AIG to Pay Out $100 Million in Bonuses

[cinyc]

If the government didn't give them the money, it wouldn't be there to pay the bonuses.

Now, I don't like the government changing the terms of a valid contract, but, how is it that legislation can change the terms of mortgages but not bonuses for A.I.G. execs?

Next time A.I.G. comes for its next funding from the taxpayers, the message should be what it originally have been - not only NO, but HELL NO!!!

Nice theory, except the legislation didn't say that.   And AIG didn't declare bankruptcy, so, it (or its new shareholder, the U.S. government) can't just pick and choose which contracts it wants to honor and which it doesn't.

Any legislation that unilaterally and retroactively changes the terms of a contract is a very bad idea in the long term - it undermines the rule of law and basically abrogates the right to contract if politicians can just step in and change them anyway.

The media seems to be fixated on the word "bonus", when what's being paid is really contractually obligated deferred compensation.  Banks often chose to compensate their employees with a low base salary and (potentially) higher deferred merit-based compensation near year's end.

[cinyc]

Excuse me, but a few corrections are in order:

First, the legislation I discussed with regard to mortgages does state that judges can change the  terms of the contract.

Second, I never alledged that AIG had filed for bankruptcy.  So, what's your comment about "AIG didn't declare bankruptcy"?

Third, while I previously noted that I do not like the government changing the terms of a contract, however, the government should make any further aid contingent upon superseding such bonus contracts.  Hence, acceptance of the taxpayer money would be voluntary and eliminate the terms of preceding contracts in contradiction of the most recent contract.

Fourth, I have no problem with either true deferred compensation (largely set up for tax reasons) or bonuses for positive performance.  However, I do have problems with bonuses for negative performance. 

First, I was talking about the AIG bailout, not any mortgage bill.   

Second, my point about AIG not declaring bankruptcy is that because AIG didn't, the federal government is no different than any other shareholder who came in and bought a large stake in the company.  It took the company as it bought it, contracts and all.   That the government doesn't like certain compensation contracts means that they can fire the employees subject to those contracts, pay any contractually obligated severance, and lose all the institutional knowledge necessary to run the company, pay those employees what they are contractually owed, or negotiate new contracts with those employees. 

Third, the government certainly can negotiate with the persons contractually obligated to receive bonuses and say they won't give more money to AIG unless they agree cut their pay.  But the government can't unilaterally change a contract without ALL parties' consent.  AIG can't agree to ANYTHING on behalf of someone who is not at the table.

Fourth, everyone seems to assume that because a company has losses, everyone in the company is incompetent and every business unit is losing money.   Everyone's not and every business unit is not.   And some of these so-called bonuses are truly deferred lump sum compensation.

[cinyc]

Lets simplify this.

If a company is broke, it cannot pay bonuses.

So, the government could and should tell any recepient of bailout money that as a condition of receipt of the money, bonuses must be sharply limited.

The prospective recepient of the bailout funds could then notify the entities (people or organizations) that if they do not get the bailout money, there will be no funds available for bonuses, or the entities can agree to a limit on bonuses/payments (modifying the existing agreements).

Better to get ten per cent of something than one hundred per cent of nothing.

What actually happened is the wall street sharpies bilked the American taxpayers and the taxpayers are understandibily sore about being ripped off to support the superwealthy.

Let's really simplify this.  The bankruptcy laws are there for a reason.  Consequences of bankruptcy are known, including that contracts may be declared null and void.   Because of the government's foolishness, AIG didn't declare bankruptcy as it should have.  So those employment contracts are still valid.  And the government put no limits on the use of TARP money, didn't ask for any givebacks or limits on compensation when it extended the funds, and instead came in as a shareholder who should be treated just like any other idiot who buys stock in a failing company.

Regardless of what a new shareholder says, a company can't force employees to modify their employment contracts.  They can try to renegotiate, if the employee is willing and fire the employee if he or she is not.  But if fired, the employee is entitled to whatever severance compensation he or she would be under her contract.  That the new shareholder is the government is irrelevant.

This is fake outrage fueled by the same politicians who created the situation in the first place.  The only outrage I have is against the grandstanding politicians who demagogue companies for "excessive" compensation while taking hundreds of thousands of dollars in campaign contributions from employees of those companies.  If President Obama wants to fuel this  fauxrage, he should give back the over $100,000 he received from AIG employees in campaign contributions last year.  Otherwise, he - and everyone else who demagogues with his mouth while taking campaign contributions in his hands - is a hypocrite.

[cinyc]

You keep dancing.

Should the government tell AIG they will get no more money from the government?

Please, no long-winded irrelevancies.

AIG should never have been bailed out in the first place.   But now that they have been, the government has little choice but to continue doing what it has been doing.   They bought the problem.

AIG should have been left to fail, with processes going through the bankruptcy court system - the rules of which are known ahead of time.  One reason we're having the problems we're having with the markets is because nobody knows what the rules will be for AIG or the banks tomorrow.  Investors hate uncertainty.  Politicians are creating uncertainty.   

Keep misplacing your outrage from where it belongs - the politicians who created much of this mess in the first place.  That's what the demagoguing politicians want you to do.

[cinyc]

http://www.slate.com/id/2213942/

My former governor (and hooker-lover) gets what is going on here - the focus on the bonuses is obscuring the real crime - the payment to AIG's counter-parties (through its insurance obligations - see CDS).

Which should cause us to ask the question - who really owned the Bush administration?  I'm sure many red avatars can answer this correctly, to a certain extent.  Hopefully, we've even reached the point where blue avatars can answer this question too.

More importantly, for now, we need to ask who really owns the Obama administration, Chris Dodd, Barney Frank, etc. since they're the ones focusing on the bonuses as opposed to the counter-party payments?

Just trying to get some thinking *outside the box* here folks...

I don't take advice from the person who single handedly ruined AIG through his trial by press release against its former CEO.  Sorry.

And paying off on valid contracts isn't a crime.