Obama tries to block AIG bonuses

[DrDNA]

I'm not sure exactly what he's trying to say about Lawrence Summers, but he's certainly not an apologist for the AIG bonuses:

 

http://www.cbsnews.com/blogs/2009/03/15/politics/politicalhotsheet/entry4866598.shtml

 

He's simply stating the reality of a bad situation, one largely precipitated by the previous administration's insistence that bonuses like this be honored.

 

 

From your link:

 

"It is outrageous," Summers told host Bob Schieffer. "The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous."

 

But Summers also said that "you can't govern out of anger" and that the government doesn’t have the power to stop bonuses from being paid out under existing contracts.

 

"If we simply throw up our hands, refuse to deal with any of this, we'll have the kind of financial catastrophe that we saw after what happened at Lehman Brothers," Summers said. "[Treasury] Secretary Geithner has negotiated very forcefully with AIG. He has done everything that is legally permissible for the government to do to limit the payment of bonuses. But where there are contracts, binding contracts that were entered into long before the government put any money in to AIG -- we're not a country where contracts just get abrogated willy-nilly."

 

Summers added: "And if we were to start doing that, there would be potentially very destabilizing consequences."

 

 

As you can see from the quote, he says that it is "outrageous" (three times none-the-less) and then justifies Geithner's actions and the government's actions regarding the bail out.

 

Conclusion:

Summers is an apologist and/or a drama queen.

And he is towing the current administration's line; while blaming the Bush administration.

 

I'm not saying that the Bush administration isn't to blame for some or even most or all of it, but Summers definitely is being an apologist for the current administration's actions.

[iNow]

You obviously do not understand Chapter 11.

I suggest that you turn off the TV and the internet videos, produced and scripted by the talking heads, and do some reading.

You will discover that the partners will get a PORTION of what they invested (at our expense none-the-less).

Which is much more than they deserve.

The only thing obvious here is that you've missed my point entirely. I was not talking at all about investors. I was talking about those who hold policies with AIG, and who are trying to collect on those policies.

 

Would you like to try again... Maybe take a mulligan on that last reply?

 

 

I do not believe that you fully comprehend the nature of investing either, or else you would not be making many of the statements that you are making.

How about another mulligan? I'm not talking about investors, but policy holders looking to collect.

 

 

They (the partners and investors) are not 'owed' anything...nada...zippo.

They did not put their money in an FDIC insured bank account.

They invested it.

They were speculative investments...and they should be subject to all the risks contained within.

And that includes my own 401K investments which are in the toilet.

Alright, dude... seriously... You're like 35 over par at this point. You seem to be missing the fact that AIG is an INSURANCE company, and that people need to collect on insurance POLICIES.

 

Please read my previous posts with this in mind, and I think you will be able to more clearly grasp my point.

 

 

 

Here is one of the best articles that I have read so far to get you started:

I wouldn't really mind you being a jerk to me if you were at least correct and arguing relevant topics. But, since you're not... well...

[DrDNA]

I hope you all appreciate that each of these "solutions" [including Chapter11] will include paying employees retention bonuses.

 

How do you figure that?

 

Contracts are renegotiated under Chapter 11 and void in Chapter 7.

 

Plus, the bonuses are a drop in the bucket.

Everyone is screaming about a few million when billions and billions are being thrown around.

I think that it is a distraction to be honest.

Wrong, but still a distraction from the major issue(s) and the major bucks.

[iNow]

Sure there will be a time-delay when the market fills in consumer demand, but even with the bailouts, there is no sufficient guarantee that AIG won't just file for chapter 11 in a few months anyway.

One thing I want you to recall is that this isn't about saving AIG. That's hardly the point. This is about preventing the livelihoods of those who have insurance policies with AIG from being demolished when AIG fails. These policy holders touch multiple sectors and modalities... like banks who insured loans... businesses who insured products and people... elderly and families with life insurance policies, and many others.

 

The reason the bailout is even on the table is to save those people who, through no fault of their own, would be crushed when their policies with AIG go to shit, and the ripple effects THAT would have... the failing banks, the families who can't collect on their policies, the businesses who are screwed despite having policies in place...

 

It really has nothing to do with saving AIG, and is instead completely about saving those who bought policies with AIG and have done nothing wrong... Nothing whatsoever, except to purchase insurance policies with one of the strongest insurance companies on the planet and regularly make their payments. If that insurance company fails, then so do all of the innocents holding policies with them, and then all of the people THEY owe money to, and there go your dominoes.

[bascule]

Again, Obama is against the bonus tax. So please explain to me again how Obama is trying to "block AIG bonuses."

 

Obama is against the bonus tax? Wrong:

 

http://www.reuters.com/article/politicsNews/idUSTRE52I81820090319

 

President Barack Obama on Thursday welcomed a U.S. House of Representatives vote to tax bonuses to employees at companies getting federal bailout money, saying it "rightly reflects" outrage at hefty rewards paid by American International Group Inc.

 

"Now this legislation moves to the Senate, and I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated," Obama said in a statement released while he was visiting Los Angeles.

 

Responding quickly to deep public anger, the House passed a bill to tax bonuses to employees at companies getting federal bailout funds and recoup most of the $165 million paid to AIG executives.

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Summers is an apologist and/or a drama queen.

And he is towing the current administration's line; while blaming the Bush administration.

 

I'm not saying that the Bush administration isn't to blame for some or even most or all of it, but Summers definitely is being an apologist for the current administration's actions.

 

The current administrations actions are honoring the law as passed. Do you want them to break the law?

 

Yes, this is largely the previous administration's fault. Language to prevent exactly this sort of situation was present in the original version of the bill, then removed at the request of the Bush administration. Now the Obama administration is stuck with it. They clearly aren't happy about it and are working to correct the situation, but they can't do that by breaking the law.

Edited March 24, 2009 by bascule
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[waitforufo]

How do you figure that?

 

Contracts are renegotiated under Chapter 11 and void in Chapter 7.

 

Plus, the bonuses are a drop in the bucket.

Everyone is screaming about a few million when billions and billions are being thrown around.

I think that it is a distraction to be honest.

Wrong, but still a distraction from the major issue(s) and the major bucks.

 

Chapter 11 or chapter 7 it does not mater. Someone will have to either reorganize or liquidate the company. That job is a short term position. Those types of jobs are all structured with a base salary and retention bonuses. The retention bonuses keep the employee working until the work is complete. If they did not structure the compensation in that way, people would likely quit before the work is done. New people would then have to be hired and the overall cost for restructuring or liquidation would be greater than paying bonuses.

 

I also agree that the bonuses are a drop in the bucket. The bonus uproar is simply a political distraction.

[iNow]

The bonus uproar is simply a political distraction.

I agree, but it's more than just a political distraction, it's a distraction among the populace. It's not the congress stirring the muck on this one, it's the people themselves. People need to get some perspective. I still think that the employees of AIG should voluntarily decline the bonus (company didn't make money, they shouldn't get bonuses... or, let the CEO tell them "You can take the bonus, but you'll be terminated if you do"). The point is, we've been focused on AIG for 12 days now instead of the greater economic issues, and people need to realize this and move on. It's like focusing on what color shirt you're wearing while you're bleeding to death from the jugular.

[DrDNA]

........I hope you all appreciate that each of these "solutions" will include paying employees retention bonuses. These bonuses, for a company the size of AIG, will amount to millions of dollars.

 

........many claims by employees against

a bankrupt company will receive the

same treatment under the Bankruptcy

Code as the company’s other unsecured

obligations. In most cases, this means

that employees are likely to recover only

a small fraction of what they are owed.

As a result, employees of bankrupt companies

often attempt to obtain a greater

recovery by seeking to have their claims

classified as administrative priority

claims. The difficulty in obtaining such

an administrative priority was recently

highlighted in the Third Circuit’s decision

in In re Hechinger Investment Co. of

Delaware. In that case, the Court of

Appeals held that “stay-on benefits”

owed to former employees of a bankrupt

company are entitled to administrative

priority only to the extent that such

benefits were attributable to services rendered

after the company filed for bankruptcy.

[/Quote]

 

In general, secured claims

have the highest priority and will be

relatively unaffected by the bankruptcy

case. Unsecured claims fare less well,

and are likely to receive a smaller prorata

distribution from a bankruptcy estate

that contains insufficient assets to

satisfy all creditor claims.

Moreover, not all unsecured claims

are treated equally. Bankruptcy Code

section 507(a) establishes nine separate

categories of claims that must be paid

before the holder of any other unsecured

claim can receive a distribution from the

estate. Foremost among these unsecured

priorities are the post-petition expenses

of administering the bankruptcy

estate (discussed below). Other priority

claims include contributions to employee

benefit plans, claims asserted by

farmers and fisherman, alimony and

support claims, certain tax claims, and,

as relevant here, claims for “wages, salaries

and commissions, including vacation,

severance and sick leave pay earned

by an individual,” but only to the extent

that they were earned within 90 days of

the bankruptcy filing and do not exceed

a periodically adjusted amount. Priority

pre-petition employee compensation

and severance pay claims are junior only

to secured claims, post-petition administrative

claims and certain claims arising

during an involuntary bankruptcy

case. To the extent that an employee’s

pre-petition claim exceeds the statutory

priority dollar limitation, it will be

treated as a general unsecured claim

against the debtor’s estate.[/Quote]

 

An employee claim can enjoy higher priority

if it qualifies as an “administrative

expense.” Bankruptcy Code section

503(b)(1) provides that “administrative

expenses” include “the actual, necessary

costs and expenses of preserving the estate,

including wages, salaries, or commissions

for services rendered after the

commencement of the case.” Essentially,

any obligation incurred by a

trustee or chapter 11 debtor during the

course of a bankruptcy case is conferred

with a special priority entitling it to payment

prior to all pre-bankruptcy unsecured

obligations. The enhanced

priority was intended in part to encourage

vendors and other creditors to do

business with, or extend credit to, a

bankruptcy trustee or chapter 11 debtor.

It was also designed to encourage employees,

officers, directors and consultants

to continue working for the debtor

so that it can continue operating, or restructure

its operations with the assistance

of qualified personnel. Regardless

of the kind of claim involved, it can be

conferred with administrative expense

status only “if it gives rise to an actual

and necessary expense of preserving the

estate.” Courts interpret that standard

very narrowly and sparingly grant administrative

status to a claim.[/Quote]

Recent Developments in Bankruptcy and Restructuring Vol. 1 No. 7 October 2002

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It's like focusing on what color shirt you're wearing while you're bleeding to death from the jugular.

 

Red.

Edited March 24, 2009 by DrDNA
Consecutive posts merged.

[iNow]

Red.

Does that mean you don't wish to address my criticism of your approach that you are looking at this in a vacuum and assuming that all businesses are the same and only the employees of AIG are of concern?

 

Do you wish to avoid commenting on the fact that AIG is an insurance business, and a failure right now when so many people are collecting and filing claims on bought and paid for policies would make those policy holders fail and miss their capital requirements?

 

Do you wish to ignore the fact that AIG is one of the biggest insurers out there, and that many of their clients are banks who would fail if their claims go unpaid, and that bank failures make the situation deteriorate dramatically faster and intensely worsens the overall economy?

 

Do you wish to continue pretending that AIG can be treated the same way as the baseball card shop down in the small town where you grew up?

 

If so, that's cool. No worries. Please, just let me know so I can stop responding and providing answers to your questions. I don't want to waste my time if it's falling on deaf ears / blind eyes.

[DrDNA]

Does that mean you don't wish to address my criticism of your approach that you are looking at this in a vacuum and assuming that all businesses are the same and only the employees of AIG are of concern?

 

Do you wish to avoid commenting on the fact that AIG is an insurance business, and a failure right now when so many people are collecting and filing claims on bought and paid for policies would make those policy holders fail and miss their capital requirements?

 

Do you wish to continue pretending that AIG can be treated the same way as the baseball card shop down in the small town where you grew up?

 

If so, that's call. No worries. Please, just let me know so I can stop responding and providing answers to your questions. I don't want to waste my time if it's falling on deaf ears / blind eyes.

 

No. It means that the shirt will be red.

 

 

As for the rest of it:

 

What differentiates AIG from all the bad investments made in Pension funds and 401Ks? Poof!

How many of the most vulnerable people does that effect??

 

What about Universal Health Care? Poof!

 

What about Social Security? Poof!

In 2017, the amount collected in payroll taxes will NOT be enough to pay retirees' Social Security benefits.

In 2008 alone $209 Billion was borrowed from Social Security and spent on other unrelated federal programs.

The Government owes (Jan '08) Social Security more than $2.258 Trillion.

 

So, what funds do you think that they are now using/going to use to fund AIG and other bail outs??

 

Did you ever consider that??

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[iNow]

Well, I wish to state that you still haven't addressed any of my questions, but moving beyond that...

 

Let me ask...

 

Do you think that making an investment is the same as purchasing an insurance policy? It sure seems like you're conflating the two, and focusing entirely on the investment decisions made by AIG, and ignoring their clientele who hold policies with them (hence, my comments about you posting in a vacuum or in isolation).

 

 

BTW - The graphic you added while I was posting does not seem to account for income from other sources coming into the company from non-government sources. I just thought I'd mention that.

[DrDNA]

Well, I wish to state that you still haven't addressed any of my questions, but moving beyond that...

 

Let me ask...

 

Do you think that making an investment is the same as purchasing an insurance policy? It sure seems like you're conflating the two, and focusing entirely on the investment decisions made by AIG, and ignoring their clientele who hold policies with them (hence, my comments about you posting in a vacuum or in isolation).

 

 

BTW - The graphic you added while I was posting does not seem to account for income from other sources coming into the company from non-government sources. I just thought I'd mention that.

 

I thought that I did.

As in...here's your real "vacuum":

Pension funds (which are based on investments), 401k investments, Health Care and Social Security.

 

Do you not believe that these are all at least as important as, or even more important than AIG?

The bailout of which, you seem to be able to justify primarily by the repeated and over use of the term "vacuum"?

 

I have asked this before and I'll ask it again.

Please show evidence that Chapter 11 means that the little old ladies that bought insurance with AIG will not be covered?

 

Company Description

70 Pine Street

New York, NY 10270

Phone: 212-770-3099

Fax: 212-425-3499

http://www.aig.com

 

American International Group, Inc., through its subsidiaries, provides insurance and financial services in the United States and internationally. It operates in four segments: General Insurance, Life Insurance and Retirement Services, Financial Services, and Asset Management. The General Insurance segment underwrites various business insurance products, including large commercial or industrial property insurance, excess liability, inland marine, environmental, workers’ compensation, and excess and umbrella coverages. It also offers various specialized forms of insurance, such as aviation, accident and health, equipment breakdown, directors and officers liability, difference-in-conditions, kidnap-ransom, export credit and political risk, and professional errors and omissions coverages. In addition, this segment provides property and casualty reinsurance products to insurers; automobile insurance products; residential mortgage guaranty insurance products; and commercial and consumer lines of insurance products. The Life Insurance and Retirement Services segment offers individual and group life, payout annuities, endowment, and accident and health policies, as well as retirement savings products consisting of fixed and variable annuities. The Financial Services segment provides commercial aircraft and equipment leasing, capital market operations, consumer finance, and insurance premium financing. The Asset Management segment offers investment-related services and investment products to individuals, pension funds, and institutions. The company was founded in 1967 and is based in New York, New York.[/Quote]

http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?symbol=AIG

 

Other than life insurance and pension/retirement related services, which of AIG's business interests are going to make the sky fall when they disappear??

 

Here's the scenario.....

Chapter 11.

Then we pick up the critical sectors of the company, kill the parts that are not related to the sky falling and simply let the competitors fill the "vacuum".

Why you got a problem with that.....ehy?

 

Or is refinancing and having to find a new carrier for the insurance on my twin prop airplane and my Hummer too much of a burden to bear??

Edited March 24, 2009 by DrDNA

[iNow]

Or is refinancing and having to find a new carrier for the insurance on my twin prop airplane and my Hummer too much of a burden to bear??

 

My Doc, you sure are feisty tonight. Who pissed in your Cheerios?

 

Quick answer to your question?

It is too much of a burden. In your attempt to formulate an argument by ridicule, you seem to ignore now the scale of policies held by AIG. See post #99. I've referenced it once or twice.

 

Not only are other companies basically too small to handle the scope and sheer magnitude of policies held by AIG, but those other companies (existing in the current credit crisis) are also unable to secure the necessary credit to secure those policies. That's a big issue right now. Nobody can get credit because the banks are still in tough spots... as the banks themselves can't collect on their insurance policies to cover their unpaid policies.

 

Systemic sure is a wacky word, in't it? It's the circle of life, Cymba.

 

 

Listen... Let's stop. We don't agree. Oh well. I think Chapter 11 causes more problems than it solves. You think it's a panacea. Whatever. AIG is a very low priority on my concerns list, and I'm not about to let my feelings be dictated by the short snippets we are all receiving on the media. Our populace is going all batshit crazy over, as waitforufo rightly commented, a distraction.

 

I think the bonuses should not happen because they didn't make money, and would not exist as a company were it not for the bailout. Tax payer money should not be used for bonus pay, only to help the company do the needful to survive.

I think the bailout was necessary because of how big AIG is, and how interconnected they are globally with banks, businesses, and people. They hold too many policies to fail, and failure of those policies would have a tremendous multiplier effect in terms of negative market impact, making it that much harder for us to claw our way out of this mess we're in.

I think Chapter 11 won't work because there aren't enough "others" with a strong enough cash position to absorb AIGs policies, and credit is too tight for them to get the necessary funding to do so.

 

I'm done here, now. Enjoy.

[DrDNA]

iNow,

If you ever come back.

I'll rephrase my question using your information.

 

1. This slide (below) is from your link in #99....

Please list which of these foreign and domestic AIG business sectors that we (the USofA) can not let fail or be absorbed by a competitor and why it is not in our best interests that we do not simply let them fail or be taken over by a competitor.

 

 

2. From the information in your slide (below), it should be obvious to even the casual observer that AIG is a monopoly, thus violating the spirit of antitrust laws. One could argue that it should be broken up into smaller pieces to allow, encourage and promote competition anyway. Why shouldn't AIG be restructured and broken up into smaller pieces?

 

 

3. If I were an employee of an AIG competitor. I'd have at least one additional reason to be REALLY ticked off right about now.

I'd be looking for my piece of the bail out pie. Wouldn't you?

 

Edited March 24, 2009 by DrDNA

[iNow]

Okay, just because you're such a sweetie, and you always treat me so nice... I'll go ahead and respond. I'm such a softie.

 

 

1. Please list which of these foreign and domestic AIG business sectors that we (the USofA) can not let fail or be absorbed by a competitor

I never suggested it was not in our best interest to let them be absorbed by a competitor. I suggested that the feasibility of a competitor being large enough and having enough cash reserves to do so is next to nil. Basically, I'm not arguing that we shouldn't let them do this... I'm arguing that they cannot do this. Slight, but rather important difference to keep in mind.

 

 

and why it is not in our best interests that we do not simply let them fail or be taken over by a competitor.

I have outlined numerous times why it's not in our best interests to let them fail already. If you do not accept the numerous posts I've made on this point thus far, I'm not going to waste my time explaining it yet again. As I said, we just disagree. No worries.

 

 

2. From the information in your slide (below), it should be obvious to even the casual observer that AIG is a monopoly, thus violating the spirit of antitrust laws.

That's actually quite irrelevant to my premise, which is the downstream effect of enforcing moral hazard here.

 

 

One could argue that it should be broken up into smaller pieces to allow, encourage and promote competition anyway. Why shouldn't AIG be restructured and broken up into smaller pieces?

I actually think they should be. I think we should split them into smaller bits, and also that we need to update our laws to prevent companies from ever getting that large in the future. However, that's all for the future... It's stuff that would have needed to have been done years ago to make any difference now.

 

In fact, now that we own ~80% of AIG due to the bailouts, imposing such a restructuring should actually be much easier to accomplish, and I'm all for it. As I've tried to make clear, my actual position is that I see more harm than good coming from a declaration of Chapter 11 right now, and I'm basically arguing for the lesser of two evils.

 

 

3. If I were an employee of an AIG competitor. I'd have at least one additional reason to be REALLY ticked off right about now.

I'd be looking for my piece of the bail out pie. Wouldn't you?

Again, irrelevant to my points. Sure, I'd be angry, but my personal childish emotions have zero impact on the market and how it will respond (read: crash) if a monstrous giant like AIG were to go under without the required capital already being secured, available, and ready to fill those voids you mention.

 

If we were dealing with AIG in isolation... in a vacuum... I'd quite agree with you. Unfortunately, reality is a bit more complicated than the black and white case you continue to present.

 

Okay... Now I'm done... Really. I just couldn't resist... you buttered me up by attaching a picture from the file I shared. That was sweet, and you're thoughtfulness really touched me in a special place...

 

Ewwww.... Why did I have to go there?

[DrDNA]

In fact, now that we own ~80% of AIG due to the bailouts, imposing such a restructuring should actually be much easier to accomplish, and I'm all for it. As I've tried to make clear, my actual position is that I see more harm than good coming from a declaration of Chapter 11 right now, and I'm basically arguing for the lesser of two evils.

 

 

OK.

 

Since iNow is gone, anyone else in the pro bail out camp care to comment on how "imposing such a restructuring should actually be much easier to accomplish" when we can't even control how they dish out multi million bonuses??

[iNow]

Does that mean you don't wish to address my criticism of your approach that you are looking at this in a vacuum and assuming that all businesses are the same and only the employees of AIG are of concern?

 

Do you wish to avoid commenting on the fact that AIG is an insurance business, and a failure right now when so many people are collecting and filing claims on bought and paid for policies would make those policy holders fail and miss their capital requirements?

 

Do you wish to ignore the fact that AIG is one of the biggest insurers out there, and that many of their clients are banks who would fail if their claims go unpaid, and that bank failures make the situation deteriorate dramatically faster and intensely worsens the overall economy?

 

Do you wish to continue pretending that AIG can be treated the same way as the baseball card shop down in the small town where you grew up?

 

If so, that's cool. No worries. Please, just let me know so I can stop responding and providing answers to your questions. I don't want to waste my time if it's falling on deaf ears / blind eyes.

This was almost prophetic.

 

 

I wish you would have just told me you weren't listening/reading so I wouldn't have wasted so much time with all those additional posts.

[Pangloss]

Obama is against the bonus tax? Wrong:

 

That was the public/weekday Obama. The private/weekend Obama was singing a very different tune. Over the weekend he called a number of Senate Democrats and had them kill the bill, which they did this afternoon. It can't even come up for a vote now before the recess, and will likely never come up again at all.

 

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/23/AR2009032303201.html?hpid=topnews

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Anger at Chris Dodd seems to continue to wax even as the retroactive anti-AIG compensation tax seems to have died in the Senate. Jay Leno is calling him "Chris Dodge" now, and he continues to face daily heat over the AIG bonus loophole.

 

And according to this article from the Sunday Washington Post, Dodd received two mortgages at below prime lending rate. Dodd's excuse? He says he didn't know he was getting a rate below prime. Dodd is the chairman of the Senate Banking Committee, so that doesn't seem real likely.

 

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/21/AR2009032102239.html?hpid=sec-politics

 

I think Chris Dodd is headed for a fall.

[iNow]

He's just a fall guy... The patsy... The scapegoat. He was hardly the only the one involved.

[Pangloss]

Cool, we can get the others next.

[iNow]

I hear pitchforks are selling well these days. I wonder if we can call Salem to get some good ideas and learn from their experiences.

[ParanoiA]

It's just fitting that the same pitchfork mentallity that hounds the AIG Exec's will now fry Dodd.

 

We don't need Salem's pointers, we're right on track. We haven't lost a step since those days.

[iNow]

917Q8dbpRLE

[bascule]

He's just a fall guy... The patsy... The scapegoat. He was hardly the only the one involved.

 

Yes, and of course a certain amount of culpability lies in all the people who voted for the bill with altered language.

 

But the majority of the blame lies in the instigators: namely the Bush Administration.

 

This is Bush's last "f*ck you" to America.

[waitforufo]

The AIG plan under Bush was put together by Timothy Geithner.