AIG: Contractually Obligated to Spit in Face of Taxpayers
By Andrew Jeffery Mar 16, 2009 8:35 am
Insurer pays big bucks to retain "talent."
Reports of the $165 million in bonuses shelled out to executives (the ones the New York Times said were "at the very heart of AIG's worldwide conflagration") are eliciting fresh cries of outrage from the public.
Lawmakers, intent on demonstrating their aggressive stewardship of taxpayer money, are up in arms about bonus payments AIG is making to retain top executive “talent.” Barney Frank, chairman of the House Financial Committee, questioned the wisdom of the bailout, saying "clearly there was a mistake from the beginning."
AIG's chief executive Edward Liddy, for his part, argues the payments are not only a legal obligation but essential to retaining key employees -- in his words, "the best and brightest talent" -- and maximizing the value of business units it aims to unload in an effort to repay taxpayers.
The Wall Street Journal reports $450 billion has been paid to employees of the company’s Financial Products unit, the group responsible for much of the trading losses that torpedoed AIG in the first place. In addition, more than $700 million in bonuses and retention payments are being paid to another roughly 10,000 employees.
Liddy, the CEO, said he found the arrangements “distasteful,” but that they were set up before he took the job last year. In defense of the payments, he argued, “Honoring contractual commitments is at the heart of what we do in the insurance business.”
Meanwhile, the company and its government shareholders are facing increasing pressure as we learn just where our $170 billion in bailout money has gone. Trading counterparts have reaped big payments on credit default swaps gone bad: Goldman Sachs (GS) got almost $13 billion, Deutsche Bank (DB) received around $12 billion, and tens of billions more was doled out to trading clients and other banks.
As AIG executives and regulators struggle to untangle the truly nightmarish mess that was once the largest insurance company in the world, the public will demand further retribution against those it holds responsible.
No matter that some, like Liddy, weren't even there when the troubles started. Others, like Congressman Frank, Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke are being tasked with the cleanup of a mess they were very much complicit in creating.
Perhaps elected and non-elected government officials alike will acknowledge their role in this mess by refusing both salaries and lobbyist money from the financial sector until the problems are sorted out.
Hey, a guy can dream, right?
No positions in stocks mentioned.
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2009-03-16 08:38:52
Reward the idiots
They should have let them go bust then they wouldn't have even had any salaries and no job either, let along big fat bonuses.
Talk about greed, this is the ultimate and spit in the fact too in the face of taxpayers as you say
Talk about greed, this is the ultimate and spit in the fact too in the face of taxpayers as you say
2009-03-16 08:47:12
no contracts in bankruptcy (maybe?)
plus, the automakers, to get our money, told the auto workers they HAD to take pay cuts, or else...
yet,
no such thing required, possible, and, evidently, desired, for highly paid white collar workers -
and i've been each a blue, white, and no collar worker (construction) in my time...
so except for the highly paid part, i can speak of either group (of workers) ;-)
yet,
no such thing required, possible, and, evidently, desired, for highly paid white collar workers -
and i've been each a blue, white, and no collar worker (construction) in my time...
so except for the highly paid part, i can speak of either group (of workers) ;-)
2009-03-16 08:57:48
White Wash
And so the corruption becomes more and more visible as this mess comes apart.
How is it that taking incredible amounts of non reserved risk is considered talened at AIG and Wall Street?
How is it that taking incredible amounts of non reserved risk is considered talened at AIG and Wall Street?
2009-03-16 08:57:52
Shrugged?
Years from now, as these bailouts continue (0% interest, no M2M, Tarp, etc) the will of the next generation will be gone. 'We' have so soon forgot what made us free. Being honest is most important during the most diffucult time, not the best of times. So as these lies continue, there will be no incentive/opportunity for the next line of Social Security slaves. What happens then? We will see. From my perspective, only complete destruction of the old system will provide fertile ground for the future. Cancer is a pretty bad way to die. Me, I would have taken my chances with the car crash.
2009-03-16 09:30:15
The people running this company are absolute filth. They use this "contractual obligation" BS to continue doing business as usual despite the fact they're basically on welfare. I would LOVE to see Uncle Sam just cut AIG off NOW. How binding would those contracts be to a Company in Bankruptcy? Only problem is that they won't do it. Nobody's going to do anything. We're all going to fume about it for a week or so, but the bonuses will be paid and eventually it'll blow over, which is exactly what AIG is banking on. My only concern is letting AIG get away with this sends a signal to all the other Banks financial institutions that they can pull this same BS maneuver and we'll all just sit on our hands. And this "top talent" thing continues to amuse and enrage me. Where the HELL are these idiots going to go. Let's face it, any idiot can lose money. That requires NO SPECIAL SKILLS.
ARRGH! SOMEBODY CALL JOHN STEWART! If we're not going to do anything about it, at least let's have him crack jokes about AIG and tell one of their executives off on Comedy Central.
ARRGH! SOMEBODY CALL JOHN STEWART! If we're not going to do anything about it, at least let's have him crack jokes about AIG and tell one of their executives off on Comedy Central.
2009-03-16 09:36:21
what happens if they went under?
What, exactly, would have happened if we let them go under in the first place? Everybody says there would have been a "financial collapse". What happens in such a senario? What's the worst that could happen? Panic, riots, people dying, war?
Thanks to anybody who can answer,
George
Thanks to anybody who can answer,
George
2009-03-16 10:23:07
"the payments are not only a legal obligation"
How dare they talk about LEGAL obligations!
AIG is not only morally and literally bankrupt but they are actually a criminal enterprise.
They sold insurance policies knowing full well that they didn't have the reserves necessary to pay the potential claims.
These 'best and brightest' should learn just what kind of bonuses you get in prison.
What hapened to the American Dream?
You're looking at it!
2009-03-16 10:25:39
What happens?
Our ruler, Misses Bernanke; says the only thing that stands in our way is 'political will'.
He is telling us, 'be slaves, and don't ask questions'. We have the political will, you pay for the political will.
Only a new political party, lead by minyans, has a chance. Well I can't see into the future, yet; but time will tell.
Nothing will happen; either way now. It is a slow death going down this road. But maybe a rally into spring? Can't be bad.
Bond holder will cry like little school girls. Oh, you didn't know the risk? You only hoped to profit from holding that bond.
Paying rent or going into debt for 30 yr mortgage; that is the only thing they are worried about. What if homes cost $3000? Only people who own homes are going to care. What happened to using price to your advantage in the market. Or maybe we should prop up home prices. Keep rent high. Well that isn't what the market is saying should happen, who wants to argue with Mr. Market.
He is telling us, 'be slaves, and don't ask questions'. We have the political will, you pay for the political will.
Only a new political party, lead by minyans, has a chance. Well I can't see into the future, yet; but time will tell.
Nothing will happen; either way now. It is a slow death going down this road. But maybe a rally into spring? Can't be bad.
Bond holder will cry like little school girls. Oh, you didn't know the risk? You only hoped to profit from holding that bond.
Paying rent or going into debt for 30 yr mortgage; that is the only thing they are worried about. What if homes cost $3000? Only people who own homes are going to care. What happened to using price to your advantage in the market. Or maybe we should prop up home prices. Keep rent high. Well that isn't what the market is saying should happen, who wants to argue with Mr. Market.
2009-03-16 12:12:56
Now you know why
Now you know why Pauson wanted legal immunity and no review for what he's going to do. Even without it, he still went ahead doing what he did, which is to give taxpayer money to his pals one way or another. AIG is merely one of the conduits.
I have given up on governments a long time ago, but this still gets me mad.
I have given up on governments a long time ago, but this still gets me mad.
2009-03-16 13:14:51
Can anyone educate me ?
I cannot comprehend why the taxpayer has to foot the bill for these bets. Essentially the taxpayer is paying Goldman 12 billion dollars and Deutsche Bank another 11 billion and the list goes on.
Why couldn't the previous President or for that matter the current President just simply void these bets which is well under there powers. What was the worse that could have happened ? Anyone care to let me know.
Why couldn't the previous President or for that matter the current President just simply void these bets which is well under there powers. What was the worse that could have happened ? Anyone care to let me know.
2009-03-16 13:39:51
Is there any doubt we have a "corporatocracy?" Our government is taking our money and giving it to the VERY rich, who don't need it, while the wealth of most Americans is in great peril. My children, and yours, are paying those bonuses, not to mention salaries, to MAINTAIN a broken system.
How do we get our government back?
First job for the M.U.R., and it's a doozie.
How do we get our government back?
First job for the M.U.R., and it's a doozie.
2009-03-16 17:59:54
Indeed
That's my question as well: If these are truly the "best and brightest", but they managed to run the company into the ground, why again are we rewarding them? And can we please get some of the not-so-best in there to clean up the mess?
2009-03-16 18:17:11
Can anyone educate me ?
Because there's another "silent" bubble that's been ignored for the most part: the government bond bubble.
The effect is pretty easy to see where I live in rural New England. Here you can drive through tiny run-down towns with 5 ancient, unpainted houses (plus 3 trailers!), and a convenience store. And what sits in the middle of town? A brand new (or close to that) school that is by far the nicest building for miles around.
There's just no way the town could have possibly afforded or should have been lent the millions of dollars it took to build that school. We are talking about maybe of 100 families (or less) sharing the burden of a modern building with all the ADA fittings out of the 3rd tier tax dollars. (Feds and state come first)
AIG is a huge insurer of municipal bonds. Once it goes under it becomes a lot more expensive for cities and states to issue bonds as no one is insuring them. (Governments may even - *gasp* - have to pay interest based on relative risk). All the credit swap stuff is completely entangled with government financing at every level. In my mind it explains why politicians are so desperate to keep the party going.
The effect is pretty easy to see where I live in rural New England. Here you can drive through tiny run-down towns with 5 ancient, unpainted houses (plus 3 trailers!), and a convenience store. And what sits in the middle of town? A brand new (or close to that) school that is by far the nicest building for miles around.
There's just no way the town could have possibly afforded or should have been lent the millions of dollars it took to build that school. We are talking about maybe of 100 families (or less) sharing the burden of a modern building with all the ADA fittings out of the 3rd tier tax dollars. (Feds and state come first)
AIG is a huge insurer of municipal bonds. Once it goes under it becomes a lot more expensive for cities and states to issue bonds as no one is insuring them. (Governments may even - *gasp* - have to pay interest based on relative risk). All the credit swap stuff is completely entangled with government financing at every level. In my mind it explains why politicians are so desperate to keep the party going.
2009-03-16 18:21:21
I hope AIG doesn't get ignored.
This kind of emotional grandstanding that politicians love. I can't believe Obama or Congress wouldn't jump at the chance to personally "correct" the misunderstandings of the AIG executives.
And that need to keep top talent excuse sounds lamer as time goes on.
This kind of emotional grandstanding that politicians love. I can't believe Obama or Congress wouldn't jump at the chance to personally "correct" the misunderstandings of the AIG executives.
And that need to keep top talent excuse sounds lamer as time goes on.
2009-03-16 18:29:54
Talent?
If AIG bonus takers are "Talent" shouldn't Bernie Madoff be getting a big bonus along with them?
Isn't that the "Talent" that is getting rewarded? Incompetence, thievery, and irresponsibility?
Those without "Talent" are the mortgage, bill, and tax paying citizens who don't have a scam going.
What a fool I've been!
2009-03-16 19:05:24
Having one's cake and eating it too
AIG was bailed out and maintained as a vialbe business entitiy - and that means it should honor its contractual obligations. These include bonuses.
If AIG was taken into BK, then no bonus, no outrage.
This is why the current strategy of "too big to fail" is so pernicious. With the government running the show, business decisions become driven by politcs and headline (scandal) management.
If Obama wants to investigate "all legal remedies", he should start with the most obvious - bankruptcy.
What we see here is a lack of faith by the government in the system. Apparently there is a widely held belief that our economic system is so fragile that the failure of a single company can bring it down.
Once the actors in the market see that the government appears to have no faith in the economic system ability to function - in good times and bad - then the all actors in the econmy begin to have doubts.
If AIG was taken into BK, then no bonus, no outrage.
This is why the current strategy of "too big to fail" is so pernicious. With the government running the show, business decisions become driven by politcs and headline (scandal) management.
If Obama wants to investigate "all legal remedies", he should start with the most obvious - bankruptcy.
What we see here is a lack of faith by the government in the system. Apparently there is a widely held belief that our economic system is so fragile that the failure of a single company can bring it down.
Once the actors in the market see that the government appears to have no faith in the economic system ability to function - in good times and bad - then the all actors in the econmy begin to have doubts.
2009-03-16 19:43:46
AIG Bonuses
If Ed Liddy believes so strongly that these bonuses must be paid as "honoring contracts is at the heart of the ins. business", maybe he should go back to Allstate and ask his old legal dept. how they were able to force all their own agents to sign new contracts which did away with all health ins. and retirement benefits. They were forced to sign new contracts under threat of being fired. Now, we're all to bow down to these bonuses being paid with OUR money simply due to contracts???? Come on!!!!!Shame on all the politicians for going along with this!!!
2009-03-16 22:10:19
AIG (ant't it golden)
Paulson (Goldman) to AIG to Goldman. This whole set up is a little bit to obvious. Conflict of interest? Who can do anything about it? The game continues. All I know is the odds are better at your local casino!! At least the rules are the same each week. You know the machines are set against you but as tax payers we have to keep putting more money in. Anybody got any extra K-Y?
2009-03-16 22:22:22
Now you know why
The same illegal immunity can be used to void those bonus payments, could it not? What am I missing here except that both AIG, the banks, and government are scr3wing us all again?
2009-03-16 22:26:13
We are truly in the bizarro world
So, we are REWARDING with BONUSES the great performance of this singular division in one insurance company for finding away to implode the entire global financial system, and for all intents and purposes paying that BONUS with taxpayer money (because without such taxpayer money the company and every player in the global financial system would be bankrupt and have no jobs)? WHAT THE H3LL IS GOING ON?! WHO THE F%K IS IN CHARGE HERE?
F%$K THIS STUPIDITY!! WHERE'S MY GUILLOTINE?!
F%$K THIS STUPIDITY!! WHERE'S MY GUILLOTINE?!
2009-03-16 23:00:37
The bonus fooferah- bad as it is- is just more corporate/media/government smoke to keep us looking the wrong way whilst they clean out the treasury:
The $$$12.5 BILLION to GS, more to BAC, more to Societe Generale and Deutsche bank- to cover their toxic asse(t)s.
Whoever invented "hotbutton issues" knew what they were doing. Pay no attention to that man behind the screen...
The $$$12.5 BILLION to GS, more to BAC, more to Societe Generale and Deutsche bank- to cover their toxic asse(t)s.
Whoever invented "hotbutton issues" knew what they were doing. Pay no attention to that man behind the screen...
2009-03-17 16:13:49
The rationale for saving AIG in the first place was that the counterparty risk to the banks if AIG went under would then result in the insolvency of any bank with a significant CDS portfolio. Teh sequence would be that if AIG were to disappear, then any CDS they were involved in would become virtually worthless, which could in turn lead to banks having to treat all their CDS assets as worthless under mark-to-market rules, which would then threaten the banks' ability to meet thier reserve requirements (it would drive up their leverage ratios by suddenly reducing the value of the denominator), which would then create forced selling of other assets to raise cash to pay down debt (but the value recieved for the assets sold would plummet if all the banks were sellers and none were buyers), resulting in a drop in valuations which could spiral into the ultimate failure of most of the world's banks all at once.
AIG being able to pay the banks on these contracts is exactly the reason why they were bailed out in the first place. The fact that this money is being paid to GS, BAC and SocGen is merely a sign that the bailout is having its intended effect. Whether it was really necessary, or of it will ultimately save the world is still open for debate, but this is what is supposed to have come of it so far,
AIG being able to pay the banks on these contracts is exactly the reason why they were bailed out in the first place. The fact that this money is being paid to GS, BAC and SocGen is merely a sign that the bailout is having its intended effect. Whether it was really necessary, or of it will ultimately save the world is still open for debate, but this is what is supposed to have come of it so far,
2009-03-17 23:17:33
what would have happened if they went under?
"Attack of the 50 Foot Creditor" or "Creditor from the Pandit Lagoon" - instant hits.
Millions of dollars would be shelled out by "enquiring minds who want to know" and on cathartic Oprah and Dr. Phil appearances by the bedraggled ex-best and somewhat dimmer.
Millions of dollars would be shelled out by "enquiring minds who want to know" and on cathartic Oprah and Dr. Phil appearances by the bedraggled ex-best and somewhat dimmer.
2009-03-20 12:41:29
AIG pass thru
Brian- Yeah, exactly. Only it was not AIG that paid on the CDS "insurance policies" it was US- straight thru to those banks.
And I am quite sure you are right that this was the reason AIG was "too big to fail"- GS and BAC needed their money first.
You are looking the wrong way.
cjc [I wonder if AIG is STILL too big to fail...??? I bet NOT.]
And I am quite sure you are right that this was the reason AIG was "too big to fail"- GS and BAC needed their money first.
You are looking the wrong way.
cjc [I wonder if AIG is STILL too big to fail...??? I bet NOT.]
2009-03-20 18:55:04
AIG pass thru
Thing is, if you think the outrage is the payments to the banks, you'd be better served to pursue the ones who pushed the bailout through on the gov't side. Once AIG got the money, them making those payments was the intended result, and nobody at AIG had the authority to get the bailout enacted from their end.
If you leave a steak unattended in front of your dog for a couple hours, whose fault is it really if the dog eats the steak?
If you leave a steak unattended in front of your dog for a couple hours, whose fault is it really if the dog eats the steak?
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