given the massive commitment entered recently by you the taxpayer with much less consideration, I doubt that AIG currently is a case of a company desperately needing to operate on a leaner basis. Liquidity of the company is not an issue, and neither is your ability to pay. You the taxpayer simply don’t want to make these payments.

Apart from that: What’s different about the AIG-FP case is that you are the boss. What’s also different is that you are the boss because you bought the shop. If one of your untested plans blows up in your face — say, if one of your graduates turned financial executives enters a trade that takes the company even deeper into the red because they had no idea the market could turn against them six months from now — you can’t simply step down and resurface as chairman as some board or other. You’ll still be stuck with the thing.

As an executive, you currently don’t really have a lot going for you. You came into ownership without much knowledge how the company works, and your continued talk of cheap graduate labor makes me think that you don’t even know how much you don’t know. This is not really your fault, but if you want to be taken seriously as owner-manager, you must bring at least something besides your money to the table.

But in the present discussion, I don’t see much difference between you and the outgoing management team of Corporate America. They came in firing people and implementing unproven methods and now you are proposing the same, only you know even less about the business you’ve taken over.

In other words, you need to come up with better ideas than the gentlemen who ran Corporate America since 1980. If you cannot do this, you need to hire someone. And if you’re wise you don’t skimp on their pay.

Part of the point here is to ask why those three points do not apply in this particular case when they’re close to the standard operating practice of most U.S. companies over the last twenty years: restrict or revoke expensive obligations when your company desperately needs to operate on a leaner basis; replace people who are cheaper if less qualified if the difference to the end product is negligible; don’t worry too much about the loss of human capital in more senior ranks if that loss saves you big money on the bottom line.

We’ve heard repeated defenses of this kind of approach in industry after industry. So suddenly we’re being told that AIG-FP is a special case. At the very least, I think that requires some special justification. At the most, I think it ought to occasion some regretful reconsideration of the norms of corporate management over the last two decades or so.

1.) deny the people who’ve been working there for the last year what is in effect if not in letter deferred pay;

2.) swiftly replace these people by workers who are cheaper and less qualified, and

3.) base this decision on your confidence (not your experience, for you have none) that you can train the replacements in a few months to work at executive level.

Setting aside the question whether you have the skills to run a financial company: What exactly is it that makes you morally more competent that the guys who ran AIG into the ground in the first place?

A wildly speculative working hypothesis: bonuses, for people like DeSantis, are a crucial component of self-worth. It’s not just, or primarily, about the money as such- that’s what the gesture of donating it to charity indicates. So what this feels like is an illegitimate and radical invasion by the (narrowly) political that violates the integrity of the self.

I’m not offering that as a justification. Obviously, the old rules got thrown out the moment the government bailed AIG out. But I’m interested in, descriptively, getting at what exactly is going on in the divergent emotional responses to this letter.

The basic mistake wall steet makes over and over is taking more from the past than is warranted for predicting the future. As a result, rarely are the same sins repeated twice, but also, the ability for all parties to admit what they know about the future is limited to the factors they looked at.

In your example, you bring up a lot of good data points on factors you would look for Alt-A and subprime mortgages. The real answer was a single factor – US housing prices have never gone down nationwide, since the Great Depression. As a mortgage lendor in California in 2004, you really didn’t care if the borrower paid you back or not – house price appreciation more than covered your foreclosure costs. California, Florida, Nevada and Arizona had strong immigration further driving above national-average price appreciation for +20 years.

So in 2004-2006, what were the chances that housing prices would go done by more than 10% nationwide in the next 3 years? 1:500? Or California, Nevada, Arizona, and FLorida would be down +30%? 1:300?That is what AIG was charging for some sub-prime insurance protection.

If you want the big bet for the next 20 years, focus on commodities. After going down for almost 20 years, prices increased dramatically, peaking with what looks like a bubble in oil last year. Oil is at 50 – what are the chances it breaks 200 in the next 3 years? We can come back here in 3 years, and with hindsight, will know what factors of course led to its price of 75 WCU (world currency units, which replaced the dollar in 2011). The “just so” arguments that Tim rails against are quite often the basis of all investment decisions, whether swarthmore’s endowment, public pension plans, or folks saving for college tuition.