AIG Giftwraps $450M

The insurance giant American International Group (AIG), who has received so far $173.3 billion (far more than has been offered to any other financial firm) in taxpayer bailout money from the U.S. Treasury and Federal Reserve - has plans to dole out more than $1 billion in bonuses and retention pay to employees. About $450 million - according to WSJ - will go to executives in the same business unit that wrote trillions of dollar’s worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages which later (Sept ‘08) brought the insurer to the brink of collapse.

Those payments are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. AIG is also making over $600 million in retention payments to over 4,000 employees.

Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees. [WSJ]

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that he had “grave concerns” about the impact on the firm’s ability to “attract and retain the best and brightest talent” if employees believe that their “compensation is subject to continued and arbitrary adjustment by the US Treasury”. [ABC]

Liddy also said “the next payments to employees of the financial products unit — whose woes caused massive losses at the giant insurer — are due on Sunday, and added “quite frankly, AIG’s hands are tied.” [WSJ]

Has to be one of the lamest and worst excuses I have ever heard. This is nothing more than poor and myopic government appointments (Edward Liddy was installed at the insistence of the Treasury) and politics. After all, when Wallstreet is in bed with Washington politicians this is to be expected.

During an appearance on Sunday, on CBS’s “Face the Nation," Lawrence Summers, director of the White House National Economic Council said: “what’s happened at AIG is the most outrageous.” Having said that, he quickly added on ABC’s “This Week with George Stephanopoulos” program: “The government cannot just abrogate existing contractual obligations.”

Certainly avoiding shaking the confidence in the legal system and preventing non-equilibrium issues is a noble notion that must be respected. However, what thousands of frightened, angry, and newly poor Americans find even more outrages in this whole scenario, and more importantly - insulting to their intelligence - is the audacity of “AIG’s so-called best and brightest talents” asking taxpayers to subsidize these raises for their personal gain. The question is: on what moral authority?!!

The payment of so much bonus money to a constantly bleeding company, managed less than amateurishly by its top brass (including former co. executives who have already deserted the business after raking in millions for steering the company into bankruptcy) whose only priority is that of taking full advantage of the economic chaos, while claiming that they’re entitled to do so ; simply defies logic.

While the economic implications of liquidating AIG could be quite serious - considering the fragile state of the economy - these latest developments will almost certainly fuel more rejection and popular backlash against the government’s insistence to keep the international insurer afloat.

Comments

[ColoradoBob:]

It's amazing the BS that continues to spew from D.C. I just watched part of Pres. Obamas news conference where he announces that he is disgusted by the bonuses paid to AIG employees and he's asking Geittner to try and stop it. And then I read an article quoting Barney Frank as "we're rewarding incompetence"; what unbelievable arrogance!

So here we are. Govt. made the mistake in the first place giving these companies our money. Now they want to tell them how they can spend it and the fact that these employees had contracts makes no difference to them. So Summers says "we can't just abrogate the contracts". Well, if we had left them alone to go into bankruptcy, they could have. Because Dubya, Paulson, Obama, Geittner, Bernanke stuck their noses (and our money) into the "free" markets to prop up failing "banks", we're now stuck with them attempting to manage the banks affairs. We might as well fire the CEO's and put Bernanke, Geittner and Barney Franks in charge of their board meetings.

I wonder when they're going to complain about the commissions that GM and Chrysler salesmen are getting. Surely they must not deserve any bonus for selling, since they're both funded by the US Govt. and they're loosing money!

Comrades, get ready for the rising tide of govt spending and intrusion into our lifes to just bury us.

Mar 16 04:56 PM

[IAMNEXIALIST:]

AIG needs to go - NOW! I own an insurance policy with them that I have paid on for the past 20 years. I am willing to give it up just to see them depart!

Mar 16 05:05 PM

[sophocles1985:]

What the most amazing thing about the "bailout" is that has become the biggest financial scandal the United States has ever faced. Banks refusing to tell the US Govt where the money went, saying that it is private! What a complete load of BS. Thomas Jefferson once shot a man for treason on the White House front lawn, Why are Corporate executives not being lined up in front of a firing squad. They lose 61.7 billion dollars in three months and then have the nerve to threaten legal action over contractual obligations for bonus payments. All U.S. citizens should be shocked and outraged, but there will still be corporate advocates who will make the sheep, that most Americans have become, accept that they must pay the the very men who sent every job they could get their hands on to china. All so the stock would rise a fraction of a cent. My opinion is that we should seize all moneys and properties from any corporate executive who decides that a little taxpayer money should line their own pockets, and force them to be homeless as they have done to too many proud Americans.
To make things even brighter, we have politicians arguing over "partisanship" because one party that ruled the country with an iron fist for the last 8 years is angry that 90% of the country is sick of them, and the other party acting as bad if not worse than the former. George Washington warned that political parties would be the downfall of the country. Don't beleive it, look around. Both parties throw the constitution out the window every chance they get.
Democracy was called a great experiment. I think we have a control group, so that we can go ahead back to the drawing board and change the things that dont work. Lobbying, Earmarks, No term limit for senators, Only the wealthy can serve in Govt. If you make more than 100,000 a year you should not be able to serve in govt, as you are no longer in touch with the American people.
Ill finish with a Thomas jefferson quote. "A little rebellion is good for the country." Rise up, dont let traitors to the country, destroy what is left of it.

Mar 16 05:35 PM

[market ace:]

Sure the bonuses are outrageous and need to be stopped and the incompetent employees and management need to be fired not rewarded. All the gov't needs to do is throw them into BK as they surely can do as their largest creditor and let courts decide which contracts can be canceled.

Even worse is the payment of billions of our tax payer money to foreign banks. The actions of this firm surely do border on treason and they should pay dearly for their actions - somehow very long term jail sentences comes to mind in this regard. We could build a special VIP prison for the executives that run this tax payer scam. They make Madoff look like a saint. Hopefully we will also leave some cells available for the incompetent members of congress that have blessed this criminal action and continue to blindly fund these crooks.

Mar 16 06:05 PM

[Hamont:]

They cant fail plain and simple. Go to Frontline and watch Inside The Meltdown.

Mar 16 07:19 PM

[TryinToUnde...:]

So,
How exactly did AIG develop (Pay for Performance) contracts with employees lets say 1 2 or 3 years ago ? 1.) Should the company loose 95% + of its value you will be given 600% of your yearly salary. 2.) Should the losses on derivatives protections that you write exceed the premium collected by several thousand times causing the company to be on the verge of total collapse you will be awarded 900% of your yearly salary 3.) Should AIG's default possibly take down the entire world's financial system you will be awarded 1100% of your salary. 4.) Should the US Government assume 80% ownership of AIG you will be .........................
I am curious. What did the contract actually say ?

Mar 16 07:25 PM

[tshk1221:]

If bonuses are not paid as agreed or promised, key employees of AIG will leave for competitors and companies. And, there will be no employee left to work for AIG. If this ever happens, it will make it harder for AIG to do its business on a normal basis and, therefore, harder to pay back our taxpayers' money. I can understand the public fury if Edward Liddy, the CEO who is working in AIG for only $1 a year as compensation, got any part of these bonuses. I'm sure he did not get a penny of these bonuses.

It will make sense if the government reaches a deal with AIG to reduce future compensations or bonuses for the AIG employees. However, if the government tries to take away bonuses that were paid already, I can't help but think that the US government under Obama's leadership is turning into dictatorship that no one had ever imagined. Forciful take-away of the bonuses must never be done by the government. If this happens, the only resort for AIG to rely on is calling for bankrupcy, and US taxpayers and the government will just end up with nothing but pennies.

Mar 16 07:32 PM

[misiosnechacz:]

I think it's time to pull the plug.

Mar 16 07:39 PM

[Mr. Ed, Jr.:]

Remember when Biden said Obama would be tested early in his administration ?

Who would have guessed it would be by AIG ?

But, maybe the subject of bonuses and employee compensation should have been brought up before AIG got that last 30 billion. Just a thought.

Mar 17 02:33 AM

[RLLH:]

There is no need to abrogate the contracts. Simply give them the bonus and a paper announcing their immediate firing. Set them free to seek another company who wishes to go bankrupt.

Mar 17 11:34 AM

[monday1929:]

Here Here!!


On Mar 16 06:05 PM market ace wrote:

> Sure the bonuses are outrageous and need to be stopped and the incompetent
> employees and management need to be fired not rewarded. All the gov't
> needs to do is throw them into BK as they surely can do as their
> largest creditor and let courts decide which contracts can be canceled.
>
>
> Even worse is the payment of billions of our tax payer money to foreign
> banks. The actions of this firm surely do border on treason and they
> should pay dearly for their actions - somehow very long term jail
> sentences comes to mind in this regard. We could build a special
> VIP prison for the executives that run this tax payer scam. They
> make Madoff look like a saint. Hopefully we will also leave some
> cells available for the incompetent members of congress that have
> blessed this criminal action and continue to blindly fund these crooks.

Mar 18 07:53 AM