Obama tries to block AIG bonuses

[bascule]

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

 

You're right, perhaps we should be more concerned over AIG's counterparties getting repaid in full, as Eliot Spitzer points out:

 

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

[Dudde]

I would agree that they be awarded their bonuses sure, but less than 80 people for $165 million seems a bit extreme. In my industry, the bonus comes only after we perform, I got like 4% of my (semi)annual salary as a bonus last year - it makes me think what the execs are paid normally to do such a crappy job.

 

It also makes me think why, if they thought they should be able to keep the bonuses because they earned it, did AIG executives start quitting as soon as that money was transferred -

 

I disagree with the double payment AIG is being hit with however. As stated before, it was obviously a hastily written plan with quite a large number of over-sights in hopes that it would be spent wisely. To take back the 165 Mil from the company, and then also to deduct it from the sum you're giving them, is essentially $330 million dollars against AIG for issuing bonuses, no matter how I think they were undeserved - I think was a bit excessive on the part of the government.

 

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 is why I'm always preaching to people my own age to track a little more responsibility into their own lives, especially financially. Hopefully all these irresponsible CEO's et al retire and die off, we might have a chance at a more stable economic system.

[padren]

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.

If I was contracted to build a bridge, and should it be completed on time I'd get a big bonus by contract...which I met - at which time the bridge collapsed due to my own endorsing huge risks that failed to pay off, caused the company I worked for to face bankruptcy only to have it saved due to state intervention and causing misery and hardship to huge numbers of people....

 

...seriously, I should then go up and say "*ahem* well, since the company technically isn't bankrupt, and since I did complete the bridge on time..."

 

Who would do that? How can someone expect to live in and be a part of the society that they let down to such a degree and still ask for their bonuses?

 

I've let a client down once due to a huge issue in scheduling where far too many things hit the fan at once... I got their work done a month late, did it well and refused to be paid for it (it was only about $600, not a ton of work) because it was important to me that they knew that wasn't part of how I operated, and that it had to be a very rare circumstance or I'd go out of business. No one lives in a vacuum, and to take on responsibilities that you don't live up to that causes direct suffering in people's lives is not just a bad day at the office where you can be glad "at least you got your paycheck" at the end of it.

 

I don't dispute the legal aspect, but I find that as part of a society on a human level it is unconscionable on their part to demand them. As a society we have so much faith in the law, nearly a whole nation can feel OJ Simpson was guilty of murder and watch him walk out acquitted and respect the verdict and even his freedom. Even if we feel a murderer was released it is far more dangerous to abide by the rule of law, and it makes all our lives better. Personally I am concerned about that faith when it comes to this crisis when the economy can crash, and the public can get saddled with these bills, and people just have to sit by and watch as these perpetrators collect on bonuses for bringing it about because that's the law. It certainly is, but where is the sense of security that the law is supposed to provide? Will this still be legal in 6 years if it happens again, where we just have to sit by and watch yet again? If people don't feel protected by the law, their respect for it will erode and these shenanigans are really hurting that I am afraid. It wouldn't be a problem, but it seems they have no shame.

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You're right, perhaps we should be more concerned over AIG's counterparties getting repaid in full, as Eliot Spitzer points out:

 

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

 

I definitely agree this should be looked at more closely than the bonuses, if they are getting "double shored up" and doubly in full.

[swansont]

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.

 

If the company is bankrupt, from where will the money come to pay these retirement packages? What is there to loot?

[blike]

If I was contracted to build a bridge, and should it be completed on time I'd get a big bonus by contract...which I met - at which time the bridge collapsed due to my own endorsing huge risks that failed to pay off, caused the company I worked for to face bankruptcy only to have it saved due to state intervention and causing misery and hardship to huge numbers of people....

If you were contracted to receive a bonus by completing the project early without any stipulations regarding the safety of the final product, then you would deserve your money. It doesn't matter that you royally screwed the project up and flushed your company down the toilet. Contracts don't have to be "pay for good performance" -- if that's what the company and/or government wanted, they should have attached those stipulations to the money. I don't think it would have been a problem to ask AIG renegotiate its executive contracts before throwing more money at them.

 

Furthermore, you assume that all the executives did a bad job and personally drove the company into the ground. The reality may be that some of those executives actually worked very hard and did a great job, and as such they feel no qualms about expecting their bonuses. Even more, is AIG completely to blame for it's own failure? Sure, they could have leveraged their equity more reasonably, but ultimately their business model was working great until the subprime disaster. Do you assign personal blame to the executives for this? Investment always involves a risk, and when a company is built on investments there is always a risk that circumstances beyond what the company can control will bring it down. AIG was not alone in missing the signs here. Just about everyone else did too. So just like your mutual fund manager still gets paid his commission regardless of how crappy your mutual fund is performing (it's the stock market, right?), AIG executives still expect their contracts to be honored regardless of how their investment decisions turn out.

[Dudde]

I agree with what you're saying Blike, especially that the government could have asked them to renegotiate the original contracts - i think they should've done that, but who expects a company that was about to belly up to start paying millions of dollars to individuals right away instead of waiting until the finances start steadying out.

 

AIG may have been hit harder because it was funneling a great deal of it's federal money to other companies, Bank of America and such, instead of using it on infrastructure projects - Don't get me wrong, if they're contractually obligated to pay back any money owed, then by all means - that's another part the government should have stipulated for the funds recently given out.

 

Although I don't see any reason that executives would have started quitting the company, that's straight up cowardice - if AIG, even under fire, awarded the individuals what was due to them, the least they could do would be to stick around and try to defend the position :/

[SH3RL0CK]

If you were contracted to receive a bonus by completing the project early without any stipulations regarding the safety of the final product, then you would deserve your money. It doesn't matter that you royally screwed the project up and flushed your company down the toilet. Contracts don't have to be "pay for good performance" -- if that's what the company and/or government wanted, they should have attached those stipulations to the money. ...AIG executives still expect their contracts to be honored regardless of how their investment decisions turn out.

 

Legally, unfortunately, that is true and in a court of law I think AIG would prevail. However, ethically it is very wrong. A contract certainly cannot anticipate all the ingenious ways a shady character could twist the law. As a case in point, I once heard a story (I beleive it to be true) where a President was promised (by contract) a large bonus if he could reduce the warehouse storage costs for the company. He did so by putting all the merchandise on trucks and constantly shipping them back and forth...the warehouse cost goal was met, but the shipping costs were astronomical. He was fired, but in the end (after a long legal battle) he did receive his bonus. Do you think the shareholders and board should have anticipated this, and any other possibility in the contract? At some point you should be able to enfore the "intent" of the contract, not just the specific wording.

 

I would say it is time the shareholders (80% owned by the US government) should outright fire certain executives at AIG. I would not be opposed to heavily taxing their bonuses and other unusual "perks" either when its value increases above some debatable income level.

[The Bear's Key]

Part of an open government process should be that every law or action by government is displayed to the citizens beforehand for their inspection, searching out loopholes and unforeseen possibilites.

 

So while they couldn't force the government to iron out any big holes, it'd be an election risk for leaders to ignore the general public -- especially if citizens had also produced a solution.....one that unties the loophole in a productive, down-to-earth, and generally agreeable manner.

 

Then finally, the process should require that any government legislation is under 20 pages and be written in clear language. Thus, if the public were able to rate each one for clarity (1-10), this would allow us to base our votes partly on how well the lawmakers express their intentions to us. Loopholes be gone.

Edited March 19, 2009 by The Bear's Key
clarification

[jackson33]

Legally, unfortunately, that is true and in a court of law I think AIG would prevail. However, ethically it is very wrong. A contract certainly cannot anticipate all the ingenious ways a shady character could twist the law. As a case in point, I once heard a story (I beleive it to be true) where a President was promised (by contract) a large bonus if he could reduce the warehouse storage costs for the company. He did so by putting all the merchandise on trucks and constantly shipping them back and forth...the warehouse cost goal was met, but the shipping costs were astronomical. He was fired, but in the end (after a long legal battle) he did receive his bonus. Do you think the shareholders and board should have anticipated this, and any other possibility in the contract? At some point you should be able to enfore the "intent" of the contract, not just the specific wording.

 

I would say it is time the shareholders (80% owned by the US government) should outright fire certain executives at AIG. I would not be opposed to heavily taxing their bonuses and other unusual "perks" either when its value increases above some debatable income level.

 

Years ago most States had what's called an 'Inventory Tax', where at years end the inventory of product on hand was taxed. Think about 15 States still have some form of this. Your CEO story probably stems from this, as near years end inventories were transfered between States with this tax to ones w/o or if none, would be en route during inventory, usually Jan. first. Individual stores would play the same game, selling down over the Xmas holidays and restocking after there inventory. You would be surprised by how much was saved or how rail/truck traffic increased in December...

 

Since you feel, a share holder (large or small, ie individual or government, which is illegal to begin with in the US) should be allowed to manage any public corporation by it's investment, would you be happy for a foreign government managing the US Government, if they held -X- amount of the public debt. Would you think the business you work for, have any say in your activity outside the workplace, or where you spend your dollars. Even when you barrow money for say a house or car, the institution is limited to what requirements may be and in all CASES there must be a written agreement to any restrictions.

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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.

 

You would have to give me an example of what "Bush's outright abuse of EO" means to you. If it relates to 'In times of War' thats about the quickest means to some action. 'Faith Based Initiatives' or other domestic orders are, were and will be (until thrown out) subject to legal action. Maybe it's simple complacency, but any person or business effected by any EO, has the individual right to contest any action stemming from that order (many of GWB's EO have been contested)...

 

Yes, all recent President's when taking office should and do go through previous executive orders, from ALL remaining ones in the books from the former President's (not just the latest). They have the right to revise or set aside (throw out) anything they dislike and this is with out recourse by anyone.

[Pangloss]

If the company is bankrupt, from where will the money come to pay these retirement packages? What is there to loot?

 

That could happen, but these are the people who know exactly what's coming, so it's child's play to pay themselves ahead of a final collapse. And of course there's a massive difference between a "massive bonus" and the amount of money it takes to run a large corporation, so they can be "out of money" in terms of what it takes to operate, but still have plenty to pay off their golden parachutes and run for the hills.

[jackson33]

- 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

 

That's the scary point, I've been trying to make. However, if Congress and AIG had an agreement/Contract, then yes. Not only was there an agreement to ALLOW Bonus Payments, already under contract, Congress cannot request an illegal action, that is to break previous contracts. You drive a car/truck with a seat belt on or are subject to being fined and you buy liability insurance to get a license plate. These two and a hundred other law were enacted by States, if not thousands, that were attached to acceptance of State Funds from the Federal, which the States sent to them to begin with. A couple tid-bits on Federal Funds.

 

Keep in mind I opposed the Bush/Paulson plan, feeling trying to establish any artificial bottom in a market, could only create a delay, not cure the problem.

Markets were already below the value of AIG then and I don't care what their trying to do, NO Company that had an absolute top Market Value of 160-170 Billion, would ever be capable of paying back 30 Billion, much less 165 Billion in a hundred years, then with interest...

 

http://en.wikipedia.org/wiki/AIG

[bascule]

You would have to give me an example of what "Bush's outright abuse of EO" means to you.

 

Well, the warrantless spying program is probably the most obvious example.

 

If it relates to 'In times of War' thats about the quickest means to some action.

 

So under Bush it's okay because we were at war, but apparently we're not at war now or something?

[jackson33]

Well, the warrantless spying program is probably the most obvious example.

 

So under Bush it's okay because we were at war, but apparently we're not at war now or something?

 

Obama has the same privileges of any President...with regards to establishing EO.

 

http://deanesmay.com/2009/01/25/obama-supports-warrantless-wiretaps/

 

Will you continue your opposition "warrentless spying" for the next four years...

[bascule]

Obama has the same privileges of any President...with regards to establishing EO.

 

http://deanesmay.com/2009/01/25/obama-supports-warrantless-wiretaps/

 

Will you continue your opposition "warrentless spying" for the next four years...

 

Yes, although at the time Bush did it the wiretaps explicitly violated federal law.

 

The law has since been changed by Congress, although it's still my belief that the changes to FEMA are not in line with the Fourth Amendment. But that's for the supreme court to decide.

[SH3RL0CK]

Since you feel, a share holder (large or small, ie individual or government, which is illegal to begin with in the US) should be allowed to manage any public corporation by it's investment, would you be happy for a foreign government managing the US Government, if they held -X- amount of the public debt. Would you think the business you work for, have any say in your activity outside the workplace, or where you spend your dollars. Even when you barrow money for say a house or car, the institution is limited to what requirements may be and in all CASES there must be a written agreement to any restrictions.

 

This is really beside the point of my original question which was:

 

A contract certainly cannot anticipate all the ingenious ways a shady character could twist the law...At some point you should be able to enfore the "intent" of the contract, not just the specific wording.

 

However, to address you point, business ALREADY have a say in what I do in my "free" time. If I do drugs, that is grounds for being fired. If I were to be convicted of a felony, I could be fired. I could be fired, or at least suspended, should I be even accused of a felony. My health insurance costs may go up if I am a smoker. The list goes on and on.

 

And I don't agree that there must, in all cases, be written agreement to any and all restrictions, after all credit cards can and do change their terms and conditions effective immediately and without notice. Additionally, the terms of a contract do not necessarily overide local, state, and federal laws which may be applicable.

[The Bear's Key]

This is really beside the point of my original question which was:

A contract certainly cannot anticipate all the ingenious ways a shady character could twist the law...At some point you should be able to enfore the "intent" of the contract, not just the specific wording.

The U.S. Supreme Court interprets the law, so would the enforcement of contractual intent fall on them, or to the Presidency who executes the law?

 

And I don't agree that there must, in all cases, be written agreement to any and all restrictions, after all credit cards can and do change their terms and conditions effective immediately and without notice.

Nice.

 

We reserve the right to change the terms of this contract or to modify any features...

 

We reserve the right to correct any errors or omissions in these stipulations...

 

We reserve the right to supplement, revise, or update these terms at any time...

 

We reserve the right to add, modify...

 

We reserve the right to modify this contract without notice.

 

No fine print needed.

 

(in fact, make it huge print)

 

Additionally, the terms of a contract do not necessarily overide local, state, and federal laws which may be applicable.

Good point too. But like you said....when applicable.

[DrDNA]

Can anyone explain to me exactly why "bailing them out" was a better alternative.....

 

....for the country

AND

.....for the company

 

.......than Chapter 11 ?

[iNow]

Because they were the insurer on practically every banks bad loans. The banks bought insurance on their loans and mortages, such that if those loans and mortages went unpaid, they would collect insurance to cover the loss.

 

Well, the banks started collecting the insurance due to too many unpaid loans and mortgages, resulting in mounting losses. AIG, although at fault for guaranteeing/insuring so many of the various banks policies despite their failure at meeting capital requirements for those policies, cannot be allowed to fail because their failure results in bank failures across the entire globe... many bank failures across the globe... which ultimately results in all of us standing in line at soup kitchens and trying to find a way to eat rocks and make clothes out of discarded trash.

[Pangloss]

Agreed. We were caught between a rock and a hard place.

 

I know the libertarians are going to be squawking over this, and I guess that's fair, but let's bear in mind that this doesn't change the basic situation that we were faced with a year ago. The problem is one of management of details, or perhaps at the outside a problem of political corruption, not one of basic ideological error.

[iNow]

The problem is one of management of details, or perhaps at the outside a problem of political corruption, not one of basic ideological error.

 

That's arguable, though. "Ideologically," a company should not write policies which they simply don't have the capital to cover. "Ideologically," that's really bad business, and ignores the reality of why insurance companies exist... Not purely as an entity in place to make money, but at its heart a company in place to cover losses for clients. That could very easily be argued to be an ideological error... After all, the "details" in this case spread throughout their ENTIRE business. It's not like some kid named Chuck in the IT department forgot a semicolon in his spam filter code. Now THAT would be a problem with details.

[Dudde]

Obama does seem happy to take blame for a lot of the recent misunderstandings however, I've seen a few recent quotes that at least show on the outside that he's interested in a long term fix, rather than keeping afloat and doing it again.

 

"For everybody in Washington who is busy scrambling trying to figure out how to blame somebody else, just go ahead and talk to me, because it's my job to make sure that we fix these messes even if I don't make them," Obama said.

 

But shortly before Liddy testified, Obama delivered a harsh message to companies such as AIG and, in general, Wall Street: Don't plan on returning to business as usual.

"The business models that created a lot of paper wealth but not real wealth in the country and have now resulted in crisis can't be the model for economic growth going forward," he said.

 

CNN again because my work doesn't block it.

 

Maybe just pretty words, but I haven't heard them from someone in office for quite a long time, at least he's making outward effort

[DrDNA]

Well, the banks started collecting the insurance due to too many unpaid loans and mortgages, resulting in mounting losses. AIG, although at fault for guaranteeing/insuring so many of the various banks policies despite their failure at meeting capital requirements for those policies, cannot be allowed to fail because their failure results in bank failures across the entire globe... many bank failures across the globe... which ultimately results in all of us standing in line at soup kitchens and trying to find a way to eat rocks and make clothes out of discarded trash.

 

Of course that it is the story.

And it is that story which I have a problem with.

 

But Chapter 11, not to be confused with Chapter 7, is not "failing".

It is reorganization and restructuring.

It has been used many times in the past under similar situations and with success; for example, in the airline industry.

 

 

 

How Does Chapter 11 Work?

The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt. The plan must be accepted by the creditors, bondholders, and stockholders, and confirmed by the court. However, even if creditors or stockholders vote to reject the plan, the court can disregard the vote and still confirm the plan if it finds that the plan treats creditors and stockholders fairly. Once the plan is confirmed, another more detailed report must be filed with the SEC on Form 8-K. This report must contain a summary of the plan, but sometimes a copy of the complete plan is attached.

 

Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.

 

 

 

http://www.sec.gov/investor/pubs/bankrupt.htm

 

 

So Chapter 11 can be used, for example, to ensure that companies don't carelessly throw multimillion dollar bonuses at executives.

 

Unlike the current "bailout" plans, which don't seem to have any inherent mechanisms to insure that the same mistakes are not repeated, Chapter 11 guarantees a high degree of control and guarantees that things will change; ie, restructuring.

 

 

So, I ask again:

Why no Chapter 11 for AIG and others?

Edited March 19, 2009 by DrDNA

[iNow]

So, I ask again:

Why no Chapter 11 for AIG and others?

 

It's a US-based solution to an Earth-wide problem. Your post strikes me as mostly populist anger (which I do share, mind you), but not much noticable understanding of the systemic connections and risks.

 

 

If you blow up the foundation of a sky scraper, it's important not to focus entirely on the cement, and realize there's a lot of building resting on it which will crumble without it. Bankrupcy doesn't reinforce the cement or sturdy the foundation, it evacuates it and makes all of the structures it supports less stable as well.

[john5746]

It has been used many times in the past under similar situations and with success; for example, in the airline industry.

 

I believe the thinking was that unlike one airline going bankrupt, it would be as if all the airlines would be grounded, causing a ripple effect that would shutdown other areas of the economy, etc. More like a power company. Judging from the aftermath, I think they were probably correct.

 

When an airline is under bankruptcy, people will still fly with them if the price is right. Not so sure with banks or even car companies. They need to be there longer than just a flight to do business with them.

[DrDNA]

It's a US-based solution to an Earth-wide problem. Your post strikes me as mostly populist anger (which I do share, mind you), but not much noticable understanding of the systemic connections and risks.

 

 

If you blow up the foundation of a sky scraper, it's important not to focus entirely on the cement, and realize there's a lot of building resting on it which will crumble without it. Bankrupcy doesn't reinforce the cement or sturdy the foundation, it evacuates it and makes all of the structures it supports less stable as well.

 

iNow, it is not populist anger.

It is a rational question.

 

And, I'm not sure that you get my point.

 

Unlike throwing mud at a wall, which is what we are doing, Chapter 11 DOES NOT blow up anything.

It helps to ensure that the fiscal foundation is made MORE sturdy.

And the company could still receive "bail out" funds.

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i believe the thinking was that unlike one airline going bankrupt, it would be as if all the airlines would be grounded, causing a ripple effect that would shutdown other areas of the economy, etc. More like a power company. Judging from the aftermath, i think they were probably correct.

 

When an airline is under bankruptcy, people will still fly with them if the price is right. Not so sure with banks or even car companies. They need to be there longer than just a flight to do business with them.

 

I'm not talking about all the banks or car companies, I'm talking about AIG.

Edited March 19, 2009 by DrDNA
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