Obama tries to block AIG bonuses

[bascule]

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

 

I think that's a gross misstatement about the reality of the situation:

 

http://online.wsj.com/article/SB123777083390610069.html

 

Geithner did not "put together" the AIG plan, although his aides were certainly involved.

 

What involvement he did or did not have would be irrelevant if the Bush Administration had not specifically requested the bailout bill be altered to remove language which wouldv'e blocked the bonus payments in the first place.

[waitforufo]

The A.I.G. tempest has been especially explosive for Mr. Geithner because, as president of the New York Fed, he was the one administration official who had been involved in the Bush-era bailouts.

 

http://www.nytimes.com/2009/03/19/business/economy/19geithner.html

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From your source.

 

As New York Fed president, Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period.

 

http://online.wsj.com/article/SB123777083390610069.html

[bascule]

From your source.

 

As New York Fed president' date=' Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period.[/quote']

 

http://online.wsj.com/article/SB123777083390610069.html

 

Yes, do you see how that's different from what you said?

 

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

 

The AIG plan under Bush was put together by Paulson, not Geithner:

 

http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&ref=business&oref=slogin

 

Yes, Geithner's organization was tasked with actually giving them the money, but he certainly wasn't the mastermind behind it. The $85 billion to bailout AIG had already been allocated by the time he was involved.

[waitforufo]

Back in post 125 I stated…

 

Interesting discussion regarding government corporate bail outs, government takeover, court managed reorganization (chapter 11 bankruptcy), and court managed liquidation (chapter 7 bankruptcy). 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.

 

This post received a reply from DrDNA (133) regarding bankruptcy law. I'm not sure if this post by Dr DNA was supporting or dismissing my post. Perhaps I should clarify and then use the information provided by DrDNA to show how it supports my point.

 

Let's say instead of the bailout AIG received, the company had directly filed for Chapter 11 bankruptcy. Once filed it would have had to submit a reorganization plan to the court. That plan would have included dealing with its business areas that had caused its financial trouble. The bankruptcy court would then provide bankruptcy protection until plan was fully executed. In the end AIG would no longer be in several of the business areas it had originally been in. From filing chapter 11 to exiting chapter 11 protections there would be employees working to eliminate those troubled business areas. These employees would therefore be working to eliminate their own jobs. Such employees are always work under retention bonus plans. These retention bonus plans would be part of the reorganization plan. No bankruptcy judge in the country would find such retention bonus plans to be unusual. So since they are part of the reorganization plan, they would be the "secured claims" mentioned by DrDNA and would take priority over other debts.

 

Why do I say that no bankruptcy judge in the country would find such retention bonus plans to be unusual? Because the people performing the reorganization plan are being paid by the task. These plans are nothing more than "if you get X done in Y time you will get bonus Z." These plans are put in place to insure that the employees executing the reorganization plan don't drag their feet.

 

So even at this juncture, if AIG files for Chapter 11 bankruptcy, more bonuses will be paid.

 

The same would be true for a company that files Chapter 7 bankruptcy. The court would appoint liquidators. The liquidation plan would include bonuses to the liquidators in a similar way so that the liquidators do their job quickly and efficiently thereby saving assets for creditors.

 

If the government had more directly taken over AIG they would have set up a similar bonus scheme.

 

By the way, this is not different from a person not paying for a service until the job is complete. Do you pay your auto mechanic before he fixes your car? If you hired someone to put a roof on your house would you pay them in full at the beginning before they provided any service at all? Have you ever noticed how highway and freeway construction seems to drag on and then all of a sudden work is feverishly being done? This is because the construction company will be paid a bonus if the job is complete on a certain day (or levied a fine if not complete). Generally construction workers are happy to put in the extra effort because they directly share in the bonus or indirectly share in the bonus via overtime.

 

These types of bonuses are a normal part of business.

 

In a follow up post I said…

 

The bonus uproar is simply a political distraction.

 

In response to this iNow commented

 

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.

 

I agree with the above, however I don't think everyone should decline their bonuses. Those that have declined or returned their bonuses so far in all likelihood did not deserve them. The other 100+ millions of dollars was most likely earned by those receiving the money in the ways I mentioned above. Those keeping their bonuses will likely lose there jobs soon anyway.

 

Finally with regard to this being a political distraction emanating directly from the people, I have two thoughts. First, political leaders need to talk the people down from their anger on this issue. Second, the political leader most responsible and who has the most to gain for doing this is the president. His inability to do so shows a lack of leadership on his part. He will be the one who suffers most politically the longer it drags on.

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Yes, do you see how that's different from what you said?

 

So you are saying it that he was "central to the plan" but he did not put a bullet in the body so he is innocent?

[bascule]

So you are saying it that he was "central to the plan" but he did not put a bullet in the body so he is innocent?

 

I challenge you to go back to previous posts and find the words "central to the plan" you're quoting there (Hint: not there)

 

He oversaw the organization which handled dispensation of the $85 billion to AIG after Paulson had secured the money. If you read this article:

 

http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&ref=business&oref=slogin

 

...which covers the history of the plan to bailout AIG, you will not find Geithner's name mentioned.

[waitforufo]

As New York Fed president, Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period.

 

http://online.wsj.com/article/SB123777083390610069.html

 

Geithner was "central" and in on it from the beginning. You're splitting hairs.

[bascule]

http://online.wsj.com/article/SB123777083390610069.html

 

Geithner was "central" and in on it from the beginning. You're splitting hairs.

 

He wasn't involved in it from the beginning. Paulson decided AIG needed to be bailed out and appropriated $85 billion. The only reason Geithner is involved at all is because that $85 billion came from his bank. He was completely uninvolved in the process until the $85 billion had already been secured. Furthermore, the $85 billion represents about half of the bailout money that AIG received.

 

I'm not splitting hairs... "The AIG plan under Bush was put together by Timothy Geithner" is an outright lie

[waitforufo]

He [Timothy Geithner] played a pivotal role in the intense negotiations which took place before Lehman Brothers went bankrupt, and also helped forge the deals involving AIG and JP Morgan.

 

BBC, Tuesday, 27 January 2009

 

http://news.bbc.co.uk/2/hi/americas/us_elections_2008/7744755.stm

[bascule]

BBC, Tuesday, 27 January 2009

 

http://news.bbc.co.uk/2/hi/americas/us_elections_2008/7744755.stm

 

I'm glad you're able to find one sentence summaries of Geithner's involvement while claiming he "put together" the "AIG plan under Bush"

 

I linked you an article detailing in depth the specifics of how the AIG plan was put together. It's more than a sentence. You should try reading it:

 

http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&ref=business&oref=slogin

 

Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.

 

As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.

 

One of the Wall Street chief executives participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.

 

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

 

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

 

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.

 

A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.’s troubles and that Mr. Blankfein participated in the Fed discussions to safeguard the entire financial system, not his firm’s own interests.

 

Yet an exploration of A.I.G.’s demise and its relationships with firms like Goldman offers important insights into the mystifying, virally connected — and astonishingly fragile — financial world that began to implode in recent weeks.

 

Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

 

Originally intended to diminish risk and spread prosperity, these inventions instead magnified the impact of bad mortgages like the ones that felled Bear Stearns and Lehman and now threaten the entire economy.

 

In the case of A.I.G., the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. It nearly decimated one of the world’s most admired companies, a seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries.

 

“It is beyond shocking that this small operation could blow up the holding company,” said Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn. “They found a quick way to make a fast buck on derivatives based on A.I.G.’s solid credit rating and strong balance sheet. But it all got out of control.”

 

They met at Geithner's bank. I'm sure he was at the meeting and participated. But does it sound like he was the one who put the plan together? No, it was Paulson.

[waitforufo]

It was Geithner, as head of the New York Federal Reserve, who negotiated the AIG bailout last September. At that time, he could have sought to get bonuses repealed as part of the massive government loan.

 

http://www.time.com/time/business/article/0,8599,1886138,00.html

 

Headline "Treasury Learned of AIG Bonuses Earlier Than Claimed"

[bascule]

Wow, that's some AWESOME elimination of context there...

 

It was Geithner, as head of the New York Federal Reserve, who negotiated the AIG bailout last September. At that time, he could have sought to get bonuses repealed as part of the massive government loan.

 

Geithner's supporters argue that the AIG bailout was pulled together in less than one business day and that it's understandable that the bonus issue was not central to those negotiations. They also argue that in subsequent negotiations with AIG and others about further infusions of government cash, Geithner has imposed tough conditions limiting bonuses and executive compensation.

 

Okay, so who's more at fault here, the Bush administration, who went out of their way to actively eliminate the bonus protections in the original bailout bill, or Geithner, who pulled together the AIG bailout in less than a day and is guilty of not bringing up the bonuses then?

[Pangloss]

This is pointless. It's not as if Geitner disagrees with that plan, even if he wasn't The Architect or whatever. He was involved, and he completely supports the effort now. It's a silly digression, guys. </bonk>

Edited March 25, 2009 by Pangloss

[waitforufo]

I believe you will be seeing a lot more of this, further complicating the AIG situation.

 

Headline: Dear A.I.G., I Quit!

 

http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=2&ref=opinion

 

You should all read the entire resignation letter. It is quite interesting.

 

I found the following quote to be of interest.

 

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

 

Notice that he mentions the Federal Reserve first. I wonder who a the federal reserve he is refering to.

[iNow]

This is pointless.

<...>

It's a silly digression, guys. </bonk>

Precisely.

[ParanoiA]

I believe you will be seeing a lot more of this, further complicating the AIG situation.

 

Headline: Dear A.I.G., I Quit!

 

http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=2&ref=opinion

 

You should all read the entire resignation letter. It is quite interesting.

 

I found the following quote to be of interest.

 

 

 

Notice that he mentions the Federal Reserve first. I wonder who a the federal reserve he is refering to.

 

Terrific. At this point, I wish every employee of AIG would walk out with their middle finger firmly implanted on the closest big media camera lense. Screw the taxpayer, we deserve it.

 

We never learn from emotion based witch hunts. We love the lynch mob. It wasn't enough to do this all throughout our history, with minorities, witches, peasants...it's all the same, only the class of victim has changed. This is the pendulum swinging the other way. Now we're going to unfairly punish and ridicule; ruin the lives of people we don't know, job positions we don't know (and probably wouldn't understand) and have no ****ing clue as to their culpability - we don't even know who the goddamn janitor is, but we're just sure everyone receiving a bonus should be burned at the stake.

 

Idiots. Country full of damn idiots.

 

Why does history always repeat itself? Because we never listen. We just mouth the words.

[iNow]

Yeah... And here's another thing which nobody has mentioned...

 

Why does history always repeat itself? I'll tell you why... It's because we never listen. We are all automatons who just mouth the words. I'm so tired of people ignoring the lessons of history and repeating it. We're a country full of damn idiots!

[ParanoiA]

Glad we agree. So you're done with the wholesale association of guilt on people who's guilt you're entirely 100% ignorant on, right?

 

Or should we just "believe the mob" and hang that slave for raping a white girl?

[waitforufo]

This is why we have and need the second amendment.

 

http://www.cnbc.com/id/29862770

 

Just magine who might show up at your house because the Attorney General of your state published your address.

 

Cuomo must be so proud.

[bascule]

This is why we have and need the second amendment.

 

http://www.cnbc.com/id/29862770

 

Just magine who might show up at your house because the Attorney General of your state published your address.

 

Cuomo must be so proud.

 

I have to say, as a strong supporter of the second amendment... *FACEPALM*

 

No the second amendment isn't there to preserve your right to go brandish firearms at politicians when they do something you don't like. That's illegal by the way, second amendment or not.

 

Also unless there are specific laws against it I see nothing wrong with publishing this list.

[waitforufo]

I have to say, as a strong supporter of the second amendment... *FACEPALM*

 

No the second amendment isn't there to preserve your right to go brandish firearms at politicians when they do something you don't like. That's illegal by the way, second amendment or not.

 

Also unless there are specific laws against it I see nothing wrong with publishing this list.

 

By publishing the addresses of people who received AIG bonuses Attorney General Cuomo is encouraging random people to pay the bonus recipients a visit at their homes. Perhaps the Attorney General could look up the meaning of the word extortion. I'm sure he has a law book or two lying around. So nice of the Attorney General to be concerned about the safety of the citizens of his state.

 

I was simply suggesting that those citizens might want to take personal measures to protect themselves and their families.

 

Perhaps Cuomo's next step will be to park Guillotines outside their homes.

[iNow]

I believe that publishing their names would be criminal, and would fall into a similar category as "yelling fire in a crowded theater."

 

However, using the threat of publishing their names to gain leverage in negotiations is fine by me.

[bascule]

By publishing the addresses of people who received AIG bonuses Attorney General Cuomo is encouraging random people to pay the bonus recipients a visit at their homes.

 

The article says list of names, not list of addresses. Do you have an argument that isn't based on half-lies with some added spin?

[Pangloss]

I think it's right to stop executive compensation bonuses for companies receiving bailout funds. I didn't ask that guy to take a $1 salary, and I never understood why they did that anyway. It's always been understood that the real money came from the bonus. Am I supposed to cry my eyes out because he skipped a $250,000 salary when I didn't ask him to, and didn't take a multi-million dollar salary that the company DID NOT EARN, at TAXPAYER EXPENSE? I don't think so.

 

If you want to be compensated for your time, don't agree to work for free and take a bonus if one happens to be available at the end of the year. Guess what? It isn't available, because your company BLEW IT. You gambled, you lost. Next time, don't make a foolish wager that nobody asked you to take for public relations reasons that nobody cared about.

 

(I wonder what the unemployment compensation level is for a $1/year salary. 5 cents?)

[DrDNA]

This was almost prophetic.

 

Prophetic to you maybe.

I see no correlation what so ever.

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You still have not addressed each of the AIG business units in your slide and how they are critical to keeping the sky from falling...could it be Asian and European business interests or leasing airplanes???

I was hoping that you would be kind enough to go through them one by one to substantiate your claims about AIG needing to suck us dry without the sky falling.

If not, I don't see where you have much of a case.

[iNow]

I was hoping that you would be kind enough to go through them one by one to substantiate your claims about...

 

Please review again post #140, especially this relevant bit:

 

Okay... Now I'm done.

 

 

...Which, after I addressed your points about which you ask me AGAIN above, was posted to reinforce this comment, which I stated previously in post #138:

 

I'm done here, now.