Obama tries to block AIG bonuses

[bascule]

http://www.nytimes.com/2009/03/17/us/politics/17obama.html

 

Overall I must say I'm quite happy with the damage control Obama is providing for the bailout. Clearly there were a multitude of issues with it when it was passed. In my opinion Obama is doing a great job trying to address them.

[Dudde]

Increasing the pressure on A.I.G., New York State Attorney General Andrew M. Cuomo demanded on Monday that the insurer release the names of the executives in A.I.G.’s Financial Products subsidiary who are to receive the bonuses, their job descriptions and details about their performance. In a letter to Edward M. Liddy, the company’s current chief executive, Mr. Cuomo said that if he did not receive the information by 4 p.m. he would issue subpoenas demanding compliance.

 

NICE!

 

This is an awesome move, thanks for bringing it up

[Sisyphus]

Good, probably. If they’re going to be government employees, they should get government compensation. We want to motivate them to give the money back. They need to learn that we’re not simply socializing risk and privatizing reward.

[jackson33]

AIG, is still a public company, beholding to their stock holders. Public opinion therefore may cause obedience to Mr. Cuomo's demand, but making payroll public by any business, Corporate or not is against the law. As for contract obligation, these people would be in position to sue for due wages, hardly what you want your best and brightest to be doing.

 

As for Obama telling the public, he is having a member of his administration placing pressure on AIG, is as illegal as you can get, none of his business or in his authority and will backfire. Every person receiving any welfare or frankly most on SS, disability or unemployment would be subject to what they can or cannot do with that money or other money in their hands. Telling Joe Six Pack, he cannot spend to buy beer or smokes with his check, is about the same percentage of cost involved.

 

Another thing bothering me about this stupid mess, is how government is diminishing every industry in the country. Today, EVERY market in the world was up, the US (except NASDAQ-Small Business) was up and until this issue and his visions for small business were digested the markets dropped. The man needs to shut up on every little minor news item and forget campaigning, until things straighten out. Talk about competency...bascule, this is IN MY OPINION.

[waitforufo]

Since you are all in favor of AIG reneging on its contracts, perhaps AIG should also refuse to pay out legitimate claims filed by policy holders. Just think how quickly they would become solvent, and at no expense to taxpayers. Perhaps Obama should suggest this in his next breathless headline grabbing policy statement to the press.

[bascule]

As for Obama telling the public, he is having a member of his administration placing pressure on AIG, is as illegal as you can get

 

Why? What laws are being broken?

 

This is the only part of your post which is relevant to the subject at hand. The rest of your post is just a gigantic red herring.

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Since you are all in favor of AIG reneging on its contracts, perhaps AIG should also refuse to pay out legitimate claims filed by policy holders.

 

If they were to do that, why does AIG deserve any bailout money at all?

 

Just think how quickly they would become solvent, and at no expense to taxpayers. Perhaps Obama should suggest this in his next breathless headline grabbing policy statement to the press.

 

So I take it you're entirely for AIG billing Uncle Sam for the bonuses?

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And before someone else points it out, the title of this thread should be "Obama tries to block AIG bonuses". Mea culpa (although I think the Times may have changed their story since I linked it)

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http://www.washingtonpost.com/wp-dyn/content/article/2009/03/14/AR2009031401394.html

 

This article provides an excellent synopsis of the situation. Pretty crazy to see that the US government now owns 80% of AIG.

Edited March 16, 2009 by bascule
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[padren]

I wonder who these people are that would rather sue than renegotiate their bonuses.

 

I feel like you could take the peak value of AIG stock, find out how much their bonuses would buy then, calculate how much money those stocks would be worth now, and it would still be more than they deserved since what little that stock is worth now is propped up by the taxpayer.

 

If it wasn't for the legal implications I really wouldn't be opposed to dragging them from their cars and leaving them tarred and feathered on the sidewalks. They should be entitled to nothing - their company should be bankrupt as a result of their performance. The taxpayers don't care at all if AIG goes bankrupt, it's only the fear of the whole industry completely collapsing that brought about any bail out money at all.

 

It's like finding out the fellow you hired to guard the hen house was a fox when you walk in and find the walls covered in blood with no chickens to be seen, and when you are forced to buy more hens the bastard has the gall to walk up to you and say "ahem, I was promised 2 chickens as payment for this job - I will sue you if I don't get them."

 

 

Personally I don't have it bad. I know someone who is unemployed and goes in for an interview, and find there are 150 people all trying to get one of the 15 positions advertised. In fact, he's being evicted as of today.

I'm working everyday, and I still had to dance to avoid an eviction notice because at the time I still had $3000 in outstanding unpaid invoices for work done. At any given time that figure floats between $2000-$3000, and more than once I'd had to work not knowing if the money would ever come through while going to sleep and waking up hungry. For more fun stress, the house I rent is due to be auctioned off by the bank unless sold.

But honestly, I don't have it that bad - it's a little stressful and could collapse at any moment, but it hasn't yet and I am still working. I don't mind working 3 days on a total of 8 hours of sleep for money I may not see to rush something through, because times are pretty tough and a lot of people have it a lot worse.

 

 

Then you got these people threatening to sue or "walk and leave AIG to burn" who played a very large part in creating the whole mess in the first place. Who the hell do they think they are?? If they had their faces in the news, I wonder how many places they genuinely would not be safe. I don't think they should be harmed but I do think that if they insist on salting people's wounds simply because "well legally they can" they really don't understand how people feel.

I mentioned the stuff going on in my life because while it doesn't bother me much - the moment I hear about these people having the audacity to threaten to sue it makes me angry, and I know that people who have it a lot worse are going to be a lot angrier.

 

When a bunch of capitalists resolve to take bailout money from the state instead of filing bankruptcy, in my mind they are "resolved to endure the unendurable and suffer what is insufferable." It's endgame. It's the unthinkable, impossible scenario. It's time for them to eat a lot of crow, shut the hell up about it and say "thank you."

[bascule]

Then you got these people threatening to sue or "walk and leave AIG to burn" who played a very large part in creating the whole mess in the first place. Who the hell do they think they are??

 

Yeah pretty much. As far as I can tell the doomsday scenarios about what will happen if people don't get their bonuses are largely being spun by AIG themselves:

 

http://static1.firedoglake.com/1/files//2009/03/ny12532-_432294-v7-white_paper_-_aigfp_retention_plan.pdf

 

Departures also have regulatory ramifications. As an example, the resignation of the senior managers of AIGFP’s Banque AIG subsidiary would allow the Commission Bancaire, the French banking regulator, to appoint its own designee to step in and manage Banque AIG. Such an appointment would constitute an event of default under Banque AIG’s derivative and structured transactions[/b'], including the regulatory capital CDS book ($234 billion notional amount as of December 31, 2008), and potentially cost tens of billions of dollars in unwind costs.

 

I don't know how much truth there is to that claim, but when 80% of your company is owned by the US government, I can't see anyone claiming you've defaulted on anything unless the government explicitly decides against reimbursing it.

 

Were France to decide to do something like that, I would hope Obama would send someone out there to intervene, or perhaps intervene personally.

[Pangloss]

George Will made a great point this weekend. He said that if they can direct judges to tear up mortgages then they can certainly direct judges to tear up compensation agreements. A contract is a contract, and I didn't here ANYBODY complaining about the tearing up of mortgage CONTRACTS.

 

This is a bit of a surprise, though, given that just yesterday the administration sounded like they were going to let AIG go ahead with this (e.g. the Larry Summers quote). There was already some compromise on the plate, in the form of top executives taking little or no bonuses -- they were mainly for middle and lower management and employees.

 

But note that the article says that the administration is NOT trying to stop AIG from paying out ANY bonuses. Apparently this is a bit of an exploration, to see what CAN be done, and perhaps limit them to a greater extent than the current level, since it's taxpayer money, if they can.

 

I agree that it's a good thing.

[waitforufo]

If they were to do that, why does AIG deserve any bailout money at all?

 

No I think they should pay all their contractual obligations.

 

 

So I take it you're entirely for AIG billing Uncle Sam for the bonuses?

 

Let's say you and I have a contract. In this contract you agree to pay me a sum of money if I perform certain services. Now I performed those services and I expect to get paid. Well it turns out while performing those services or soon after their completion I discover that you have not been paying your mortgage. Not worry, President Obama has a plan where you are going to be given mortgage relief.

 

So I guess I should assume that you will soon show up on my doorstep and tell me that you cannot pay me for my services rendered because the government is bailing you out on your mortgage.

 

Don' be surprised when I tell you I don't care about your mortgage problems or who is bailing you out.

 

How many other contracts will you no longer be responsible for since the government is writing down you mortgage debt?

 

Many employees have compensation packages that include "at risk" payments. These "at risk" portions of their compensation are generally referred to as bonuses, but these bonuses are not the "profit sharing" bonuses with which most of us are familiar. Sales people for example often have a fixed salary of X, a bonus or at risk portion of Y, plus a commission of Z% of total sales. They get the bonus of Y if they reach a sales quota. If all sales people make their quota the company is profitable. Now if only some of the people make their quota the company may not be profitable. Those that do make their quota do however get there bonus. Without those meeting the quota, the company would really be in trouble.

 

Now you have AIG. Some of the people working there were underwriting bad mortgages. Most were not. You are suggesting that those that were doing their jobs correctly and ethically should be punished along with those that were not. I think those "good" people should be paid. I think AIG is contractually obligated to pay them.

[bascule]

No I think they should pay all their contractual obligations.

 

Should they, I dunno, possibly attempt to renegotiate those contracts, since bonus pay at this point, especially for members of the financial services division seems, shall we say, a little unwarranted?

 

AIG doesn't even want to try because they're worried about losing their "talent", and apparently about France taking over their company...

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Time has suggested we cut our losses and let AIG fail, especially considering they most likely won't be able to pay taxpayers back.

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Senator Chris Dodd (D-Conn) has suggested we should tax the bonuses at a 100% rate

[Saryctos]

This is the kind of hatred one risks when trying to make large sums of money. If these payments were called anything other than bonuses, even if they were given in the same manner, there wouldn't be this kind of uproar from the general public and congress(which arguably are making a stink only to pander to the mob). People seem to think that AIG is just chucking some "free" money to the higher ups because they've got large sacks of money hanging around from bailout payments.

 

It would be nice to see how any investigation into these "illegal bonuses" goes(of which I'm sure is already being planned). It might shed some light for many people on just how reasonable these things are. You'll be able to tell when it's stops being reported, since it's not a story unless everyone's angry about it.

 

I'm actually quite angry at the numerous number of Rs I see next to senators' names in articles when I read about this stuff. It's clear that there is some staunch partisanship on the Republicans on this issue. Most of them should know better than to decry these bonuses in the manner that they are, but it's clear they just care about public image in what can be used to fling against Obama and the bailouts.

[Pangloss]

Yes, that's the option on PIG -- let it fail, as punishment for not dealing with the compensation issue. Which is perfectly legitimate -- they have an obligation to us that they have not fulfilled, regardless of the reason why. Not only that, but we may have ultimately done the job we needed to do -- the purpose of the bailout wasn't to save PIG, but to temporarily avoid crashing the economy. If the circumstances have changed (and I'm not sure if they have or not) then it may no longer be necessary to save PIG.

 

Wups, I meant AIG. Yeah.

 

BTW, I think the way to handle this in the future is just to require that bailout money cannot be given to companies unless they resolve all compensation issues to our satisfaction before they can be given the money. Compensation agreements can be renegotiated before the fact -- if it's important to those managers to be bailed out, then they can rewrite their agreements with the company to our satisfaction first.

 

Or just fire the management team, which would be my preference anyway. If they have golden parachutes, they can't have compensation money. That simple.

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Interesting.... Chuck "I Killed IndyBank" Schumer said this afternoon that Congress may pass a law taxing the AIG bonuses at 100%.

 

http://www.nydailynews.com/money/2009/03/17/2009-03-17_aig_bonus_checks_may_be_taxed_at_up_to_1.html

[jackson33]

Why? What laws are being broken?

 

This is the only part of your post which is relevant to the subject at hand. The rest of your post is just a gigantic red herring.

 

It's called Constitutional Authority and if this junk was going on between members of two different parties, would be tested to the SC.

 

Executive Branch; To enforce law...

Legislative; To legislate law, with authority of oversight of those laws.

Judicial; To interpret law.

 

Obama is acting as if he had oversight, authority and does not, nor does the he have authority over any business activity. Congress can call on Business to explain, whatever they want with regards to future, pending or actual legislation, but lack the authority for enforcement. Since their now saying, any given AIG Bonus, will be taxed 93-100% is NOT under any legal authority.

If AIG took the money, with that agreement, we would have a different situation.

 

NO, the rest of my post, sets up precedence which can effect every American and very much part of what's happening to AIG today. There is no difference in my taxes paying Joe Six Pack for any reason, or loaning AIG money, other than there is an expectation of getting AIG money back...

 

 

Pangloss; I realize you are concerned about tax dollars, assume most including media are as well, however laws are still laws. Government, short of some legal action done through the legal system (Jusice Dept.), should have no authority outside of an agreement/contract. Many people have bought up stock in one or another Company, in hopes of gaining some control. A seat on the Board of Directors, influencing some action or a number of things and have failed, sell their stock and move on. Government IMO should never be allowed to buy up any or all of any business for any purpose. Think you have indicated this, but AIG should have been left alone to fail, good assets would have been bought up, bad ones and those holding them taking the loss. IMO....

[Pangloss]

Allowing them to fail would have hurt us, and it's perfectly reasonable for government to take steps to avoid that kind of pain. It's what I pay them for.

 

I am coming around to the argument that contracts shouldn't be voided retroactively (even though that's certainly possible if we're going to void MORTGAGE contracts -- what's the difference?), but I see NO reason why we cannot stipulate in the future that if a company wants bailout money then they have to either renegotiate or otherwise destroy their compensation agreements with their employees -- or they don't get any money. We can most certainly do THAT.

[The Bear's Key]

Executive Branch; To enforce law...

Legislative; To legislate law, with authority of oversight of those laws.

Judicial; To interpret law.

 

Obama is acting as if he had oversight, authority and does not, nor does the he have authority over any business activity.

Government, short of some legal action done through the legal system (Jusice Dept.), should have no authority outside of an agreement/contract.

I haven't seen Obama doing what you say.

 

 

From bascule's link

 

Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."

White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses.

But they said the Treasury Department would be trying to figure out what it can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the executives.

“We are a country of law,” Mr. Summers said on ABC-TV’s Sunday show. “This Week”:There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system,”

I do agree with your first quote, and have thought it in Obama and Dems' best interest to openly undo all power that Bush amassed for the Presidency, then ask Congress for legislation to prevent that from ever happening again.

[swansont]

The funny (?!) thing is that the republicans are blaming the current administration for this, even though the bonus contracts were created in 2008, and there was no negotiation on this point in the original bailout of AIG.

 

Other Republican leaders were quick today to slam the Obama administration — namely the Treasury Department — in recent weeks. “Where were they?” Senator Mitch McConnell, the minority leader, demanded, when $30 billion in additional funds was handed out to A.I.G. just a few weeks before

bonus payments issued last Friday. “It’s shocking that they would — the administration would come to us now and act surprised about these contracts. Why didn’t they ask the question two weeks ago, before they gave them $30 billion?” Mr. McConnell asked.

http://thecaucus.blogs.nytimes.com/2009/03/17/bonuses-bailouts-and-blame/

 

Where were they, indeed. Pot. Kettle. Black. Both administrations should have asked, "So, you're not going to reward failure by handing out bonuses, right?"

 

I like the tax idea, but I suspect they can only recover what hasn't been paid out yet, or is the IRS exempt from ex-post-facto changes?

 

I also read that Andy Cuomo (NY Atty Gen) is investigating for fraud, on the basis of the company promising bonuses when it didn't have the money.

[jackson33]

The funny (?!) thing is that the republicans are blaming the current administration for this, even though the bonus contracts were created in 2008, and there was no negotiation on this point in the original bailout of AIG.

 

The Paulson plan was basically a loan, by buying Preferred Stock, which is equal to any large investors opportunity. Buffett holds billion in PS, getting up to 10% interest. However, I did not agree with that program either, especially when they pulled back on the seen effects stopping the use of half the allocated 700B funds. I haven't the slightest idea what the Guitner plan is or how it's going to do any more than Paulson's and still don't agree...

 

The Bear's Key; I realize, Obama is mixing words and apparently campaigning a little early for 2012. but outright rage and the insinuation of action against AIG and their policy, legal or not, is not in his job description. Frankly most everything he has been saying HE WILL do is not his prerogative. He is welcome to suggest to congress or ask the Justice Department to check something out (with in limitations), sign executive orders or any number of otherwise illegal means, but has no authority to enforce his own actions. Saying any State that does NOT comply with the demands of the Stimulus Program will be held accountable by HIM, is pure nonsense, IMO.

 

Pangloss; I know, I am on the wrong side this AIG thing even with conservatives. I happen to believe in Law and the Constitution and the idea Federal Government was never intended to be involved with business or todays Corporate World, especially the executive.

 

As for getting hurt, it's already happened and probably to whatever the limits would have been if the Government just let the market do it's thing.

 

 

Another viewpoint;

 

http://www.spokesman.com/stories/2009/feb/08/obama-is-overreaching/

[iNow]

Not sure why renegotiation is supposed to be such a big deal. After all, that's exactly what we did with the bailout in Detroit and the big 3 automakers... We forced renegotiation of contracts with the union and union workers. Now, suddenly it's a big deal because the contracts are with AIG and AIG employees? Come on... Let's at least be consistent here.

[Dudde]

Pangloss; I know, I am on the wrong side this AIG thing even with conservatives. I happen to believe in Law and the Constitution and the idea Federal Government was never intended to be involved with business or todays Corporate World, especially the executive.

 

 

While I would agree with you on this point most of the time, the simple fact is that the government has $170 Billion intervened with this company already - as long as you're accepting that kind of government assistance, I think they should have some degree of say with how you want to waste it

[bascule]

Not sure why renegotiation is supposed to be such a big deal. After all, that's exactly what we did with the bailout in Detroit and the big 3 automakers... We forced renegotiation of contracts with the union and union workers. Now, suddenly it's a big deal because the contracts are with AIG and AIG employees? Come on... Let's at least be consistent here.

 

Yeah, I've seen that point made elsewhere. AIG are spinning doomsday scenarios saying that by not giving the bonuses, taxpayers would end up paying additional tens of billions.

 

With the automakers the terms of that bailout were worked out ahead of time, whereas with AIG it's a bit too late.

 

Perhaps the government should just cut their losses and let AIG fail.

[Dudde]

Nice, updated two hours ago -

 

http://www.cnn.com/2009/POLITICS/03/17/aig.bonuses/index.html

 

totally weak, again, I don't usually take CNN at face value, but they're usually generally right

[bascule]

Another viewpoint;

 

http://www.spokesman.com/stories/2009/feb/08/obama-is-overreaching/

 

I have the sneaking suspicion that guy did not write a similar story about Bush's outright abuse of executive orders

 

Note that many of the executive orders issued by Obama merely overturned existing executive orders made by Bush.

 

But hey, I love all this Johnny Come Lately "thing X is bad now that Obama is doing it!" crap, when we didn't hear a peep out of these people when Bush was doing it.

[blike]

The executives have every right to their bonus as guaranteed by their contractual agreement with AIG regardless of past, present, or future performance. If I were an AIG executive, I would fight tooth and nail for my bonus, as should anyone who thinks that a company should honor any of its contracts.

 

Obama is just mouthing off. There is nothing he or congress can do about the fact that, in their short sighted rush to throw billions of taxpayer dollars at these failing giants, they neglected to add stipulations regarding the use of taxpayer money for company bonuses. Obama knows this. Congress knows this. Cuomo knows this. Naturally, they have to pay lip service to the taxpayer outrage. Maybe next time they'll be a little bit more responsible with my money. Better yet, maybe the taxpayers are outraged enough that there won't be a next time.

 

In the wise words of Sen. Charles Schumer: "Why quibble over $200 million?"

[Pangloss]

I'm basically coming to agree with the above, in spite of my initial leaning in the other direction.

 

Which brings us back to an interesting conundrum: These companies have incredible leverage over the economy, and yet there's very little we can do OTHER than bail them out. We can threaten to NOT bail them out (say they insist that they will give all the bailout money to their executives and throw mud in our eye to boot), but that hurts us more than it hurts them, because in the end that will loot their own company and retire on their golden parachutes ANYWAY.

 

Which brings us back to regulation on the front side. Doesn't that pretty much put the kybosh on pure market, unregulated economics, folks? If credit has leveraged the economy up to this incredible level of power over the people, how can we possibly consider deregulation ever again? It's the Tragedy of the Commons on steroids so powerful a professional baseball player would shy away from using them.