Got Clawbacks? Thugz on the Bailout

Dear Secretary Geithner,

I’ve been out of touch. Sorry. I spent the last month on grand jury duty, putting Manhattan’s poor minorities behind bars. I needed a little time to recover.

As promised, this is the first in a series of friendly dispatches. Advice, if you will. Learned counsel. Wisdom from the streets (as opposed to “The Street,” where wisdom is scarce these days). Given that you can’t even control bonus payments to employees of a company (A.I.G.) that you own, how could anyone expect you to jump start the overall economy.

Your friendly consiglieres will be “The Thugz.” To learn more about them, you can visit previous Freakonomics posts, in which these self-described “avatars of the underground” watched a full season of HBO’s The Wire with me.

The Thugz were itching to take on the problem of executive compensation — specifically, what to do with leaders of firms who bring their companies to the brink of ruin (and, who then run crying to you for help).

Before I begin, I should tell you that I write this letter under protest. I expected a much different reaction from the Thugz to the compensation issue. I had hoped that my Afro/diasporic brethren would share my desire to nationalize, equalize, spread the wealth, tear down the hierarchies, and send the damn bourgeois pigs to jail where they belong.

But No! The Thugz would have none of that. And I probably should have known better. They are pro-capitalist down to their boxers.

In fact, they laughed when I said the government should prioritize the punishment of senior management. In the words of Shine, the elder statesman of the group, “You have to be real careful when you mess with folks at the top, because when the war is over, you’ll need these guys real quick. Ninety-nine percent of people just doing what they’re told — you couldn’t find half a brain among all of them. But the ones with the brains — don’t let them go.”

I was deeply upset by this comment. In fact, I thought A.I.G. Chairman Edward Liddy might have been communicating with Shine.

“You got to be kidding me,” I said to Shine, my blood boiling. “Have you been watching the news? These guys are the ones who created this mess. You don’t want them to hang?! Whatever happened to the law of the jungle? Whatever happened to letting people take the hit for their behavior? Isn’t that what your world is all about.”

Portis, 42 years old and with a six-year grand larceny prison sentence under his belt, answered for Shine. “There’s two kinds of brains you need to run a good business. Sometimes you need “Sleepy Heads.” You know, the ones who pick up the money from the crews; the ones who make sure everyone got ammo; the ones who just do their job, don’t cause no trouble. Then you need bona fide Killers. The Killers like watching you bleed to death while they are eating a plate of ham and collard greens. You understand?”

“What does that have to do with the financial situation?!” I asked, exasperated.

“See, by the time there’s a crisis, the Sleepy Heads are already gone. They’re the ones who keep the books, so they know where the money is, and they know when trouble starts. So they usually get out first. But at this point, in most of these companies, all you got left is the Killers. They’re the ones who like hanging around, who ain’t got no home life, who just love the blood, and the guts, who love the pain!”

“Again,” I interrupted, “what does that have to do–”

Never lose your killers. Never let them go, because you’ll need them when things gets better. You can always get the Sleepy Heads back. They’re hiding under a rock anyway. But the Killers! Those folks are hard to find, so you got to give up the money. Pay the ones at the top, the one’s who like to smell blood. Let the Sleepy Heads go, but keep the Killers.”

This went on for some time, and, truth be told, I was ready to call it quits. I expected the Thugz to be firmly in the camp of the taxpayers, ready to support clawback provisions and creative tax schemes that might recoup taxpayer dollars. Instead, they toed the party line.

I should have expected this. I should have predicted that the Thugz’s backgrounds as senior executives would make them an interested party.

So kudos, Mr. Secretary. Your initial hunches seem to have support from “the streets.” The media reports of your failure to examine outstanding A.I.G. bonus contracts before handing over $170 billion were probably just a reflection of inadequate business acumen on the part of the reporters. Clearly you understood that the bonuses were needed to keep the executives happy, and that performance and bonuses have little to do with one another.

But don’t let your head get too big. Portis said that leaders in your position always make one mistake when they allow the Killers to receive compensation with minimal interference: “The real key to working with Killers is that you have to destroy one of them, just for show. Because as much as they like to see their enemies in pain, they love to see one of their own bleed even more. … If you want to keep them hungry, kill one of them just for fun.”

So, there you have it. In the interests of making capitalism work, who will you sacrifice, Mr. Secretary? A.I.G Chairman Liddy? Perhaps Mr. Thain. My South Asian brother, Mr. Pandit?

Act quick, because the lions might just be outside your door. (I’d watch that Summers guy closely, btw.)

Until next time, sweet dreams.


Brilliant, brilliant post. Two points:
1. I think you will always find more killers.
2. Some of us Sleepers demand more than one sacrifice

Carl Bunch Credit Repair

Keeping in mind, of course, this is business advice from leaders who either wind up dead or in jail before they're 22.

Let's hear the advice from the 70yr old drug dealer who's never been caught.

Carl Bunch Credit Repair

Of course, they believe in "killers" because their "business" NEEDS killers.

Whereas in any other business, if you have a "killer" (idiot) on staff, you know it's just a matter of time before that idiot sinks you.


"never let (the bank CEOs) go, because you'll need them when things get better"
lol- jokes on venkatesh- these guys have sardonic humor down pat

Ed Kay

About those 11 AIG execs who took million dollar bonuses so that they would stay - and then promptly resigned. Do they count as killed?


Sweet mother, this series of posts needs to be a book, a radio show and a tv miniseries.

Keep 'em coming.


I always thought the thug life had more in common with finance than most of the civilian population could ever understand. Buy-siide 4 life homeys.


#1 "1. I think you will always find more killers."

Yes but they are rare. Plus I think the biggest risk is that if you "sacrifice" (Let go) of to may killers and they really "The Killers like watching you bleed to death while they are eating a plate of ham and collard greens. " then they are going to go your rivals.

I doubt few things are worse then having a bunch of "sleepy heads" while your competition has a bunch of "killers"


This is a great analogy. So, how do you pick out a killer to get rid of?


Should have talked to the "taxpayers of the streets."


It's not that gang members are capitalists; it's that government and high finance are run like gangs [read: criminal enterprises].

Government is the cop on the take and they take their bribes [campaign contributions] from the financiers [gangsters] who are shipping our money off to their buddies while skimming a little off the top [bonuses].

We get worked up over the skim and the bribes while the crime is still being committed.

Read Spitzer's article in Slate for the details- is there any doubt he was taken down?


the game is rigged, Wall Street knows the rules backwards and forwards and has the stones to take advantage of every loophole in their favor and create new ones or block oversight through their political allies. As a taxpayer we need to change the rules of the game, new regulatory systems need to be instituted which will change how all players move within the game matrix.
We have not heard from the administration what new system of regulation they intend. Until we know what will be allowed, we don't know which of the current crop of failed killers we can consume. Until that change we are at the mercy of these cut their own throats.
Percora commission anyone??


absolutely brilliant. There is an old negro proverb that, he who rides on the back of a lion will ultimately get consumed. One common trait with cold blooded killers is that they're opportunist. They're always looking for a sign of weakness and they spot it quickly.

The temptation is to off the weakest killer in the bunch. Bad move. They know that's a sign of weakness. Go for the big kahuna. The strongest and most aggressive of the bunch. Taking him down elevates your cred with the bunch. By implication, for longevity, leave cowering liddy. Stand by him. But take down someone riding rough-shod. I say go for sumners. It's hard, but it's the only way to survive. Just for clarity sake, this is strictly dealing with gaming (firing folks) and not physical violence, which I clearly abhor


Great Post SV.. The analogy is particularly interesting. However chosing a single killer is like chosing between the devil and the sea.


"They're the ones who like hanging around, who ain't got no home life, who just love the blood, and the guts, who love the pain!"

Why are bonuses needed when if the "Killers" just love what they do? Won't they keep the job for the thrill of the next success?

Or is it really that most of these people are actually just "sleepy heads" that are too stupid to even be the first to get gone when the getting is good? Or ones who have something to stick around for that comes up in a month or two:

"those 11 AIG execs who took million dollar bonuses so that they would stay - and then promptly resigned."

You know, those ones that Ed Kay mentioned....


Excellent. Post. Great perspective. Unique perspective.

However, like I would not ask the Thugz opinion on how to run a nursery, I would not overweight their responses on how to run a company beholden to shareholders and clients.

Execs in public companies, are not supposed to intentionally bollocks their share holders futures for immediate self gratification.

These execs are not Killers. I've met 'real' -- albit legal -- killers, in the service. They don't expect to go whining to momma (Govt) for help when things get tough due to their own decisions.

I'd like you to ask the Thugz how they would handle a Killer who took the bosses money and still acted so arrogant. I bet their answers change.



Nationalize? Equalize? Have you been watching the news? Man - I'd expect more from you.

The reason you and the Thugz disagree is that one camp is thinking of a model unencumbered with the trivialities of reality, the other understands reality and needs no clunky model.

My advice is to not profess to reading the news, listening to the news, much less watching the news. It's spoon fed baby food.


I think I agree with the poster who said that, in the business world, killers will "sink you". But with a caveat:

It's about knowing when to cut a killer loose. Under control, they have the instincts you need to keep your sheep our of your hair. But the moment they slip out from under your fingers, they wreak havoc.

There's a third type, too: the hero. They're sharp, moralistic and just as ruthless as the killers. The key difference? They're whole purpose is defanging and removing killers. Try running a company without a hero; when killers get bored they tend to slaughter sleepy heads.

Jacob Rekol

One important point that is being missed here, and makes this stuff about keeping the "killers" a moot point because they're valuable is.... they *aren't* valuable!

These institutions didn't actually make money in the long run under the leadership of these executives. They make some money, but they loose it again - trying to keep these execs is like going back to the slot machines again and again.

Warren Buffet knows to avoid this sort of person in his investments - some people self-destruct, so they are loosing propositions.

It's not about punishing the execs, they simply are incapable of doing their jobs - so they should be fired, and not paid any bonuses. In a pragmatic fashion, of course, you need some time for the transition, but there is not much doubt that keeping them and hoping they will do better next time is ONLY WISHFUL THINKING.


The beautiful thing about the killers is that there are plenty more young ones to take their place. Let the current crop of 50 somethings bite the bullet and the 30 something killers will tell you they were incompetent and feed on their corpses. You can't be a warrior and not risk death in combat.