AIG
Maybe this is stupid, but couldn’t the administration just . . . not pay the AIG bonuses? As in, rather than direct Tim Geithner to find a way to not pay them, just order AIG to not pay them. Order first. Let the AIGsters sue. Then while the suit is playing out, have some lawyers somewhere try to come up with a reason why the government’s position is right. It’ll take a while for the suit to play out. Maybe the government will win, and maybe the government will lose. But either way, the administration will have thrown its punch at this outrage for the short-term and we can move on to other things. I think anything less looks like phony war; “oh, we didn’t want to pay, but we just couldn’t find a way out of it.”
UPDATE: Sorry, sorry, the bonuses were actually paid out on Friday. I thought there was just information about their forthcoming payment released on Friday. Maybe Obama could stop the checks? Long story short, it beggars belief that the Obama team was genuinely outraged about this and couldn’t find a way to block the bonuses. Rather, they seem to have let them go ahead underestimating the level of political outrage they would provoke, and now are doing some ass-covering. Which is fine if the impulse leads them to better decisions in the future.
86 Responses to “AIG”
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March 17th, 2009 at 9:48 am
Maybe this is stupid, but couldn’t the administration just . . . not pay the AIG bonuses?
What are you talking about? The government doesn’t sign AIG’s checks.
March 17th, 2009 at 9:50 am
The whole point of the AIG bailout was to pay these bonuses, plus bonuses for everyone on Wall Street who can be paid from posted collateral on the government dime. To suggest simply not paying the bonuses is to suggest not bailing out AIG.
March 17th, 2009 at 9:52 am
Sure that’s one way albiet expensive and perhaps subject, if the case is really that clear in favor of the AIG employees, to summary disposition. I prefer the idea of passing a law creating a high tax rate on bonuses for employees of companies whose stocks are owned predominately by the U.S. government. Basically, that tax would result in return of the bonuses to the government. That way there is no issue of a legal violation of the contract and the money will be returned.
March 17th, 2009 at 9:53 am
They could just withhold a couple of billion from the next $30 billion payment and tell the next counterparty in line for moolah to look for their money from those employees.
March 17th, 2009 at 9:53 am
couldn’t the administration just . . . not pay the AIG bonuses?
In publicly traded companies, even the major shareholders are not allowed to micromanage the decisions of management. At best, the board of directors can remove the CEO in the hopes that the new CEO will pursue better policies.
You’re making the same mistake that the right-wingers are making by assuming that “nationalization” means that the government would be “running” banks.
March 17th, 2009 at 9:56 am
Here is what I think is a credible account of reasons the bonuses should be paid:
G
March 17th, 2009 at 9:57 am
Senator Grassley says you need a Samurai Personnel Director:
http://ballsandwalnuts.com/wp-content/uploads/2006/12/belushi_samurai.jpg
March 17th, 2009 at 9:57 am
So this is the new liberalism–trying to figure out how not to pay a salary that a person is contractually entitled to? Come on, how would you like it if your next pay check was cut in half because the government had a moral objection to how much you were paid? Seriously, much more of this and I’m going to end up voting for Republican nutjobs come next electin.
March 17th, 2009 at 9:59 am
tyro is correct. the idea behind public corporations is a division between ownership and management. i don’t have enough knowledge about the current aig-govt relationship, but it seems like the U.S. is asserting de facto, rather than de jure, control of AIG’s operations (i.e., threaten to withhold funds, force into bankruptcy, public embarassment, etc.).
but even if it weren’t, it’s not exactly clear why manufacturing the legal fight would accomplish anything meaningful. assuming the written contracts exist, it is a clearcut case (notwithstanding the huffpo IRS argument). the only people that would make out well are the attorneys assigned to the case, who would be happy for the litigation work in this economy. also, i heard someone mention that no jury in the world would come out on the AIG execs’ side. lucky for them, jury trials aren’t normally required for civil suits, and this case would probably be decided on summary judgment. politically, there’s nothing special about huffing and puffing and then losing in court after spending (indirectly) millions in attorneys’ fees.
March 17th, 2009 at 10:00 am
Try again on the link. It’s at agonist.org, if this doesn’t work.
link:
end_link
George
March 17th, 2009 at 10:00 am
1) The big problem is that Obama is pissing away $Trillions in taxpayer dollars and has NOT put out a convincing explanation for why he is doing so.
2) So the default explanation –from the Republicans — is that he ran up his big Presidential warchest by whoring for Wall Street. Which –last time I checked — is in a Blue State.
3) All of which enrages the working poor which make up the Middle Class voters of the Red States.
March 17th, 2009 at 10:01 am
The 100% tax solutions that are running around Congress right now are much more likely to be successful. As Tyro says, even though the government owns 80% of AIG, they cannot micromanage these types of issues.
March 17th, 2009 at 10:04 am
Yes, this is stupid. These bonuses are the result of contracts signed with the employees, and the Federal government cannot interfere with those contracts unless they are prepared to compensate the parties.
As for this idea of holding up AIGs money…That too is stupid. Have you ever thought that there is a reason why the Obama administration hasn’t threatened that? Perhaps it has something to do with the fact that they understand the risks of letting AIG go under even better than you do…and they also probably understand that that might represent the final nail in their coffin.
While I’m not terribly happy about AIG giving out these bonuses to ALL of the employees that received them (for many employees these are in essence salaries to get around our idiotic tax code), they’ve got all of us by the balls on this.
Perhaps had we not insisted that all of these financial institutions tanked their investment assets, we probably wouldn’t be having this argument. But so many of you were more interested in “transparency.” Well, here’s your transparency…Get used to it and stop bitching.
March 17th, 2009 at 10:06 am
Oh noes! Surely not that! Say it ain’t so!
March 17th, 2009 at 10:07 am
From DailyKos, Congressman Gary Peters of Michigan in a not-yet-released press, um, ‘release’ (diarist used to be a staffer):
March 17th, 2009 at 10:08 am
Is it possible that Matthew doesn’t understand how a corporation works?
Yes, but that doesn’t make him any different from conservative talking heads, either, when they complain that nationalization would mean that the “federal government would be running banks!” Few people ever get a position as a pundit because they actually have any professional accomplishments.
Unless you’re willing to concede that right-wing talking heads making the same arguments were simply telling “noble lies” in order to head off nationalization.
March 17th, 2009 at 10:09 am
Yeah, and Chuck Grassley saying that these guys should think about killing themselves…That’s rich.
As far as I can see, Chuck Grassley has cost this country far more money for his corrupt support of farming interests. Do you have any idea how much money Americans spent on ethanol since they instituted a minimum additive standard for gasoline?
Hey Chuck, why don’t you think about picking up a gun, putting it to your head, and pulling the trigger, you corrupt SOB.
March 17th, 2009 at 10:12 am
We gave them the money. Now they have it. Hundreds of times the amount of these bonuses. No particular strings attached except equity. So they’re doing what they see fit with it. There is literally no way for the U.S. to stop this except, well except nothing. Because the bonuses are not up for discussion; hey have been paid out. So it’s kinda hard for the U.S. to just “not pay” them.
March 17th, 2009 at 10:13 am
Barney Frank, on Rachel Maddow last night, said that since we (American people) own 80% of the company, he believes we have a legal standing to say no, and he’s looking into this.
He also seems to think the idea of retaining derivative brokers who broke the economy isn’t all that great an idea.
Go Barney.
March 17th, 2009 at 10:15 am
Making them fight it out in court for the bonuses was my first inclination too.
Is it possible that these employees are truly indispensable to successfully unwinding the derivatives?
March 17th, 2009 at 10:24 am
Tyro,
Yes you’re entirely correct corporate law compels a corporation maximize shareholder value regardless of what any shareholder wants. So, even if the government picks the board of directors, derivative action prevents them from placing the governments interests ahead of the corporations.
But you’re ignoring the governments influence as a legislator. Once the government takes control of these corporations the public will expect them to work in the public’s interest. Such is the case with AIG. Nationalization matters in that it provides the public pressure to get legislators to pass laws they could never have passed before. Just look at comment #18 for how this de facto control of management decisions will work.
March 17th, 2009 at 10:26 am
Look, people wanted the government to bailout the financial industry. And, shocker of all shockers, the financial industry took that money and is paying itself bonuses, among other things, and going on trips, among other things.
There was also a lot of concern yesterday about how this money was simply being passed along to counter-parties like Securite Generale and Deutsche Bank. That puzzled me too, since AIG is in the business of making “good” on insurance policies. As a consequence, since its business involves transferring sums of money to insured parties – among other things – what did people think was going to be done with that money?
Stimulus man.
March 17th, 2009 at 10:30 am
“Consumer advocates, former customers and their lawyers gripe that AIG has routinely flouted its obligations under state insurance laws to pay legitimate claims promptly and has abused the legal system in fights with customers who sue.”
“Certainly, AIG isn’t the only target of insurance industry critics, who say problems in claims handling are increasing generally. They point to cases in which courts have found that insurers committed systemic claims-handling abuses or used improper legal tactics to grind down customers who sue.”
“Also last year, the California Supreme Court upheld an $8.5 million award, including $5 million in punitive damages, against Allstate Insurance Co., finding that the Northbrook, Ill., company “exploited its knowledge” of a couple’s “perilous financial condition” to drag out a homeowner’s claim and force a settlement.”
“Claims that do end in litigation, though, are often hard-fought. AIG’s policyholders routinely wage years-long court fights to learn how the insurer handled similar claims and to obtain seemingly mundane claims documents, such as company training manuals for claims handlers.”
“Most of AIG’s squabbles with customers are settled and the terms kept secret. That also happened two years ago when RSR Corp., a Dallas smelting company, settled an environmental claim with an AIG unit and other insurers. “It took 13 years,” says William Brewer, a Dallas lawyer for RSR. “They’re shameless.”"
I don’t see why they have to pay or pay as contract stipulated just because it’s “required by contract.” Having helped self-representing litigants suing insurance company for in coverage “bad faith” disputes, I come to view such behaviors as calculated businesses model. That enough people get discouraged, or settle for penny on the dollars, the occasional losing cases, punitive damages, and attorneys fee are just a cost of doing business to generate profit/reduce lose.
Since the taxpayers are now shareholders, management have the same duty to make/save money for taxpayers, I am expecting no less from AIG management. How many AIG executive can hold out for 13 years hopping for a winning pay out after losing their job? May it’s in their own interest to give up the bonus in order to keep their job.
If you are a juror, would you vote on the side of those guys?
March 17th, 2009 at 10:33 am
Now that we know who AIG is paying the money we give them, ie Societe General, CitiBank, Bank of America, etc., why shouldn’t the government just bypass AIG and pay these companies itself. Fire the whole lot at AIG, nationalize it, whatever you want to call it, and pay out the requirements of these credit default swaps. It seems the only thing being accomplished by giving money to AIG, who turns over the money to the banks it owes money to, is that AIG gets to skim some off the top for their execs
March 17th, 2009 at 10:34 am
Joe,
The problem is that very few people understand this…So the fall-back position is this stupid populism. It’s bad enough to read it in forums like this…It’s even more dangerous when the politicians start jumping on board.
There are two things to get out of the AIG situation:
1. We’re not letting AIG go under because that would make things a lot worse.
2. The USG is not in the business of invalidating legitimate contract either through political pressure or ex post facto laws.
The good news for everyone should be that the FASB is taking another look at mark to market. While I know that some of you (including Barney Frank) are going to be disappointed, the reality is that the changes will probably make it a lot easier to get AIG off of the dole.
March 17th, 2009 at 10:34 am
Also, isn’t this sentiment:
Order first. Let the AIGsters sue.
Sort of like the liberal equivalent of whatever it was the Bush administration was doing when it was making various claims about its legal authority.
Now, of course, what we’re not talking about here is waterboard first, ask whether it’s legal later. True that. That’s because liberals never torture. Still…
March 17th, 2009 at 10:38 am
The most convincing evidence that Obama wasn’t sincere about blocking the bonuses is that he assigned it to Timothy Geithner. If he wanted to use “all legal means” to block or recover the bonuses, why didn’t he call on his Attorney General?
I think Obama is committing political suicide here. He seems to be letting Geithner go out front as the point man, so in the end the administration can blame Geithner for any failures. This is weak. Obama himself should be leading the charge. Historical precedents abound. He needs to look strong here; no, he needs to be strong. Bitching about the bonuses won’t cut it.
Personally, I think the root of the problem is Lawrence Summers. The man doesn’t understand the emotional side of either economics or governance.
March 17th, 2009 at 10:38 am
This matter will not be resolved until “The Girls of AIG” becomes a Playboy spread.
March 17th, 2009 at 10:39 am
“In publicly traded companies, even the major shareholders are not allowed to micromanage the decisions of management.”
Shareholders of publicly traded companies have the right to sue management for squandering corporate assets. The United States is the majority shareholder. Corporate management rarely or never acts against the interests of a majority shareholder, not merely because they fear being fired but because they fear being sued.
The idea that there are contracts and so there’s nothing that can be done is completely at odds with the way that corrporate business is normally conducted. The strong appearance is that the fix is in.
March 17th, 2009 at 10:42 am
I’m getting pretty tired of any arguments relating to the wise and fair use of public money being “populism”.
That’s getting to be one of those terms like ‘fringe’, ‘extremist’, ‘partisan’, ‘ideologue’, ‘hard-liner’, which only applies to anyone paying attention to the perspectives of the non-ultra-rich.
March 17th, 2009 at 10:45 am
Larry G,
The reason he didn’t assign this to his attorney general is because he understands the constitution well enough to know that the government doesn’t have the power to invalidate these contracts.
As for committing political suicide, letting AIG go under is political suicide. This too shall pass…especially at FASB 157 gets re-written (I’ll look forward to my fans in the forums telling me I was right).
Finally, on Summers. What the hell is the emotional side of economics? Is that like the emotional side of math? What Summers doesn’t understand is the financial system…Geithner does. What we need is Geithner in charge, not Summers.
March 17th, 2009 at 10:45 am
Ed, good points. That said, I’m not sure about: “2. The USG is not in the business of invalidating legitimate contract either through political pressure or ex post facto laws.”
First, the principle of ex post facto applies to criminal law, not civil procress. Second, this isn’t really even ex post facto, but a quid pro quo: we bail you out (or continue to bail you out) and in exchange, you don’t pay bonuses. You’re free to not alter the bonuses, but you don’t get the money. Whatever the wisdom of that proposal, it doesn’t seem to violate the principle of ex post facto.
Third, the government can order companies to alter contract terms when the bank or insurance company declares insolvency. It can even alter the terms of the insolvency code to affect already existing contracts in future bankruptcy cases. The fact that government can do this is not controversial. Again, the wisdom of government doing that is another matter.
The same goes under regular bankruptcy code. Anytime anyone enters bankruptcy, they are seeking a government order to change the terms of pre-existing debt obligations.
March 17th, 2009 at 10:48 am
I think Obama is committing political suicide here. He seems to be letting Geithner go out front as the point man, so in the end the administration can blame Geithner for any failures. This is weak. Obama himself should be leading the charge. Historical precedents abound. He needs to look strong here; no, he needs to be strong. Bitching about the bonuses won’t cut it.
I just don’t buy this. Geithner and Summers have learned some things – the crisis is a “teachable moment” and they take orders from Obama. This argument is coming from people who were against Obama during the Democratic primary and consider themselves to be heroically pressuring Obama from the left. Obama has done a number of things these people should be grateful for but do you hear a peep of acknowledgement from this quarter? No.
Someone said yesterday that the government could let AIG go bankrupt if it wanted to and a bankruptcy judge could then legally negate the bonuses. So conservative trolls should shut the hell up.
As Elizabeth Warren has said these too-big-to-fail financial institutions have us in a hostage situation. Pay up or they bring down the economy.
March 17th, 2009 at 10:49 am
El Cid,
Trying to invalidate a contract when the legal authority doesn’t exist is populism. It’s purely to satisfy the emotional needs of people…It’s not a real solution. Think of it however you want, but that’s the reality.
As for wise and fair use of public money…Either you give AIG the money or you don’t…If you don’t, they tank and things get much worse. If you do, you have to deal with people whining about, “it’s not fair.” Take your pick.
The reality is that if the government can get its shit together and properly manage this situation, the taxpayers will get their money back and then some.
March 17th, 2009 at 10:50 am
Derivative lawsuits are the way to go.
March 17th, 2009 at 10:52 am
Joe,
Many thanks for the correction, I’m not a lawyer…and perhaps you can correct me on number 2.
What I meant was that the government can’t come in and create a law that retroactively invalidates a legal contract. I thought that was ex post facto…I was incorrect.
As for the insolvency argument. The point is that we don’t want them to go bankrupt…That’s what’s putting everyone in a bind of how to respond.
March 17th, 2009 at 10:53 am
So what I’m gathering here, the main problem is the US Government is tied down by actually following the law, meanwhile AIG will keep trying to find every way to break the law (or at least spirit of laws, via loop holes.)
Oh, and Geithner really doesn’t care about AIG bonuses.
March 17th, 2009 at 10:53 am
I’m sorry, but all this talk about “contractual obligation” is just ridiculous. First of all, I would think that with all the money that AIG had going in and out of that firm that they had at least semi-competent lawyers to draft these contracts. I’m sure that there is some sort of failsafe clause in these workers contracts. I work for a law firm that handles a lot of banks, insurance companies, etc, and I’m SURE of that fact. The company having NO money of their own would definitely qualify as a circumstance under which voiding a contract in whole or in part is legally sound.
This is why AIG and the failing banks should have been placed in some kind of conservatorship or hybrid, individualized bankruptcy. What we have now is the worst of both worlds. Not only are we sinking boat loads of cash into these institutions, we – in effect, have essentially NO control over what they do with this money. At least if we are going to own upwards of 80% of a company, let’s actually, you know, OWN it.
My vote for all these failing companies: Conservatorship for those with a real chance at survival/hybrid individualized bankruptcy for those who don’t. Break the companies into smaller companies who are not “too big to fail”. Conduct a outside run full review of all upper level management through executive level employees for criminal or shitty job performance and fire those who were/are bad at their job and prosecute the criminals. Review company documents to see if there was anyone sounding the alarm bells and put him/her in as CEO.
March 17th, 2009 at 10:59 am
Funny how all the conservatives squawking about “sanctity of contract” were silent back when middle-class auto workers were being asked to take massive pay and benefit cuts. Oh, wait, they were the ones advocating that.
This thread proves that conservatives like Ed Smithe care nothing for principle. They are simply apologists for the malefactors of great wealth.
March 17th, 2009 at 10:59 am
Rather, they seem to have let them go ahead underestimating the level of political outrage they would provoke, and now are doing some ass-covering.
Well of course.
March 17th, 2009 at 11:01 am
Adrienne,
Spoken like a lawyer. You can’t place AIG in a situation like that because of the amount of money that’s tied up in their insurance policies. If you did that, then nearly every financial institution would have to shut its doors and figure out just what assets were tied to AIG…because now those assets are at greater risk of default. That effectively shuts down the entire financial system for days and makes doing business with anyone who has any exposure to AIG that much more expensive.
Moreover, from what I understand, another reason why AIG is kept afloat is because of the European institutions that would have gone bankrupt along with them. Tanking Europe (or what’s left of it), is an even worse idea.
You’re idea might work well in a room full of lawyers…But it doesn’t work from any practical standpoint.
March 17th, 2009 at 11:02 am
Ed Smithe: This nonsense about ‘voiding contracts’ — yeah, you’re dealing with a lot of people who don’t know contract law and are expressing things which wouldn’t practically work.
But so what?
What’s important is the same core any expert could get out, and many experts have written on a variety of ways that bonus canceling / taxing / etc could be done.
For example, above and beyond taxing, here’s a proposal from, among others, William Black, economist, professor, former S&L regulator:
Do I know whether or not this would work? No. Yet this isn’t undesirable populism — it’s a sensible policy goal being debated by both experts in the field and by non-experts elsewhere because that’s what you do on a blog, and it’s okay.
I’m starting to think this is another occasion on which a lot of people are much more exercised about the rights and privileges of some very, very wealthy people than any other public good.
March 17th, 2009 at 11:05 am
Josh,
If only I had great wealth…
That’s just a stupid comment. If the autoworkers don’t want to renegotiate their contracts, that’s just fine with me. Just don’t ask me to BAIL THEM OUT.
I don’t care if the auto companies go bankrupt, that doesn’t amount to a hill of beans.
AIG on the other hand going bankrupt is a financial calamity. That’s why your boy Obama isn’t threatening that, because he (rightly) realizes how incredibly dangerous that would be.
As to these workers contracts. By all means, go to them and ask them to renegotiate, they’ll tell you no…WHAT ARE YOU GOING TO DO ABOUT IT?
So no, you’re completely wrong about my principles. I’m 100% consistent.
March 17th, 2009 at 11:10 am
Since when does the left ignore the law. You’ve got millions of lawyers out there that give you guys money…
Don’t you think that Obama has already thought through this before he opened his mouth. There’s no such thing as the “sanctity of a contract.” The contract is either valid or its not. In this case (as in the case of the auto companies for Josh) these are valid contracts. The feds can’t just come in and invalidate them unless they are prepared to justly compensate both parties. THAT’S THE LAW.
If you want to get them to renegotiate, good luck. We have no leverage because the administration needs them more than they need the administration. That’s called reality.
March 17th, 2009 at 11:14 am
Right-wing toady Ed Smithe: “If the autoworkers don’t want to renegotiate their contracts, that’s just fine with me. Just don’t ask me to BAIL THEM OUT.”
My response: If the AIG executives don’t want to renegotiate their contracts, fine; just don’t ask me to bail them out.
I don’t care if French and German banks get paid their counterclaims or not. We never promised to pay these unregulated credit default swaps with the full faith and credit of the U.S. government. If there are American counterparties who desperately need the money and whose failure would cause genuine social harm, then the government can compensate those counterparties on a case-by-case basis. The rest of the gamblers can go to hell and eat their losses.
You don’t get it, for the same reason that Tim Geithner and Larry Summers don’t get it. Most economists are at best high-functioning autistics and at worst sociopaths. They don’t understand the public outrage. To them, “efficiency” is king, and saying that doing something else might shave a point off of GDP is a show-stopper argument.
To normal people, however, there are values higher than economic efficiency. Values like fairness and justice. To the average American, these bonuses are morally and ethically repugnant. To the average American, it is wrong and unacceptable for the people who got us into this mess to continue to receive massive bonus payments that are more than most of us see in a decade, if not a lifetime. Most of us are willing to sacrifice if it means that these sociopathic criminals are brought to justice.
March 17th, 2009 at 11:17 am
Oh, oh, I’m sorry, I didn’t get it, before — this is all about conservatives’ well-known and inviolable respect for the rule of law and the rights of the individual citizen, which the Government must never Violate.
March 17th, 2009 at 11:19 am
Ed Smithe:
AIG on the other hand going bankrupt is a financial calamity. That’s why your boy Obama isn’t threatening that, because he (rightly) realizes how incredibly dangerous that would be.
Your boys George Bush, Greenspan, Phil Gramm, etc. and their anti-regulation mania put us in this situation. Free market Reaganomics has taken a body blow.
Once the economy is fixed, too-big-to-fail financial insitutions should be bent over and regulated up the butt by the government on a regular basis or we’ll find ourselves in another hostage situation. Even conservative Bernanke is for a superregulator.
March 17th, 2009 at 11:19 am
Josh,
That’s fine. Don’t bail them out. And when they go belly up and drag the rest of the economy (and Europe with them), don’t bitch when you get some fool Republican and a Republican congress doing what Obama did in his first 100 days.
If you’re prepared to live with those consequences fine. As for me…As much as I’m a conservative, I would like to see the current President do the right thing and save us the pain.
March 17th, 2009 at 11:22 am
Now doesn’t that sound eerily similar to my suggestion above?
Who’s advocating ignoring the law? There are NUMEROUS legal ways for a company to get out of its contracts/trigger renegotiation of said contracts. One of them is if THE COMPANY DOESN’T HAVE ANY FUCKING MONEY OF THEIR OWN. AIG is not paying bonuses with their money, they are paying bonuses with OUR money. We own 80 PERCENT OF THE COMPANY. What you saying is the equivalent of owning 80% of a house but not having any say over what what happens in it. Are you crazy? AIG is nothing but a nearly wholly owned subsidiary of the U.S. Treasury Department.
March 17th, 2009 at 11:25 am
El Cid,
Yes, some of us (on the right and the left) still believe in the rule of law. I’m sorry that you find that so difficult to believe.
Peter K,
I’ve debated this point a million times. This is not all the fault of the Republicans. The Republicans (as a whole) didn’t support Fan and Fred…Those are two problems which folks on this forum are pathologically incapable of accepting. Moreover, the Republicans (as a whole) didn’t support FASB 157 (which BTW is being rethought by the Democrats).
So, while I agree that the previous administration (and people like Phil Gramm) have culpability…Your excusing democrats just demonstrates your bias.
As for regulation, no intelligent person is disagreeing with the idea of regulations. What you guys seem to miss is that we need smart regulations which is a combination of new regulations, revising old regulations, and getting rid of dated (or stupid) regulations.
March 17th, 2009 at 11:27 am
Adrienne,
Now you’re not sounding like a lawyer…Just what does treasury own? Do they own stock that entitles them to voting rights? So who cares what percentage of the shares they own when they can’t influence the board.
March 17th, 2009 at 11:31 am
So the right thing is to stand there and get sucker punched by the kid you just gave 170 BILLION DOLLARS and then turn around and keep giving it MORE money while they laugh in your face and tell you to go Cheney yourself? Hell. To. The. Naw. If AIG is not going to do what we tell them to do then FUCK AIG. Put them in a conservatorship, wind them down, break it up, void the executive’s contracts and keep it moving. The current bailout system, where we don’t nationalize but infuse massive amounts of capital with the stated understanding that the Companies will only use said cash in certain ways, only works if BOTH parties act in good faith. AIG is NOT holding it’s end of the bargain and is NOT acting in good faith to abide by the standards set forth. They are, in effect, talking about the sanctity of contracts to pay their bonuses while simultaneously stomping over their contract with the U.S. taxpayer. SCREW THEM WITH A RUSTY NAIL.
I’m sorry, but they need to do the right thing too. I’m am SO sick of people like you talking about the “right thing to do” Since WHEN is the right thing to do paying out bonuses to people who SUCK AT THEIR JOBS? If I perform poorly at my job or the COMPANY performs poorly, I don’t get a bonus. If I perform at the level of suckitude they did, I’d have been fired. That’s in my contract. Apparently their contracts are a little different.
March 17th, 2009 at 11:34 am
If a run-of-the-mill extortionist or kidnapper demands $10,000, we as a society are willing to spend a lot more than that in law enforcement costs to apprehend them, and then tens of thousands more per year to keep them locked up in prison. I don’t see why this is different, except for the magnitude of the offenses. It might be cheaper and easier to let them off the hook, just like it might be cheaper and easier to just give the kidnapper his ransom and let him escape.
It would also be morally wrong.
March 17th, 2009 at 11:35 am
Yes, Matt
“...it beggars belief that the Obama team was genuinely outraged about this and couldn’t find a way to block the bonuses.”
I am and have been for two years a huge Obama fan — but this incident worries me greatly. It just has to be taken in by BHO as a major learning moment — he got schooled, the same way JKK got schooled by the military in the Bay of Pigs fiasco. Fortunately, this has not been a huge international test but a domestic one, and one with perhaps more symbolic/cultural value than economic value. But as such it is crucial that he learn. BHO needs to ask for Liddy’s resignation. BHO likes to think of himself as Lincoln. Well Liddy is like one of those early generals who would not fight. He needs to replace him.
March 17th, 2009 at 11:36 am
Adrienne,
I don’t know about you, but your “right thing” would probably cost a lot of people their jobs…and could very well plunge us into a depression. And for what? So you can feel good about sticking it to a small bunch of assholes?
I’m sorry, when faced with a bad and worse decision, I take the bad. Why? Because it’s the moral thing to do. 130 or 150 million dollars is chump change compared to the amount of damage that letting AIG go under would do to millions of people.
I admire you’re idealism, but you’ve got to learn that life isn’t fair, and sometimes (perhaps more often than not) good people like yourself get screwed.
March 17th, 2009 at 11:38 am
That’s half my point. We gave them $170 Billion dollars and “own” 80% of the company but have no power and no say. That’s why I said the company needed to be put into a conservatorship type relationship where if we are going to pump that much of our money into the shit-hole that is AIG they need be accountable to US for what they do with that money. PERIOD. Like I said, right now, we have the worst of both worlds and the best of none. They get to stay in business and even pay bonuses, all with $170 BILLION in taxpayer dollars representing 80% of their worth, while telling the taxpayers who are bankrolling the operation to go Cheney themselves? AND we aren’t supposed to say/do anything? Sorry. No. Deal.
March 17th, 2009 at 11:42 am
YOU seem to be mistaken as to what the choices are. It is not a choice between simply 1) don’t give them anything and watch them fail or 2) Give them any and everything they could ever ask for and bend over and take our anal rape with a corroded pipe because we have to let them do whatever they please. There is another option on the table which seems to be ignored/not recognized by you and treated as the third rail by politicians. Some sort of nationalization/conservatorship/organized, individualized hybridized bankruptcy IS out there. Right now, that’s the choice I’m pushing.
March 17th, 2009 at 11:42 am
Adrienne,
Per the above. You’re going to have to explain to millions of Americans why it was better to make sure that a 1000 people didn’t get bonuses than to keep our economy afloat. That’s a real-world decision…and it’s clear that the President understands that.
March 17th, 2009 at 11:46 am
This reminds me why I’m glad that the House Democrats only delivered enough Democratic votes on the original Bush / Bernanke / Paulson bailout ransom note so that House Republicans had to vote with it, thus the first vote’s failure.
If Democrats continue to be both this morally, legally, and politically stupid, in addition to doing the wrong thing they’re just throwing down rescue lines to water-treading Republicans.
March 17th, 2009 at 11:47 am
No Adrienne, that’s not some radically different choice.
How are you going to get to that arrangement? Either you negotiate it or you let them fail. They don’t seem to be in any mood to negotiate, so you’ve got to let them fail. When they fail, what happens to their contracts? Above, you said you’d renegotiate them? Really? How do you plan on doing that?
You’re not thinking through this from a financial perspective. You’re thinking through it from a legal perspective. That’s what the folks on the accounting board did when they set up FASB 157. Look how well that worked out.
March 17th, 2009 at 11:50 am
El Cid,
The democrats could have avoided all of this if they had immediately rethought mark to market. They didn’t, so now they own it (the polls are playing this out).
I told you guys that this was coming…and you told me that I was crazy. Now you’re starting to feel the heat for your “principles” and your scrambling.
I’d like to see Obama fix things…But to fix things he’s going to have to start living in the real world. The U.S. is not some Chicago fiefdom where he can take care of his constituents at the detriment of everyone else. He’s slowly beginning to learn that, which is why their working with the accounting board.
March 17th, 2009 at 11:52 am
Yeah, this is sure going to help the economy:
Senator Chris Dodd (D-Conn.) on Monday night floated the idea of taxing American International Group (AIG: 0.9662, 0.1861, 23.86%) 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.
One of AIG Financial Products’ largest offices is based in Connecticut.”
Congress fiddles while Rome burns.
March 17th, 2009 at 12:15 pm
Ed Smithe,
You’re just wrong about Fannie and Freddie. As has been gone over a million times. Some ideologically-free, curious high school student – say – who hasn’t chosen a team yet can EASILY look it up on the Internets. And since you’re wrong about this, it taints your other GOP talking points. You make this hypothetical kid more and more suspicious.
Ed:
The democrats could have avoided all of this if they had immediately rethought mark to market. They didn’t, so now they own it (the polls are playing this out).
Floyd Norris:
http://www.nytimes.com/2009/03/13/business/economy/13norris.html?_r=1
If mark-to-market accounting is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina; if it hadn’t told us the hurricane hit New Orleans, the city would never have flooded.
This is the logic the bankers are using, and they are getting sympathetic ears in Congress. The bankers have gotten two members of Congress to introduce a bill to establish a new body that could suspend accounting rules for financial institutions.
Edward L. Yingling, the president of the American Bankers Association, says the proposal addresses “systemic risks that accounting standards can have on the economy.”
Steve Forbes, the publisher and erstwhile presidential candidate, goes even further. “Mark-to-market accounting is the principal reason why our financial system is in a meltdown,” he wrote in a Wall Street Journal op-ed piece.
They say the problem, in short, is not that the banks acted irresponsibly in creating financial instruments that blew up, or in making loans that could never be repaid. It is that someone is forcing them to fess up. If only the banks could pretend the assets were valuable, then the system would be safe.
—–
I thought conservatives were about taking personal responsibility and owning up to mistakes in an honorable way instead of pointing fingers and making excuses. Clinton was basically Republican-lite for 8 years, then we had Bush for 8 years, with a Republican Congress. We are living with the consequences.
March 17th, 2009 at 12:19 pm
This is tangential to the thread, so sorry in advance.
It really disturbs me to see ‘populism’ used to connote ignorance. It’s really not a stretch to understand that some would like to see the banking system stabilized, and at the same time not generously reward the architects of the global crash.
I’m sure there is creativity to spare in the entire US government to engineer this. Apparently, there is neither political foresight nor will.
For or against bonuses, don’t make the workingman out to be an idiot. After the last eight years, he is familiar enough with con games, and may know one when he smells it’s elitist stink.
populism
populism. (n.d.). The American Heritage® New Dictionary of Cultural Literacy, Third Edition.
March 17th, 2009 at 12:25 pm
Is that a great idea? No it’s not. It’s with good reason that we normally prefer our business enterprises to be neither owned by the state nor dependent on state subsidy to continue existing. But given that we’re choosing between those two options, I don’t see much to like about the dependent on state subsidy path.
So, what? Nationalizing (or whatever else) something that we already nearly 80% of will sink the economy? Really? I’m not convinced. Making sure that the people who are financing this sinkhole otherwise know as AIG aren’t subject to being told to fuck off by such sinkhole will be the last nail in the coffin? I majored, at a very reputable University, in FINANCE AND ECONOMICS so your seemingly amateur analysis doesn’t scare me. So, please stop with the false equivalency that holding AIG accountable for what they do with OUR money is going to signal the end of democracy as we know it.
March 17th, 2009 at 12:26 pm
I was in such a rush that I forget to blockquote the first paragraph – it’s from Matt in a more recent post.
AND, WTF. I typed my own damn name wrong too! LOL
March 17th, 2009 at 12:30 pm
Here is a general outline of what the bonuses were announcing. The Pigmen own the Treasury and the President.
March 17th, 2009 at 12:35 pm
Bankruptcy court is made for JUST such a thing. Imagine that huh? A court made specifically to help unwind troubled companies having the power to actually do so. Gasp! How SHOCKING!!!
Basically, they can renegotiate their contracts in the same fashion that the Republicans used to screw the unions during the auto-bailout. Why is it that, for Republicans, it’s ok for the government to push companies to renegotiate Union contracts when the company is in trouble but somehow it’s the end of capitalism as we know it to renegotiate the contracts of INDIVIDUALS who SUCK at their jobs? We aren’t talking about the secretaries or the little guys. We are talking about bonuses paid to the EXECUTIVES and the very derivatives traders who engineered the meltdown.
And, before you get your panties in a bunch, I overwhelmingly supported drastically cutting the salaries/bonuses of the EXECUTIVES of the failed auto companies because it is THEY who ran the companies into the ground. My stance here is always consistent. I don’t believe in punishing the little guys who were just doing their jobs, reporting and pushing papers. But, the assholes at the top? Off. With. Their. Heads.
March 17th, 2009 at 12:35 pm
I WOULD JUST BLAME IT ON MANBEARPIG
March 17th, 2009 at 1:00 pm
Adrienne,
Your arguments are making no sense. And per you education…I really can’t believe that you went down that road. How much experience do you have in the financial sector? Oh, none? But you have a degree, well I guess your learnedness on this subject puts you at odds with not only this administration, but the previous administration as well. And do you know why that is…that you disagree on something that those two radically different administrations apparently agree on? Because they’ve got people that have done this for more years than you’ve probably been alive telling them that letting AIG go under would be a catastrophe.
In addition, you have no answers for what to do after you dump AIG…Just what are these multitude of financial institutions supposed to do with all of the assets that are insured by AIG? Not only do you not have an answer for that, the administration, the institutions, and the economy don’t have an answer for it either. Have you bothered to notice what happens when people don’t know what the fuck is happening in the economy? Chaos. Do you really want more chaos right now? If so, then you’re not serious.
As for your bankruptcy court idea…You have no answer as to how to get AIG into bankruptcy court, unless of course you want to tank the economy first. That’s fine to believe since you’re not in a position of power, but I thought that this was supposed to be a real debate and not a discussion completely devoid of reality.
As for the auto companies, you seem to forget that all things are not equal. When an auto company goes under, it doesn’t tank the US and the European economy…Oh but you know better than the folks on Wall Street, Washington, Brussels, the UK and Berlin. Because you had a BA in finance right?
What a joke. Lawyers dictating what to do in the financial sector…Don’t you realize that’s how we got into this mess in the first place?
March 17th, 2009 at 1:04 pm
Ed Smithe: you miss the point. The point is that government doesn’t want AIG etc. to collapse. The point is NOT that government wants AIG to proceed as if nothing has happened whatsover.
So whether AIG formally declares insolvency, and subjects itself to the banking and insurance insolvency code provisions, or whether it “merely” asks for a hundred billion in money so that it can continue operations, it makes no sense to claim that “government has no power to abrogate contracts”. Government can and does abrogate and modify contractual obligations all of the time. In fact, it is the reason why we have a bankruptcy code, because people and companies need, on occasion, to escape contractual obligations in order to reorganize or liquidate.
So people can claim that is a new day in America where government is ordering a company not to modify contracts “ex post”, but of course, that means they’ve never heard of the Bankruptcy Code.
March 17th, 2009 at 1:28 pm
“Maybe this is stupid, but couldn’t the administration just . . . not pay the AIG bonuses? As in, rather than direct Tim Geithner to find a way to not pay them, just order AIG to not pay them.”
Yes, this is stupid. You are asking the government to break a contract, violate its word, not respect either rule of law or sanctity of contract. What difference is there then between the United States and Zimbabwe? People advocating your position ought to think REALLY HARD about what it means once a government starts breaking contracts nilly willy, once there is no rule of law in the country, which is pretty much what you are suggesting. Do you really want that – a country with no respect for rule of law?
March 17th, 2009 at 1:49 pm
What difference is there then between the United States and Zimbabwe?
Jen, according to Rep. Clyburn, that statement is racist. I denounce you.
March 17th, 2009 at 1:50 pm
The point of the bailout was to help stabilize the financial system by making AIG into a profitable concern going forward. That way the taxpayers will get their money back. The question is, is refusing to pay those bonuses going to make that easier or more difficult?
AIG’s senior management was already fired, so we’re talking about people lower down on the corporate ladder—Assistant Deputy Vice Presidents and middle management. The pros and cons of refusing to pay those people bonuses are:
Pros: Refusing to pay would save a small amount of money (relative to the size of the bailout).
Cons: Refusing to pay would create a lot of disgruntled and angry employees—not a good thing for any business. It would provoke a bunch of lawsuits against the company, which they’d have to hire lawyers to defend. They would probably lose, forcing them to pay the bonuses anyway. Refusing to pay would also make it more difficult to attract good people going forward, and no company needs good employees more than one in distress.
I can’t see how refusing to pay would help make AIG solvent again. If anything, it would reduce the chance that the taxpayers will ever get our money back.
March 17th, 2009 at 2:25 pm
I can’t see how refusing to pay would help make AIG solvent again. If anything, it would reduce the chance that the taxpayers will ever get our money back.
It would address the moral hazard of the situation. Reckless executives might give a second thought about making reckless bets next time. It would increase the chance of this happening from around 1% to 2%.
I agree with Dean Baker: sell off the division of AIG at fault and send it to bankruptcy court where a judge would invalidate the contracts. It could be done. As an Obamabot with Obamamania I feel this has become a hugely symbolic conflict even though the money involved is one tenth of one percent of the bailout money. Still it’s a lot of money for each individual taxpayer.
Refusing to pay would also make it more difficult to attract good people going forward, and no company needs good employees more than one in distress.
They were attracting “good” people before compensation entered the discussion? You have your priorities screwed up.
March 17th, 2009 at 3:00 pm
I agree there’s a moral hazard issue here. But anyone for whom this presents a genuine moral hazard issue (rather than their just having been a good employee at a badly run company) ought to be out of a job. If those people are still around then the bonus issue is small potatoes compared to that. But instead the demand here is that everyone ought to be punished, competent and incompetent alike.
I’m sure they had lots of good executives, including the ones who ran all the other divisions. There were probably some in the division that collapsed too. The issue is how to attract new good employees going forward to replace the incompetent ones who have been fired, and to retain the competent people they do have.
March 17th, 2009 at 4:09 pm
We are talking about bonuses paid to the EXECUTIVES and the very derivatives traders who engineered the meltdown.
It is interesting that although that belief is entirely speculative it is treated as fact.
In March 2008 AIG recognized it had a problem with credit derivatives and the unit’s head, Joe Cassano. Cassano was pushed aside. Many employees thought about quitting since bonuses based on income were not going to be forthcoming in 2008. Oh, yeah – about $800 million of deferred comp from prior years was wiped out, too, but that gets less attention.
In an attempt to keep their other, profitable lines of business going and assure an orderly liquidation of the credit derivatives activity AIG offered the now-controversial retention bonuses. Had they known in March 2008 that they would be entering de facto receivership and exiting the derivatives business I assume they (and the employees) would have made different choices.
But at the time the firm was eager to clean up the Cassano mess and keep people (most of whom were involved in activities other than credit derivatives and some of whom loathed Cassano) together to move the unit forward. Had things played out differently, this might have been a very profitable group again in a few years.
Instead, the people who stayed are all the worst kind of criminals, at least in the eyes of people who know nothing about it.
March 17th, 2009 at 6:54 pm
Obama is president on a constitutional republic, not an absolute monarch. L’etat ce n’est pas lui. He can’t just issue an edict forbidding bonuses. Now, should he have rousted Conferess in the middel of the night to pass a quickie law against these bonuses? Maybe. Though that sounds a little like what the GOP did in the Rerri Schiavo case.
Though it would be nice to see a law proposed dealing with the general case of this sort of thing. It would be esoecially nice to see the GOP squirm between the rock of faux populism and the hard place of free market rhetoric.
March 17th, 2009 at 10:24 pm
# George Says:
March 17th, 2009 at 10:00 am
Try again on the link. It’s at agonist.org, if this doesn’t work.
Good link. It provides a more complete picture of the AIG situation although it did not convince me that these retention bonuses are deserved.
March 19th, 2009 at 11:09 pm
I’ve never given this a try, but I think it’s about time I do.
March 25th, 2009 at 5:44 pm
I have been hearing about AIG “winding down.” What does this mean for the stock? AIG will live, but without its financial products? Do you think the stock will go up, down, or other?