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Virtually everyone is familiar with “Parkinson’s Law” that

Work expands so as to fill the time available for its completion.

Fewer know about C. Northcote Parkinson’s background or his body of work.† Parkinson studied, and became an expert of renown in, the field of public administration, as the Brits call it.† We Americans refer to this arena most often as “government bureaucracies.”† Parkinson’s studies lead to his publication of many Laws, including the one for which he is most famous.† One of the lesser-known Laws is Parkinson’s Law of Triviality that provides:

The time spent on any item of the agenda of a public body will be in inverse proportion to the sum involved.

The political conversation this week is dominated by blustering, outrage, opinion and advice concerning AIG’s agreements to pay retention bonuses of up to $165 million to employees of the AIG Financial Products Group, the unregulated investment arm within AIG that is the cause of all of AIG’s problems.† Goodness help the poor soul who gets between a politician and a microphone this week.† Every politician has had or will have his or her say on the subject of the bonuses, from “bow deeply, apologize and commit suicide” (Senator Grassley) to “investigate all options to recoup” (President Obama) and everything in between.

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The bonuses are, however, but a convenient target and a prime example of the operation of the Law of Triviality.† It’s hard to conceive of $165 million as trivial, yet it is in the context of the AIG mess.† AIG had a $2.2 trillion portfolio of custom derivative contracts and related trades and positions.† The size of the portfolio is almost beyond comprehension and that size is dwarfed by the complexity of the financial instruments comprising it.† The Law posits that officials will not talk about sums and concepts that are beyond their comprehension. studies zelnorm

And that is precisely what has happened with AIG.† On three occasions, two different administrations chose to use Federal Reserve and taxpayer funds to support AIG and its Financial Products Group — to the tune of $170 billion.† They decided the best course of dealing with AIG is to honor those derivative contracts rather than to break those contracts in a bankruptcy.† The government commitment and expenditures were made with little outcry and essentially no outrage from the politician class.

Yet put a very large, yet comprehensible number on a tiny piece of the AIG problem, one with faces of actual villains, and the outcry is both pervasive and deafening.

The politicians should think about several things before they continue wailing. The contracts were entered into more than a year ago, in a world where Wall Street-ish talent was valued much differently than today and long before any government intervention at AIG.† The payments causing outrage are the second round of payments under these contracts.† The amount involved with these contracts is minuscule in relation to the overall exposure at AIG.† $165 million represents only 0.0075% of AIG’s $2.2 trillion derivative portfolio — or $75 out of every $1,000,000.† The derivative contracts hemorrhage taxpayer dollars and will continue to do so.† There is no outcry to break individual derivative contracts or to tax the recipients of payments under them at prohibitive rates — nor should there be, as such a tactic runs contrary to the strategy of supporting the financial markets.

Our government elected to save a massively leaking ship.† Now we are surprised to find many more tiny leaks?† In the words of Captain Renault in Casablanca, “I am shocked, shocked.”