On the front page of the New York Times’ business section today, economic writer Andrew Sorkin argued in favor of paying out the AIG bonuses. He cited “the sanctity of contracts” to warn that “the business community” would panic if the government started “abrogating contracts left and right.” He also claimed that the bonuses were necessary to retain AIG employees, who are needed to turn the economy around: “A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.”
This morning, ThinkProgress sat down with Rep. Barney Frank (D-MA), who chairs the House Financial Services Committee and has called for the firing of AIG executives. When asked to respond to Sorkin’s claim that only AIG employees can navigate the economy out of the mess they created, Frank dismissed it as “nonsensical”:
That’s nonsensical. It’s clear they made a lot of mistakes and we need to undo what they did. If they really understood what they did in the first place, seriously, they probably wouldn’t have done much of it. Secondly, when you are trying to undo something, it is often not the case that the people who did it are the ones to put in place. People are sometimes committed to not admitting mistakes. … So that argument I think is in fact almost counter, because the argument that you take the people who made the mistake and put them in charge of undoing the mistake goes against the human impulse not to admit a mistake.
Sorkin also effectively endorsed AIG executives holding the American taxpayer hostage, saying that if they are fired, they “might simply turn around and trade against A.I.G.’s book”:
So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.
Though Sorkin seems to have no problem with such a hostage situation, it is clearly part of the “perverse incentives” he discussed with Rachel Maddow last night: “If a deal makes money for the company, they make extra money. But if it loses money they don’t lose anything.” Apparently the New York Times’ chief financial journalist has no problem with this perversity.