AIG Bonus Outrage Only Grows Worse

The latest saga of this ongoing financial debacle centers around $165 million of American International Group (AIG) bonuses paid out to the very same executives that led the flailing insurer down the road towards ultimate collapse.

The shenanigans have further incited populist outrage directed at a crumbling, free-wheeling culture that has been unceremoniously dismissed as a laissez-faire sham. Recent developments have spiraled out of control, promulgating a circus-like dog-and-pony show of finger pointing, death threats, and open calls for the resignation of the Secretary of the U.S. Treasury.

AIG is a Disaster

The leading insurer at one point featured a market capitalization of over $100 billion and served as a prominent fixture of the Dow Jones Industrial Average. In summary, American International Group is a dominant player within all lines of insurance - particularly products designed to protect trading partners from the risk of counter party failure. Proper collateral and reserves must be posted in order for any insurer to make good on these promises. Still, AIG upped the ante throughout the credit and real estate boom - aggressively embracing egregious levels of risk to maintain pace with competitors.

Then, the bottom fell out in 2008 - with the AIG Financial Products Division serving as a critical flash point of the ensuing storm.

The viscous cycle of forced deleveraging arrived part in parcel with collapsing property values, minimal access to free capital, and credit rating agency downgrades that mandated AIG to put up even more collateral. Of course, AIG was then forced to liquidate assets at fire sale prices.

The September 15, 2008 bankruptcy of Lehman Brothers exacerbated the malaise as inquisitive onlookers questioned the valuations of distressed securities festering within AIG's books. The brutal developments threatened to crush AIG and set off yet another wave of chaos as this mega, multi-billion dollar insurer would have destroyed thousands of global banking institutions.

Federal Government Bailout

The U.S. Government proceeded to institute fiscal Marshall Law - effectively designating AIG as a "Too big to fail" intermediary. $170 billion worth of Treasury Asset Relief Program (TARP) loans, guarantees, and veiled capital grant money was funneled from the tax payer to American International Group coffers via Treasury and the Federal Reserve Bank. The legendary bailout is rivaled only by the nationalization of our Fannie Mae (FNM) and Freddie Mac (FRE) government sponsored enterprises.

The brewing outrage has only grown with every headline depicting a ramshackle banking culture that apparently masterminded the demise of Main Street America. Politicians and economic policy wonks must delicately balance the act of saving AIG, preserving the sanctity of high finance, and commiserating with populist contempt.

Of course, the well-intentioned U.S. Capitol brain trust has only been further embarrassed by sordid details of $1,000,000 resort vacations, lavish gifts, and the recent $165 million worth of bonus payments to AIG brass financed by the taxpayer.

AIG Management Receives Death Threats and Tim Geithner is Under Fire

The spectacle established a brand new crescendo on Wednesday, March 18, 2009. The day's Congressional hearings arrived in the brief aftermath of a Republican leader urging AIG executives to commit suicide and shocking death threats being delivered to AIG's New York offices threatening retaliation via chicken wire asphyxiation.

Yesterday's fiasco was highlighted by New York Attorney General Andrew Cuomo demanding a list of AIG executives receiving bonus payouts, statesmen threatening to tax these bonuses at 100%, protestors demanding that Treasury Secretary Geithner is fired, and President Barack Obama's resounding assurance of White House support for the beleaguered Treasurer. Says Obama,"He has been dealt a bad hand - but has made all the right moves."

Embattled AIG boss, Edward Liddy stood tall - refusing to give up names. The latest installment of castigated AIG Hank Greenberg / Martin Sullivan / Robert Willumstad front men claims that systematically identifying and forcing these AIG leaders to return the bonus money will provoke critical managers to resign at best and put their lives in jeopardy at - worst.

Chairman Liddy, although visibly demoralized by the bonus contracts implemented prior to his watch has refused to kowtow to the mass anger that rails against a rigged system rewarding Bigwig failure - while working class, middling Americans lose their homes. Hacks jest that Liddy is out-of-touch with his declaration of mass defections - because these AIG imbeciles would be unable to find work in this wretched job market, anyway.

Of course, Wall Street remained unfazed by the televised, Comedy Hour. Stocks, taking their cue from the Federal Reserve Bank's commitment to purchase an additional $300 billion worth of treasuries sprinted to spirited gains - yet again. The Dow Jones Industrial Average added 91 points to close out at 7,486.58.

Shares of AIG skyrocketed by 41 cents to $1.37 - a 43% surge on the trading session.

This is a circus.

Stock position: None.

Comments

[cabaretewil...:]

Put all of those execs in labour camps for ten years. If they had screwed up in China they would be shot.

Mar 19 08:15 AM

[Thadeus Tho...:]

I heard an aspect of the CDS process I can not verify. Perhaps someone can. I heard that when a CDS was configured, a "premium" was added to the actually cash liability of it of from 5 to 15% or more. In other words, there was front end money being made from the get go. If that's the case, then the CDS market had to be grossly inflated, and therefore more funds out there than was covered by any real property or collateral. Where was this money supposed to come from when paid off? If I were AIG, and the CDS was say $1 million, but the face value was $ 1. 15 million, who covered the excess?
Am I missing something here or is this magic math? Can anyone confirm that this is part of the problem?

Mar 19 08:20 AM

[reality chk:]

These self proclaimed Superstars, 1st round draft choices , and franchise players did such a nice job running this company into the ground they truly beileve they deserve the extra pay. (bonus). Typicaly the bonus is above and beyond the regular pay and oftentimes it is about 20% of the regular wage. Does that mean that this section of AIG has over 73 executives that make over $5M / year? And how are these bonuses calculated based on what NET PROFIT?
This is Imoral. and Unethical to think that this kind of money is flowing into hands that have NO sense of reality. It apears that AIG has cornered the market on predators and "I'm better then you" types. Any reasonable person at any level would expect to share in a company's success. Please someone show me the recent success of AIG. They did succeed in geting the Taxpayers to foot the bill for their missmanagement of the company. loaded with lavish executive perks. If these people do not understand the posistion the company in in due to their direct involvement they need to be let go! Who wants to keep loosers like thse that simly skate their way through life and then expect bonuses for a job done so well. The Treasury should take over ( Nationalize) this company NOW . When this happens they will be Government employees working for a REAL wage like $40K/year.

Mar 19 08:30 AM

[youngman442002:]

Goldman Sachs..that is why AIG was saved...so GS could get their money....but yes the average Joe is getting quite pissed when the truth keeps slipping out.....the New York boys just keep helping out each other....and the rest of the Country has to pay for it....

Mar 19 09:28 AM

[JPTinKY:]

OK, Remember the scene in "Stranger than Fiction" when the bakery owner told the IRS agent that she only paid part of her income taxes because she wanted her tax money to go to roads, and schools, and not to big corporate executive bonuses and bailouts? Well, do the American taxpayers have enough courage to do the same thing? What if every American taxpayer refused to pay 50% of our income taxes for 2008 and specify that we refuse to pay for misappropriated bonuses for undeserving corp. executives, bankers, rating agents, etc. that created this mess in the first place. Bankers have already confessed that they approved mortgages for dead people in order to feed the Wall Street behemoths...and AIG insured all of this foul fodder to feed the monster...and now the fed wants us to pay up to feed all those involved in these llegal dealings? We are sick of double talk, excuses and lies. We are sick of shouldering the burden of those white collar criminals who take their bonuses and then thumb their noses at us.This is not capitalism...this is not socialism...this is not communism...what is this anyway?

Mar 19 09:33 AM

[I weep for ...:]

The real genius here is the current adminstration. They were able to turn the country's attention to the bonuses and away from the billions that went to counterparties, i.e., Goldmen, etc... The greatest trick the Devil ever pulled was getting the world to believe he didn't exist!

Mar 19 11:00 AM

[Annualgain:]

Congress's initiative to tax retention bonuses down to zero reeks of witch-hunt and Joe McCarthy. Say what you want about Barney Frank, but his suggestion to go after the bonuses as a shareholder instead of as a legislator or as a regulator is right on.

Mar 19 11:08 AM

[reality chk:]

Educated people who's expertise is to evaluate risk and compansate for it should be rewarded based on company performance. These criminals in their quest to number 1 violated every rule of risk management, by underastimating the level of risk or ignored the warning signs in the data. I don't want people like that in my company. Let them go NOW so they can go to work for the competition, and perhaps they can drive their new employer into the ground. and then we will do it all over again. This is not the free market system everyone wants not with this much corruption, greed, and lacking responsibility and accountability. This legalized theivery.

Mar 19 12:00 PM

[biomedlives:]

If AIG insists on retaining the idiots who created this mess, I hope they are spending 100% of their time cleaning it up and 0% creating new CDSs.

To prevent future situations like this one, where it appears that the people who create a financial mess are the only ones who can clean it up, I recommend a model from software development. Clearly describing a new piece of software, in the code itself and in separate documentation, is a fundamental principle of good programming style. If the original programmer steps in front of a Mack truck or takes a more appealing job across the street, another programmer can step in, read the description, and fix problems or make improvements in the future. I believe that financial institutions should require the same of their traders and loan officers.

Mar 19 01:15 PM

[NYJerr:]

There's an easy way to solve this problem. Give all of these people the toxic assets as bonuses. Hand them out at the nominal value they were purchased at. Let these fraudsters make there own market for these worthless pieces of paper. It solves two problems at the same time.

Mar 19 02:03 PM

[mediapro:]

Let's continue down this track. For anyone willing to take off their "free market" blinders for a day, I would recommend reading two books:

John Perkins in "Confessions of an Economic Hitman" leaves his former life as a highly respected member of the international banking community to expose the real reasons that America's chickens are now coming home to roost. As a man on the inside of the capitalist, expansionist game, he takes the reader through his own experience of plying Milton Friedman's brand of Shock Economics thorughout the world stage.

Naomi Klein ("The Shock Doctrine") hones in on how this game was played on all of us at home.

The introduction, ascendency and idolatry of Milton Friedman's brand of shock economics has done more to destroy the world's economy than any economic hypothesis in our lifetime. This is not just Reaganomics /Bushanomics, but the pitting of haves/have nots in a global play orchestrated through Milton's disciples within the IMF, World Bank, and governing neo-conservative world view since at least 1975.

Cutting taxes on the wealthy and re-distributing middle class income up to those captains of industry combined with wholesale deregulation and record deficits under Reagan, Bush I and Bush II, and conveniently leaving the $1 Trillion dollars of Iraq war spending off the books while the national debt ballooned from around $5 Trillion to $10.6 Trillion at last peek is an ingenious spin on what constitutes supply side stimulus, if not outright delusion.

Count the change left in your pockets, unless of course you are one of the few who benefitted from this latest episode of Shock Economics so popular with necons. I'll just ask you the same question Reagan used to ask: "Are you better off now than you were four years ago?"

If you're in the same boat as the rest of us, our "staying the course" has undeniably run the lot of us aground. If you have benefitted, then you're one of the lucky 2% that control 80% of America's wealth, completely comfortable that you'll ride out the storm until the next lunatic can covince most of the people all of the time into something completely counter to their own self interest.


On Mar 19 11:04 AM monday1929 wrote:

> It was called "Corporatism" by Mussolini. Fascism is a good word
> for it too.

Mar 19 05:58 PM