Sunday, March 15, 2009

"Administration, Lawmakers Turn Up Heat on AIG Over Bonuses"

So went the headline of the article appearing in the VOA website. I am sure 99% of Americans are furious...furious enough to scream "Get the rope, Cookie". So many citizens of the world are suffering do to AIG's egregious business practices. Wimpy congress claims that there is little they can do..."a contract is a contract". That's nonsense. Look what some courts have done to help people that have defaulted on their mortgages...they have broken the contract with the borrower and lender to rewrite an equitable contract.

"Administration, Lawmakers Turn Up Heat on AIG Over Bonuses"


Julia Ritchey

March 15th, 2009


Troubled insurance giant American International Group, or AIG, which has received more than $170 billion in U.S. taxpayer money, will pay $165 million in employee bonuses and retention pay. And while senior administration officials and lawmakers are calling it an outrage, There may be little they can do to stop the pay outs.

U.S. Treasury Secretary Timothy Geithner has been in talks with AIG Chief Executive Edward Liddy to limit the millions of dollars worth of bonuses promised to employees, including some who worked in the financial product unit responsible for bringing the company to the brink of collapse.

In a letter sent Saturday to Secretary Geithner, Liddy argued that while the arrangement was both "distasteful and difficult," the retention bonuses were put in place at the beginning of 2008, before AIG received any bail-out money.

A top economic adviser to President Barack Obama, Lawrence Summers, said Sunday on ABC television although he thinks the compensation is outrageous, AIG is contractually obligated to pay them.

"We are a country of law," said Lawrence Summers. "There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken."

The bonuses and other seemingly corporate excesses are a source of frustration for the Obama administration as it seeks to rescue financial firms while maintaining public support for these efforts. AIG has received more public funds to stay afloat than any other firm, with the government owning an 80-percent stake in the company.

Also appearing on ABC's This Week With George Stephanopoulos program, Republican Mitch McConnell of Kentucky sharply criticized Summers' response, saying other troubled institutions receiving taxpayer dollars will get the idea it is okay to use this money for employee bonuses.

"We all know that contracts are valid in this country, but they need to be looked at," said Mitch McConnell. "Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place. I think it is an outrage."

Seeking to reassure the Treasury Secretary, AIG's Liddy said the company would reduce its bonuses in 2009 by 30 percent. Liddy also said the top 25 executive positions at the financial products division will earn a $1 salary for the rest of 2009.


Timray said...

hmmm....CITI gives Dubai billions....Bank of America billions for Saudi Arabia....all from taxpayers money....seems to me if Obama was more than just business as usual he could put his foot on the whole scandal....however i think he is Bush 2.0.....and dealing us yet another bum's rush...he was against earmarks before he was for them....perfect Washington D.C. logic...(D.C. stands for District of Crooks)

Vicki said...

Let us eat Cake.

P. F. Blogger said...

Here's what needs to happen:

(1) Treat AIG like the small child it is. Hire a babysitter (in form of government professinals) who over looks the spending of bailout money. If it is legit, let them spend the money there... if it's not... DON'T!
(2)Balance their balance sheet for them!
(3) Bonuses are for good companies that see excess profits! If the money isn't there... don't give bonuses!
(4) Don't let them spend a dime more than they need.

Ju said...

AIG = Allowing Irreversible Greed.
AIG = All in Greed.
AIG = Arn't I Greedy.
AIG = A$#holes, in general.

This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the "average joes" taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:

Not to make excuses for these people, but the bailouts are making crooks out of everyone that touches the money.

Mercury said...

Looks like a nerve was struck and rightly so. Anarchy in the streets will not resolve the issue...keep pressing your congress men and women. A laughable quote by Lawrence Summers [Obama's economic adviser] at USA Today..."The easy thing would be to just say ... off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."

Mercury said...

What really is behind the frustration and anger with the AIG bonuses [or "retention" payments]? Is it the $140 million? To some degree it is the money but it is actually a small amount of the total monies spent. The anger is that a handful of people acted recklessly and without moral conscience...that we have a vision of greedy people doing wrong and getting rewarded for their inappropriate activities and in the eyes and minds of the observers it is reprehensible behavior that merits some sort of punishment. We, the cheap suits and blue jeans, pay for our blunders and feel that the high-priced suits must pay too but that is not what we are witnessing and are angered and demand fairness, responsible action, and a sense of moral conscience from those that initiated this economic debacle.

Mercury said...

Recently in "The New Yorker"...

"The A.I.G. Bonuses and Altruistic Punishment"


James Surowiecki

March 18th, 2009

The New Yorker

Rick Newman of U.S. News makes a key point about the rage unleashed by the A.I.G. bonus mess: it's easy to understand. Americans are unsurprisingly angry about the economic chaos of the past year and a half, and certainly there's been no dearth of righteous fury and populist outrage. But it hasn't quite had a good target: yes, people can rail against the banks, but they’re a kind of amorphous villain, and in any case we’re relying on those same banks to get the economy moving again. And yes, there was John Thain, with his eighty-seven-thousand-dollar rug, but those expenditures had happened before Merrill received any bailout money, and in any case he hadn’t been at Merrill Lynch when it had made all of its awful bets. The A.I.G. bonus-getters, by contrast, were responsible for helping run the company into the ground. They are being paid with taxpayer money. And they're getting compensated despite, by all indications, performing badly. The whole thing seems designed to demonstrate Wall Street at its worst: short-term profit being put ahead of the long-term health of the company (that’s why this small division of A.I.G. made these massive bets which put the firm on the hook for hundreds of billions of dollars in losses); pay for not-performance; and a refusal to change even after everything has fallen apart.

It may be true, as Andrew Ross Sorkin has argued, that not paying the bonuses would actually end up hurting taxpayers, either because we'd be setting a precedent that contracts can be easily broken or because we need to keep the A.I.G. employees in-house lest they start trading against the company. (I don’t buy either argument, but I can see the logic behind them.) But I think it's pretty clear that even if the "this will hurt you more than me" argument were true, it would not prevent people from wanting to get the bonuses back. Myriad experiments in behavioral economics have found that people are willing to pay to punish members of a group whom they believe to be shirkers or free-riders. In other words, people are willing to make themselves worse off (they have to pay their own money) in order to ensure that others don't get undeserved rewards. Economists call this "altruistic punishment" (because the punishers are putting the interests of the group ahead of their own interest), and argue that it played an important role in fostering cooperation. So even if people believed that getting the A.I.G. bonuses back would be a net loss for the economy, chances are they'd still want to do it.

To be sure, cutting off your nose to spite your face is generally a bad economic strategy, which is why the legion of bailouts we've made since last September (including paying off A.I.G.'s counterparties) have, for the most part, been necessary. It's been expensive to bail out the banks, but as Lehman Brothers demonstrated, it would have been far more costly to let them go under. But when it comes to the A.I.G. bonuses, the costs of clawing them back are trivial at best, while the public satisfaction at seeing what feels like justice being served will be great. Getting all worked up about this money may not, strictly speaking, be rational, but I think that paradoxically, if some of this money is clawed back, it'll increase the chances that we'll be able to keep dealing with the ongoing crisis in a rational way in the future.