses paid at Merrill Lynch were 3.6 billion - 22 times the AIG bonuses.
They were paid by a firm that would not have survived without a bailout by the US Government through Bank of America. Moreover they were sometimes large – the 30 million variety – not the 1.5 million variety.
We should be at least 20 times as outraged over the Merrill Lynch bonuses than the AIG bonuses. But as a society we are not.
And don’t tell me it is because AIG is ultimately public and Merrill Lynch private. I used to be a retail fund manager – and my end investors included a broad cross-section of society. The low paid council worker was a part owner of companies where senior staff were paid $20 million per annum.
I have come to the conclusion a long time ago that most people are ill equipped to handle large numbers. They can’t see the difference between a billion and a trillion. This leads to irrationality in bull markets and bear markets. The irrationality is common amongst rich and poor and across genders and political views.
There has to be investment opportunities in that. But also in the eyes-glaze-over aspect of big numbers there are plenty of opportunity for management to loot shareholders entirely.