AIG to Pay Out $100 Million in Bonuses

[CARLHAYDEN]

A.I.G. to Pay $100 Million in Bonuses After Huge Bailout

By EDMUND L. ANDREWS and PETER BAKER
Published: March 14, 2009

WASHINGTON — Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.

An official in the Obama administration official said Saturday that Treasury Secretary Timothy F. Geithner had called A.I.G.’s government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.

Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company’s chief executive said A.I.G. was contractually obligated to pay them.

In a letter to Mr. Geithner, Mr. Liddy wrote: “Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

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!!!

[CARLHAYDEN]

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.

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. 

[CARLHAYDEN]

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.

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.

[CARLHAYDEN]

You keep dancing.

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

Please, no long-winded irrelevancies.

[CARLHAYDEN]

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.

Finally we are agreed on something.  AIG should never have gotten a penny from the taxpayer.

Can we agree that the federal reserve should be required to divulge its loan guarantees?

[CARLHAYDEN]

The great question remains: are we saving capitalism or are we protecting class privilege?

The corporate culture at AIG created the mess, and the reconstruction of a business entity that failed requires a renovation of the culture that got the company into bankruptcy. Executive suites seem to be full of people full of themselves, narcissists well paid for treating others badly.   

You make several good points.

First, the execs at AIG believe they are entitled to lead a lavish life style at the expense of others, previously the stockholders of AIG (whom the execs fooled) and now the taxpayers. 

Second, the corporate culture at AIG is (unfortunately) shared by a few other organizations (Citi).  It should be extirpated, like a plague virus.

Third, unfortunately AIG did not file for bankruptcy as the fed rescued them.

Finally, I can now understand the attitude of much of the French population during the great revolution there.  The Aristos insisted on their "right" to live a lavish lifestyle at the expense of the average person, much as the execs at AIG insist on their "right" to have the taxpayers pay for their lavish lifestyle.  Although, I much favor a length of rope to the guillotine.

[CARLHAYDEN]

The great question remains: are we saving capitalism or are we protecting class privilege?

The corporate culture at AIG created the mess, and the reconstruction of a business entity that failed requires a renovation of the culture that got the company into bankruptcy. Executive suites seem to be full of people full of themselves, narcissists well paid for treating others badly.   

You make several good points.

First, the execs at AIG believe they are entitled to lead a lavish life style at the expense of others, previously the stockholders of AIG (whom the execs fooled) and now the taxpayers. 

Second, the corporate culture at AIG is (unfortunately) shared by a few other organizations (Citi).  It should be extirpated, like a plague virus.

Third, unfortunately AIG did not file for bankruptcy as the fed rescued them.

Finally, I can now understand the attitude of much of the French population during the great revolution there.  The Aristos insisted on their "right" to live a lavish lifestyle at the expense of the average person, much as the execs at AIG insist on their "right" to have the taxpayers pay for their lavish lifestyle.  Although, I much favor a length of rope to the guillotine.

Wow!

I was thinking of a different comparison -- to the old Soviet nomenklatura, a privileged class that developed in the "Workers' State" because the workers had no real power, but Party hacks did and could get away with anything. Although the USSR and USA had ostensibly opposite ideologies (Communist Party, Republican Party), bureaucratic elites in both became very similar in getting paid extremely well and getting special breaks on taxes due to their ability to exploit the political power that they wielded. I forget who it was -- Galbraith? -- who recognized a convergence of bureaucratic classes on opposite sides of the Iron Curtain. Neither class had to own the capital, but it could certainly control the means of production, not to mention personal survival for all but themselves.  Both classes, despite their lack of entrepreneurial role, got increasingly wealthy and powerful in societies that pretended that social class either did not exist or was irrelevant.

Many people now forget that the typical executive of forty years ago was either someone who was part of the dominant family or was someone who had worked from one low level (perhaps even the shop floor or the mail room) to one higher level after another over years of demonstrated competence and loyalty. The former had obvious ties to ownership; the latter at least knew the company inside-out and knew who did what , and who did well at his work.  The latter was more commonplace in parts of a company that made or delivered the goods (manufacturing or sales), and it wasn't paid to live like sultans. At its peak it was in its sixties, and the executive pay, a small multiple of the norm on the shop floor or a sales route, was available to those who showed the requisite competence and loyalty. Those executives drove Cadillac, Lincoln, Chrysler Imperial, or top-line Buick vehicles, and they did not live much differently from such professionals as physicians and attorneys. They might have bought a lakeside cottage with their pay, a bit nicer than the one for those who worked on the line, but not that much grander.  They also knew whence they came, and people could relate to them. It's no fantasy; it's the past.

Now the executives rotate from one corporate position to another. Advancement from within is a rarity, and glass ceilings abound. The modern executive now uses the stick instead of the carrot -- the threat of firing or mass layoffs to get a point across. Is it any surprise that economic inequality in the USA has become more similar to that in Mexico than to that in most of western Europe? We have also seen pseudo-aristocratic estates arise... which is exactly what one expects where some salaries are hundreds or even thousands as much as the lowest pay in big corporations.

At the same time that executives were enriching themselves they became strident supporters of tax cuts for high-income people. To be sure, such is good for shareholders, but such also helps squelch small business as competition. The high graduated income taxes on corporations and tycoons ensured niches for such family-owned businesses as motels, small-town department stores, hardware stores, supermarkets, service stations, one-branch banks, and hamburger stands. Try finding those these days. 

The solution is not big business and tax cuts targeted at enriching tycoons and executives; it is instead small business that can't monopolize markets and pay bloated salaries to narcissists and even sociopaths who treat people badly. 

The solution is for entities such as AIG and Citi Bank to fail. Just because the giant banks have sewed up the credit-card business ignores the obvious fact: more of us would do better  with a library card than with a credit card. 



 

You have a very good understanding of what is going on in some large corporations.

[CARLHAYDEN]

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...

There is a great deal of truth in what you say, but both the bonuses and the pass-throughs should be roundly condemned, and intensively investigated.