NationStates Jolt Archive

AIG (http://www.time.com/time/business/article/0,8599,1885409,00.html) is at it again...

AIG's Bailout and the Price of Doing Business
One of the things that Congress and the Administration knows but do not want to admit in public is that bailouts are messy affairs where most of what is planned does not work and one of the unintended consequences is that the process of salvaging large institutions is rarely fair. A lot of people, who should in a utopia, get nothing as the taxpayers dump money into the financial system to save it are paid very well. Others, who seem to be innocent bystanders in the process that has ruined financial firms and put tens of thousands of people out of jobs, are simply given the shaft.

AIG is turning out to be the most cumbersome and embarrassing of the government's neighborhood improvement projects. Word made it out recently that employees in the division that caused most of AIG's losses would be getting $450 million in bonuses. Some of the media put the number lower than that, but Congress and The White House have already complained loudly that any amount of money paid to an operation that helped undermine AIG's viability should get nothing. Edward Libby, the feckless former head of Allstate (ALL) who was brought in to turn AIG around, apparently did not know about the bonuses until recently. In the brief note he sent to the Fed apologizing for the problem he said that the company's hands were tied. The employees getting the money had contracts guaranteeing them the payouts. Members of Congress have already asked whether the agreements were "legal." In a moment of lucidity, Lawrence Summers, a former Harvard president who is now the Obama financial czar said that abrogating contracts would led to a precedent that would ripple through the legal system and cause business and the public to lose confidence in the rule of law. To hear Summers talk the action would be worse the Lincoln's suspension of the right of habeas corpus. (See photos of the troubled economy.)

AIG, under pressure from Congress and the press, also released the number of the counterparties to many of its credit default swaps. AIG had decided to insure the value of certain paper owned by the likes of Goldman Sachs (GS), Morgan Stanly (MS), and Deustsche Bank (DB). When the value of that paper fell, AIG was on the hook to pay off the "insurance" which kept the likes of Goldman from having to book large write downs. Those write downs might have pushed Goldman into a difficult financial situation. The same holds true for a number of the other companies doing business with AIG under similar circumstances.

Congress will do what it believes is its job. It will question AIG, its employees, and the firms that benefited from getting money from AIG's bailout pool.

The framers of the Constitution were constantly worried that even in a republic fools could end up in control of the government. That might be the sort of elected officials who would chase issues that may be popular but are ultimately almost worthless in terms of helping the country, and, in the present case, the economy. Whether AIG employees got large bonuses, especially since they probably had contracts to guarantee the compensation, is irrelevant in the overall effort to turn the course of the recession.

But, there will be Senators who cannot resist the urge to spend days in front of cameras questioning how some of the taxpayer's money went into the hands of people who may or may not have deserved it. Afterward they can spend the evenings in their offices smoking expensive cigars and sipping cognac.

— Douglas A. McIntyre

Sure, those bonus's may have been in the contracts, but seeing the overall econmic situation, should those bonuses have been given?

AIG (http://www.time.com/time/business/article/0,8599,1885409,00.html) is at it again...



Sure, those bonus's may have been in the contracts, but seeing the overall econmic situation, should those bonuses have been given?

Don't have much a choice. A contract is a contract, whoever takes over the company has to cover all liabilities, even if it is the government. You don't want to honor the contract don't take over the company. You don't want to pay for the contracts don't loan the company money.

That article is a bit... over the top. It exaggerates the amount of the bonuses and puts into question the value of investigation AIG's faulty business practices. I value it because you can't fix it if you don't know what broke.

However I will agree that AIG is the master of bad image and I don't think Congress is qualified to be the voice of righteous indignation. But there's nobody else unfortunately.

That article is a bit... over the top. It exaggerates the amount of the bonuses and puts into question the value of investigation AIG's faulty business practices. I value it because you can't fix it if you don't know what broke.

However I will agree that AIG is the master of bad image and I don't think Congress is qualified to be the voice of righteous indignation. But there's nobody else unfortunately.

Grant me the authority I will be that voice.

Grant me the authority I will be that voice.

You're gonna have to stop doing those naughty things in airport bathrooms first. ;)

Don't have much a choice. A contract is a contract, whoever takes over the company has to cover all liabilities, even if it is the government. You don't want to honor the contract don't take over the company. You don't want to pay for the contracts don't loan the company money.

true, if it's in their contracts. however, the executives could've voluntarily refused the bonuses in light of the situation.

The truth is, though, that it's highly likely the cost of settling a massive lawsuit stemming from breaching the contractual obligation from paying those bonuses would be significantly higher than the amount actually owed. Of course, in all honesty $450 million is a drop in the bucket compared to the billions upon billions they've received in recent months...

That being said, this is what happens when you rush through legislation without thinking it through. Both Bush and Obama have done a pretty terrible job of handling the situation because they have been so obsessed with getting money out there that they have failed to take in to account how much of it would be put to good use. If these billions don't produce any kind of material boost to the long-term strength of the financial industry, they're going to end up worsening the problem rather than helping it and I feel that will end up being the case.

The truth is, though, that it's highly likely the cost of settling a massive lawsuit stemming from breaching the contractual obligation from paying those bonuses would be significantly higher than the amount actually owed.
Governments don't settle.

Surely there were also performance clauses in these contracts that the company could activate to avoid paying out bonuses? Something about gross negligence or such?

Governments don't settle.

They would sue AIG and AIG would either go under from the massive settlement or end up being bailed out anyways by the government to cover the cost.

AIG (http://www.time.com/time/business/article/0,8599,1885409,00.html) is at it again...



Sure, those bonus's may have been in the contracts, but seeing the overall econmic situation, should those bonuses have been given?
The proper answer is that it is up to the individual receiving the bonus.

Now what I find to be hilarious is the fact that Congress and the Executive branch aren't bothered in the least by hundreds of millions spent on blueberry picking and lobster research. What makes them exempt from being fiscally responsible?

Now what I find to be hilarious is the fact that Congress and the Executive branch aren't bothered in the least by hundreds of millions spent on blueberry picking and lobster research. What makes them exempt from being fiscally responsible?

Well, for one the government has no accountability except to the voters, some of whom may own or be employed by companies that produce blueberries and/or lobsters...

true, if it's in their contracts. however, the executives could've voluntarily refused the bonuses in light of the situation.
Could'a, would'a, should'a... Sure, maybe they could have returned their bonuses, but they are legally entitled to keep them and no amount of whining from Barney Frank will change that.

Well, for one the government has no accountability except to the voters...
There's the scary part. They can spend as much as they want to buy votes and no one can stop them.

There's the scary part. They can spend as much as they want to buy votes and no one can stop them.

As long as people buy Treasury debt, there is no limit. They can sell bonds forever so long as foreign investors are willing to pay...of course, the question is how much more debt they can absorb now that many institutional investors, including governments, are spending massive amounts of money to fund their own stimulus programs.

My guess is we'll hit the limit some time around when the debt relative to our GDP approaches 100%. Things are going to be tough from that point forward.

http://www.nytimes.com/2009/03/17/us/politics/17obama.html?_r=1&partner=rss&emc=rss&src=igw

...how can you be guaranteed a bonus? Isn't that contradictory?

AIG is merely exposing the American Corporate Culture which flagrantly rewards incompetence in the upper echelons. Lowly workers and cubicle farmers will be punished and fired as usual.

They would sue AIG and AIG would either go under from the massive settlement or end up being bailed out anyways by the government to cover the cost.
Governments don't have to settle. Neither do their agencies. They could make the contracts invalid through quickly passing some law.

Or, easier, let the companies actually go bankrupt - IIRC, the employees are the last in line for compensation - but then restructure them as new entities as soon as the employees are formally fired without compensation due to company's liquidation.

Of course that's worse than what was actually done, but governments don't *have* to do anything.

Congress gave them ANOTHER free hand out only a few weeks ago. Despite the fact they did this before. "Fool me once shame on you, fool me twice, and you can't get fooled again!" Time for people who have AIG to take their business elsewhere and let the company die.

I was always under the impression that a 'bonus' was something extra to recognise that one has done extra good work, over and above what's expected.
So quite how they can justify their bonuses considering they ran AIG into the ground is beyond me.
Either it's a bonus or it's not. You can't demand a company pay you a bonus that has no bearing on your, or the company's, performance. Then it's no longer a 'bonus'

...how can you be guaranteed a bonus? Isn't that contradictory?
Call it an incentive, then. I recall that these were for retention, rather than performance.

Senator Charles Grassley suggested AIG execs should either resign or commit suicide. You know, one doesn't expect US Senators to recommend offing oneself. :p

They should give their bonuses and then give them their pink slip afterwords. Thieves!

I was always under the impression that a 'bonus' was something extra to recognise that one has done extra good work, over and above what's expected.
So quite how they can justify their bonuses considering they ran AIG into the ground is beyond me.
Either it's a bonus or it's not. You can't demand a company pay you a bonus that has no bearing on your, or the company's, performance. Then it's no longer a 'bonus'

Yes they did an outstanding job running into the ground. By the way since when can a bonus be guaranteed by a contract? Then it isn't a bonus it is part of your wages and should be taxed as such. Highway men!

There's the scary part. They can spend as much as they want to buy votes and no one can stop them.

That explains the need to possibly amend the constitution to allow people to recall their senators and representatives, possibly even the president. That would keep them on their toes as they had better do things right because the government would realize that much of its membership could be replaced at any time, even if that time is not election time.

AIG told everyone last year about these bonus contracts, and the Obama administration did absolutely nothing to remove or restrict them. Acting surprised and shocked at this point isn't going to work.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031600640_pf.html

Asked why the administration is attempting to claw back the bonuses now but did not do more to block the payments earlier this month when it was authorizing the latest $30 billion in new loans to the struggling insurer, Gibbs was unresponsive.

You have to be unresponsive - no matter what answer you give, you'll look like a fool.

AIG told everyone last year about these bonus contracts, and the Obama administration did absolutely nothing to remove or restrict them. Acting surprised and shocked at this point isn't going to work.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031600640_pf.html



You have to be unresponsive - no matter what answer you give, you'll look like a fool.

Maybe they expected AIG to have enough presence of mind to take care of such an obscene act themselves. I guess it was too much to expect. :tongue:

Oh, and don't worry, I'm used to looking like a fool. :D

They should give their bonuses and then give them their pink slip afterwords. Thieves!
they should pay them with IOUs that will be paid when the government no longer has a stake in AIG. if that is because AIG goes bankrupt, then they will have to get in line with every other creditor.

Maybe they expected AIG to have enough presence of mind to take care of such an obscene act themselves. I guess it was too much to expect. :tongue:

Expecting anything from the company that with government oversight still drove us into this mess...

http://online.wsj.com/article/SB123725551430050865.html

The politicians also prefer to talk about AIG's latest bonus payments because they deflect attention from Washington's failure to supervise AIG. The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. Said President Obama yesterday, "This is a corporation that finds itself in financial distress due to recklessness and greed." That's true, but Washington doesn't want you to know that various arms of government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a "college" of global bureaucrats.

But what about that supposedly rogue AIG operation in London? Wasn't that outside the reach of federal regulators? Mr. Polakoff called it "a false statement" to say that his agency couldn't regulate the London office.

And his agency wasn't the only federal regulator. AIG's Financial Products unit has been overseen for years by an SEC-approved monitor. And AIG didn't just make disastrous bets on housing using those infamous credit default swaps. AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG's shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency "should have taken an entirely different approach" in regulating the contracts written by AIG's Financial Products unit.

The government at the state and federal level knew all along. I believe that the Feds are doing the bailout so the AIG people will keep their mouths shut.

There's going to come a point where the people are not going to wait for the government to sort this all out and make it right. The people are going to make it right on their own.

There's going to come a point where the people are not going to wait for the government to sort this all out and make it right. The people are going to make it right on their own.

Tea party time? Or tar and feather time?

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/16/AR2009031602961_pf.html


A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all.

"It's a mob effect," one senior executive said. "It's putting people's lives in danger."

Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products' complex trades and who are trying to dismantle the division before it further endangers the world's economy.

"It's going to blow up," said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. "I have a horrible, horrible, horrible feeling that this is going to end badly."

President Obama yesterday vowed to "pursue every legal avenue to block these bonuses." But that pledge might have come too late. About $165 million in retention payments started to go out Friday to employees at Financial Products, after numerous discussions with the Treasury Department and the Federal Reserve.

Attorneys working for the Fed had been examining the matter for months and determined that the retention payments couldn't be touched because AIG would face costly lawsuits and be subject to penalties from states and foreign governments. Administration officials said over the weekend that they agreed with that assessment.

AIG disclosed its retention-payment program more than a year ago, and the amount of the bonuses -- more than $400 million for Financial Products alone -- had been widely reported. But as the payments were coming due in recent days, the White House began to express its indignation.

Pressure on the 370-person Financial Products unit, based primarily in Connecticut and London, grew even more intense yesterday when New York Attorney General Andrew M. Cuomo threatened to issue subpoenas if the company failed to provide details about recipients of the retention payments.

The payments represent only the most contentious of a larger group of bonuses being paid throughout AIG. The company's top seven officials, including chief executive Edward M. Liddy, agreed in November to forgo bonuses through this year.

After a Wednesday call between Liddy and Treasury Secretary Timothy F. Geithner, AIG agreed to restructure payments for the next 43 highest-ranking officers at the company, who are to receive half of their bonuses -- which total $9.6 million -- immediately, one-quarter July 15 and the rest Sept. 15. The last two payments would depend on whether the company makes progress in restructuring its business and paying back taxpayers. In addition, the company is set to pay another $600 million in retention awards to about 4,700 people throughout its global insurance units.

But each dollar remains in question after the president's reprimand yesterday and the deluge of rage from legislators and the American public. Government leaders already say they plan to recoup some of the bonus and retention pay while restructuring the company. In addition, administration officials said that the Treasury is planning to try to recover some of the bonus money by adding provisions to the additional $30 billion it gave AIG access to earlier this month.

The payment plan had been no secret.

Beginning in the first quarter of 2008, AIG disclosed the plan to offer retention awards at Financial Products. The unit had already begun to hemorrhage money, a problem that would later grow exponentially. The unit's executives, fearing they might lose valuable employees in the tumultuous months to come, successfully negotiated more than $400 million for their workers, to be paid this month and again next year.

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.

Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company's collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts. Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.

Law professors agreed with the Fed's assessment but said AIG employees could still agree to reduce their own bonuses.

And the outrage expressed by the president and lawmakers was designed to put pressure on these officers to do just that, the legal experts said.

Jonathan Macey, a professor at Yale Law School, said it was unlikely that any AIG employees would end up suing the company for changing compensation contracts, mainly because their names would be revealed publicly in a lawsuit and they would then be excoriated.

Macey added that the government is caught in a difficult position, squeezed between public outrage over the bonuses and the need to keep AIG Financial Products going so the company can restructure and the government can recoup some of its money.

"What's good for AIG is definitely not good for the country," Macey said. "But now that the government is invested, it may have to do what's good for AIG."

Liddy is scheduled to appear tomorrow in front of a House financial services subcommittee.

However I will agree that AIG is the master of bad image and I don't think Congress is qualified to be the voice of righteous indignation. But there's nobody else unfortunately.

No, well, there's something that could still worsen their image. Like having an ebil m0zlem jihadist as CEO.

No, well, there's something that could still worsen their image. Like having an ebil m0zlem jihadist as CEO.

This just in: AIG announces Osama Bin Laden as its new CEO. It has released the following statement:

"We believe that Osama Bin Laden is capable of drumming up support of our cause and bringing us much cheap expendable labor. We can turn the financial crisis around if we can get people to work for free and then kill themselves when they are no longer useful to us. We will come back and we will be stronger and larger than ever! Jihad!"

There's going to come a point where the people are not going to wait for the government to sort this all out and make it right. The people are going to make it right on their own.

Stephen Colbert is already leading that particular mob.

Looks like Senator Dodd may be in trouble. He put in legislation earlier to protect the bonuses (it's also nice that he gets a lot of money from AIG personally).

Now he's trying to back that out - oops...

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig---time/

Senator Chris Dodd (D-Conn.) on Monday night floated the idea of taxing American International Group (AIG) bonus recipients so the government could recoup the $450 million the company is paying to employees in its financial products unit. Within hours, the idea spread to both houses of Congress, with lawmakers proposing an AIG bonus tax.

While the Senate constructed the $787 billion stimulus last month, Dodd unexpectedly added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009,” which exempts the very AIG bonuses Dodd and others are seeking to tax. The amendment is in the final version and is law.

Also, Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org.

Dodd’s office did not immediately return a request for comment.

You know what gets me? A murderer destroys one life, and harms the family and friends. He goes to prison for life. AIG and their ilk destroyed thousands, millions of lives. Who is the real criminal? And why does everything in this crisis offend my sense of justice? I know they are rich and the murderer is poor, but why can't we, just once, hold true to the values that so many of this country claim to have?

You know what gets me? A murderer destroys one life, and harms the family and friends. He goes to prison for life. AIG and their ilk destroyed thousands, millions of lives. Who is the real criminal? And why does everything in this crisis offend my sense of justice? I know they are rich and the murderer is poor, but why can't we, just once, hold true to the values that so many of this country claim to have?

We would have to send quite a few politicians and government bureaucrats to jail as well.

Since between the senior corporate execs, the politicians, and the government bureaucrats, they're in charge of everything, that leaves no one to send them to jail.

We would have to send quite a few politicians and government bureaucrats to jail as well.

Since between the senior corporate execs, the politicians, and the government bureaucrats, they're in charge of everything, that leaves no one to send them to jail.

Hey, you know what I always say. "That whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness."

You know what gets me? A murderer destroys one life, and harms the family and friends. He goes to prison for life. AIG and their ilk destroyed thousands, millions of lives. Who is the real criminal? And why does everything in this crisis offend my sense of justice? I know they are rich and the murderer is poor, but why can't we, just once, hold true to the values that so many of this country claim to have?
Yes, as through this world I've wandered
I've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

And as through your life you travel,
Yes, as through your life you roam,
You won't never see an outlaw
Drive a family from their home.


woody guthrie

Senator Charles Grassley suggested AIG execs should either resign or commit suicide. You know, one doesn't expect US Senators to recommend offing oneself. :p
I saw that last night. I couldn't quite believe what I'd seen him say. That's certainly one sign that Congress has gone nuts. I would certainly like to see Congressmen hold themselves to the same standards that they want from the financial corps, i.e. no raises and no earmarks while the economy suffers.

http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses/index.html

A special AIG bonus tax.

http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses/index.html

A special AIG bonus tax.
i think that would be wrong. they should get their bonuses if and when AIG is on sound financial footing and the govt is out of it.

I saw that last night. I couldn't quite believe what I'd seen him say. That's certainly one sign that Congress has gone nuts. I would certainly like to see Congressmen hold themselves to the same standards that they want from the financial corps, i.e. no raises and no earmarks while the economy suffers.

No raises I can understand, but earmarks are part of a good Congressman's job.

Tea party time? Or tar and feather time?

I was thinking more "Workers of the world unite, you have nothing to lose but your chains..." time.

Surely there were also performance clauses in these contracts that the company could activate to avoid paying out bonuses? Something about gross negligence or such?

nope. normally the CEOs are in position to write their own contracts.
performance clauses are not favored because it is hard to measure performance as market conditions may make things bad at no fault of the CEO.

No raises I can understand, but earmarks are part of a good Congressman's job.
That's wrong. If they are going to send the message that everyone 'has skin' in this game, then they need to put up, too. Being fiscally responsible applies to everyone. It doesn't mean that Congress should go on with business as usual, while the rest of us get by on less so we can pay the taxes that allow them to splurge.