AIG to pay out $100 million in bonuses

http://www.forbes.com/feeds/ap/2010/02/02/business-us-aig-bonuses_7324826.html?boxes=Homepagetopnews

Description

Economic Terms:
1. retention-to keep in possession or use
2. Bailout- a rescue from financial distress
3. insurer- one that insures; specifically : an insurance underwriter


American International Group, also known as AIG, plans to give a $100 million bonus to its financial products division employees. AIG received a $180 million government bailout. AIG originally planned to hand out $120 million but agreed to give out $100 million instead. These payments are for employees at the financial division who agreed to accept 10 to 20 percent less than AIG had originally promised them two years ago. In return for getting less money, they are getting their money more than a month ahead of their scheduled pay day. AIG faced intense public and Congressional criticism last March because it paid hundreds of millions of dollars in retention bonuses to employees months after receiving the government bailout of $180 million.


Analysis

In the fall of 2008, the U.S. government rescued AIG from the brink of collapse becasue of the credit crisis. The U.S. government wanted 80% stake in the insurer. AIG's near collapse was not caused by its traditional insurance operations. Its financial products division made risky bets that led the company into debt.









Prediction

I think that AIG should not reward the financial products division with hefty bonuses. The government gave AIG $180 milliom in bailout money. That money should be used for other important matters. If AIG were to again sink finacially because of the financial products division, it most likey will not reward this division with hefty bonuses. Instead, they would replace the employees who brought the company into debt. If AIG fired those employees and did not give out bonuses, neither Congress nor the public would criticize it. Also, the government would give less than $180 million to AIG in bailout money.