Memo to Ken Feinberg: Benchwarmers Don't Swing for the Fences

Pay "czar" Ken Feinberg is sending mixed signals to the troops at American International Group. Recently he approved a pay package of about $10 million for incoming CEO Robert Benmosche. Now, after being scorched by political heat from the White House, he's cracking down on the underlings by limiting their salaries to $200,000.

One can certainly survive on 200 grand, but you have to look at what you get for the money. Certainly an insurance agent would probably be happy with this salary if you promised him or her a bonus and commission.

But Feinberg isn't taking aim at these people. His pistols are pointed at AIG's Financial Products unit, where the company's problems started in 2005 when the then London-based unit gorged itself on mortgaged-backed securities that turned out to be insecure or downright fraudulent.

The unit's executives subsequently embarrassed Feinberg's TARP program when Congress and the public learned that the FP unit was entitled to $180 million in bonuses for what most people felt was a royal screw up.

So do they now deserve to keep making the big bucks? Maybe no, but just maybe yes. AIG FP is all about traders, and it requires steel nerves and fast reflexes to make million and sometimes billion-dollar decisions in a split second. These people are in big demand on Wall Street by firms that don't carry TARP baggage, or were smart enough to shed it early, like Goldman Sachs. The latest profits by the financial industry haven't been earned the old fashioned way - from banking - but from trading, since you are betting with the government's money, at least until interest rates go up.
Feinberg's actions are effectively telling AIG's traders, and many of its competent people, to kiss off. To use an analogy: it's like putting the top players on the New York Yankees, the highest-paid team in history, on waivers and putting the benchwarmers in the starting lineup. Yes, it would save money, but would they be in the playoffs?