AIG Paying $165 Million in Bonuses

[GRG55]

Re: AIG Paying $165 Million in Bonuses

And this from Yve Smith. Maybe the dam is about to burst and wash away the cosy little Wall Street - Washington cabal. The political liabilities keep mounting, but once again it's all about the bonuses, when the real issue is much, much larger.

Wiliam Black Savages Treasury's Conduct on AIG



William Black, now a professor of economics and law at the University of Missouri (Kansas City) was a senior bank regulator during the savings loan crisis (his claim to fame was his pursuit of Charles Keating of Lincoln Savings, in which he was removed from the initiative and more management friendly investigators were assigned, and events later proved Black correct). Black has seen a lot of bad behavior at close range.

He is not at all impressed with how the Treasury has handled AIG. Via e-mail:

This is the consequence of six things on the Treasury end of things:

(1) the failure to use Chapter 11 bankruptcy/pass-through receivership to deal with deeply insolvent financial institutions

(2) the failure to expose, and to the extent possible, remedy through restatements the massive accounting fraud that AIG was/is engaged in that triggers the bonuses

(3) the failure to bring criminal charges against the control frauds

(4) the failure of Treasury as negotiators -- they had all the leverage when they bailed out AIG and could have conditioned the aid on at least the VP tier and above giving up their bonuses

(5) the weakness of Treasury's current lawyers who, if press reports are accurate, couldn't think of any way for the U.S. government to take effective action against what it reportedly views as a scandal,

(6) (and I haven't seen this discussed) why was Treasury blind-sided by this? It confirms that they did not conduct even the most obvious due diligence on AIG's assets and contingent liabilities

Given what we know about the lack of due diligence by AIG on underlying assets, particularly nonprime paper, this confirms exactly how dangerous Treasury is to the the nation. It is also consistent with the concern that it faces such a critical staff shortage, particulary in the relevant skills (which the folks it hires from Wall Street lack). I doubt that they have five senior officials that have ever reviewed loan files for a living or conducted meaningful due diligence (which requires cracking the loan files).

On the AIG end we see the perverse incentives of keeping the senior level folks on that caused the crisis. They have every incentive not to be honest about the true extent of the losses. They know the place is dead (hopelessly insolvent) and have strong incentives to loot the corpse, e.g., through bonuses. They do not alert Treasury sufficiently in advance even to bonuses that they should know will be perceived as scandalous (though another problem with keeping these failed elites in power is that they are clueless about the reaction of normal people). They do not work to limit bonuses, e.g., by being honest about past accounting fraud. I believe when the facts come out that we will find that they did not make criminal referrals on the prior senior officials that led AIG's accounting fraud (which would have given AIG and the Treasury a far stronger legal basis for refusing to pay bonuses that were "earned" via accounting control fraud.

I don't oppose bonuses that are actually earned through long term performance. That is not the case with the AIG bonuses. We can offer well designed performance pay if we use bankruptcy or receiverships.

We see tonight another lame defense that the Treasury is trying really hard to claw back the bonuses. Please. Even if Treasury consulted outside counsel, I would strongly suspect it would be a large firm with a big corporate clientele.

Guess what? At those firms, HR is a backwater. The best HR lawyers are typically at boutiques or solo operators because they sue large corporations (that would represent a rather insurmountable conflict of interest for any firm seeking to represent those nice big meal ticket clients). I'm not current, but a decade ago, there was a woman lawyer (I cannot recall her name to save my life) who was an absolute killer, When a wronged executive or employee walked in with her at their side, BIg Co. knew they had a very serious problem on their hands. I am told by people who used her she was also a phenomenal negotiator on deals. It's certain that Treasury did not attempt to secure advice from that sort of attorney.

And to Black's point, the real issue is fraud. Why is no one at Treasury willing to use the F word? Who would it embarrass? There is not reason for NOT pursuing that angle, save that AIG must have the 5x7 glossies on some pretty influential people, or that pursuing fraud at AIG would, via a daisy chain of connections, reveal that fraud was pervasive, and the Treasury is desperate to preserve the false image that the system has integrity.

[due_indigence]

Re: AIG Paying $165 Million in Bonuses

All this crap about contractual obligations and protracted legal wranglings!

The President needs to use his bully pulpit and DEMAND the executives return that money. Period. If Obama has any bona fide street cred or a progressive bone in his body, he'll take this moment to crack heads. If, as his corporate contributions seems to suggest (3 of his top 7 contribuotrs were Wall Street banks), he's another lackey and will duck or squawk without conviction.

They've handed him his demagogic moment. Let's see what he does with it.

[rjwjr]

Re: AIG Paying $165 Million in Bonuses

There's some potential that maybe this one won't "go away". iTulip member Jesse has some pretty blunt words on his blog:

AIG: A Scandal of Epic Proportion

Giving a significant number of congressional seats to a third party will send a chilling and practical message to both the President and the Congress that enough is enough...

Count me in. I don't care if the party represented is a Liberterian, Green, Constitution or Outerspace Alien, I'm not voting for a Dem or Rep. At least I'll feel like I'm doing something. Hopefully, it will send a message.

[bpr]

Re: AIG Paying $165 Million in Bonuses

All this crap about contractual obligations and protracted legal wranglings!

The problem is, contractual obligations can only be renegotiated or broken when the counterparties are employees or retirees of the firms in trouble.

When the counterparties are FIRE companies, they must be made whole, or we might slip into an abyss, or teeter over the edge of a hole, or something.

[gwynedd1]

Re: AIG Paying $165 Million in Bonuses

Liddy saying 'the lawyers told us our hands are tied" is bull. This is the chief problem/fallout from not bankrupting AIG in the first place. Then all contracts could have been voided and renegotiated, just as the automakers threatened the UAW recently.

But no, in white collar world, the now-government-sanctioned looting continues and will continue until...I don't know.

Maybe reneging on the contracts and let the execs sue would be entertaining TV.

Now Fannie and Freddie will be emboldened to make big retention awards and bonuses also, as well as the auto companies when their execs line up.

When you pay a corporate executive a $1 million bonus from taxpayer money borrowed from China, it's referred to as a contractual obligation. But if you give 1,000 lower income people a "tax rebate" of $1,000 each with money borrowed from China, it's called welfare or socialism.

The end is nigh...

Greetings kelton56,

+1

I say this same thing whenever the topic arises. Bankrupt this pig and the party ends. I think too many people don't understand what reorg bankruptcy is.

[due_indigence]

Re: AIG Paying $165 Million in Bonuses

BPR:

Evans-Pritchard has had us dangling over an abyss for the better part of 18 months as have numerous other doomsters. The metaphor wears. I say, let's sample the abyss. At least we'll all be dead in short order. This drip-drip slow motion bank robbery is killling me slowly.

You missed my point. Obama has a bully pulpit. He needs to utter an unvarnished non-legalistic demand that these people not write themselves chekcs with the People's money. Let's call it moral suasion with, as you point out, absolutely NO legal force. At the very least they need to slink to the bank to cash those checks wearing Madoff bullet-proof vests. I know shame is dead. But it needs to be revived before TRUST can be restored.

[Serge_Tomiko]

Re: AIG Paying $165 Million in Bonuses

I think you are dead right. $165M in bonuses draws all the heat. $160B in unfettered public funds goes relatively unscathed as to how and to whom it was doled out. A public airing of tranches? Who wins and who loses? And the whys? Forget about it.

A 1% management fee is quite low. Good luck finding anyone to manage an apartment building for 1% of the net income.

[WDCRob]

Re: AIG Paying $165 Million in Bonuses

Too right Serge.

On the other hand... if my property manager burns the place down, I find that my insurance premiums haven't been paid and he didn't call the blaze in to the fire department when it started I'm not exactly looking to pay him a ******* retention bonus either.

[rjwjr]

Re: AIG Paying $165 Million in Bonuses

BPR:

Evans-Pritchard has had us dangling over an abyss for the better part of 18 months as have numerous other doomsters. The metaphor wears. I say, let's sample the abyss. At least we'll all be dead in short order. This drip-drip slow motion bank robbery is killling me slowly.

You missed my point. Obama has a bully pulpit. He needs to utter an unvarnished non-legalistic demand that these people not write themselves chekcs with the People's money. Let's call it moral suasion with, as you point out, absolutely NO legal force. At the very least they need to slink to the bank to cash those checks wearing Madoff bullet-proof vests. I know shame is dead. But it needs to be revived before TRUST can be restored.

Obama must read this forum...

Top Stories


Obama to Geithner: Pursue Every Legal Avenue to Block AIG Bonuses- AP

[bpr]

Re: AIG Paying $165 Million in Bonuses

BPR:

Evans-Pritchard has had us dangling over an abyss for the better part of 18 months as have numerous other doomsters. The metaphor wears. I say, let's sample the abyss. At least we'll all be dead in short order. This drip-drip slow motion bank robbery is killling me slowly.

You missed my point. Obama has a bully pulpit. He needs to utter an unvarnished non-legalistic demand that these people not write themselves chekcs with the People's money. Let's call it moral suasion with, as you point out, absolutely NO legal force. At the very least they need to slink to the bank to cash those checks wearing Madoff bullet-proof vests. I know shame is dead. But it needs to be revived before TRUST can be restored.

You're absolutely right, but the matter of the bonuses pales in comparison to the billions doled out to AIG's counterparties, who, like Goldman, were likely sufficiently hedged to make a killing either way.

Actually, after further thought, withholding the bonuses is exactly the kind of renegging companies are allowed to do: they reneg on their employees. Well done, FIREmasters. Turns out the black hole was actually a purplish-blue... quite dazzling, I must say.

[kelton56]

Re: AIG Paying $165 Million in Bonuses

OK, so here's a thought:

Just pay the bonuses in AIG common stock, no-dividend, non-redeemable for 10 years and forefeitable if someone leaves the company.

If AIG goes under, completely, the stock is worthless and sorry about their luck. If someone of such immense talent is lured away from AIG to a competitor, too bad, they forfeit the bonus.

But if somehow these executive wizards can make AIG rise from the dead, repay the government/taxpayers, in full plus a return, the money we borrowed from China and increase the value of AIG common stock, then they would deserve any appreciated value of the bonus a decade down the road.

The government's "hands are tied" to pay these bonuses (maybe...), but the government doesn't have to pay the bonuses in CASH. I'm sure they could substitute something of equivalent value, such as AIG common stock.

And yes, I understand the method of payment likely is defined, however, here is where the government can take a stand, and let the bonus recipients sue if they somehow feel slighted.

The recipients would be receiving the consideration due, but merely in a different form. Bank of America amended its bonus plan a couple of months ago.

You can't tell me that a compensation agreement implemented by a company of AIG's size and sophistication didn't have some "back door" clause which would allow management to modify the terms in any manner they saw fit, just as did B of A.

[Slimprofits]

Re: AIG Paying $165 Million in Bonuses

I think you are dead right. $165M in bonuses draws all the heat. $160B in unfettered public funds goes relatively unscathed as to how and to whom it was doled out. A public airing of tranches? Who wins and who loses? And the whys? Forget about it.

This appears to be a faux populist hoodwinking.

http://online.wsj.com/article/SB123721970101743003.html

Monday afternoon, a White House official said the Treasury Department will use a planned $30 billion infusion into AIG to compel the company to repay the bonuses promised to employees of its financial-products group, which is responsible for selling the exotic financial instruments that brought the company to near-collapse.

The infusion, announced March 2, won't be finalized until the company and the Treasury work up repayment options, the official said. The bonuses to the financial-products division were "found to be completely unacceptable given that AIG is already surviving on taxpayer funds," the official said.

Meanwhile, New York Attorney General Andrew Cuomo asked AIG to provide details on who is receiving bonuses at the financial-products subsidiary by 4 EDT p.m. on Monday or face subpoenas.

*****

Now I'm not a wizard of financial engineering, but $30 billion is still more than $165 million right?

[we_are_toast]

Re: AIG Paying $165 Million in Bonuses

OK, so here's a thought:

Just pay the bonuses in AIG common stock, no-dividend, non-redeemable for 10 years and forefeitable if someone leaves the company.

If AIG goes under, completely, the stock is worthless and sorry about their luck. If someone of such immense talent is lured away from AIG to a competitor, too bad, they forfeit the bonus.

But if somehow these executive wizards can make AIG rise from the dead, repay the government/taxpayers, in full plus a return, the money we borrowed from China and increase the value of AIG common stock, then they would deserve any appreciated value of the bonus a decade down the road.

The government's "hands are tied" to pay these bonuses (maybe...), but the government doesn't have to pay the bonuses in CASH. I'm sure they could substitute something of equivalent value, such as AIG common stock.

And yes, I understand the method of payment likely is defined, however, here is where the government can take a stand, and let the bonus recipients sue if they somehow feel slighted.

The recipients would be receiving the consideration due, but merely in a different form. Bank of America amended its bonus plan a couple of months ago.

You can't tell me that a compensation agreement implemented by a company of AIG's size and sophistication didn't have some "back door" clause which would allow management to modify the terms in any manner they saw fit, just as did B of A.

I like this!
Stock options, with a strike price of the price of the stock the day before receiving any taxpayer money, and exercisable 1 year after full repayment of the taxpayers money!

[bpr]

Re: AIG Paying $165 Million in Bonuses

OK, so here's a thought:

Just pay the bonuses in AIG common stock, no-dividend, non-redeemable for 10 years and forefeitable if someone leaves the company.

If AIG goes under, completely, the stock is worthless and sorry about their luck. If someone of such immense talent is lured away from AIG to a competitor, too bad, they forfeit the bonus.

But if somehow these executive wizards can make AIG rise from the dead, repay the government/taxpayers, in full plus a return, the money we borrowed from China and increase the value of AIG common stock, then they would deserve any appreciated value of the bonus a decade down the road.

The government's "hands are tied" to pay these bonuses (maybe...), but the government doesn't have to pay the bonuses in CASH. I'm sure they could substitute something of equivalent value, such as AIG common stock.

And yes, I understand the method of payment likely is defined, however, here is where the government can take a stand, and let the bonus recipients sue if they somehow feel slighted.

The recipients would be receiving the consideration due, but merely in a different form. Bank of America amended its bonus plan a couple of months ago.

You can't tell me that a compensation agreement implemented by a company of AIG's size and sophistication didn't have some "back door" clause which would allow management to modify the terms in any manner they saw fit, just as did B of A.

You should be running the Treasury.

[charliebrown]

Re: AIG Paying $165 Million in Bonuses

In 2000 i was employed by an IT consulting company who paid large bonuses (30% base) There was a set of criteria listed to qualify like percentage of billable hours, new business found etc. I blew these all away in spades. The whole Y2K thing was low hanging fruit to an IT analyst.

However in 2001, when it was time to get my bonus they said nope.
burried in some legal crap mumbo jumbo that i was never shown when I was hired, was a clause the basically said if the company is sucking wind no bonus.

Isnt there same thing in these employment agreements?