Hank Greenberg, the architect of AIG as a Global Powerhouse said recently, "I wouldn't have paid the bonuses." So how did some savvy negotiators convince Treasury and the Senate Banking Committee to let them fly.
The bonus tax bill, which makes its way to the Senate this week, will likely be passed in some form and could include a tax on any executives in a company receiving over $5 billion in bailout funds. As well, it could include a $250,000 -$400,000 salary cap for any executive.
President Obama is playing both sides of the political football. He is outraged and angry, but pragmatic and reasonable when he says, "I understand Congress' frustrations, and on one hand they are responding to everyones frustrations and anger but I think that the best way to handle this is to make sure that you close the door before the horse gets out of the barn."
Taxpayer bailout recipient AIG is set pay $165 million in bonuses, which led Congress to pass a "bonus tax" of 90 percent, attracting 80 plus Republican Congressman scrambling to beat their colleagues to the "Yes" vote. Apparently Wall Street executives are not very happy, and are planning a backlash of sorts by threatening to quit their jobs. Wall Street types feel like Barney Frank and his colleagues are missing the big picture and they should be focused on protecting the $165 billion in AIG bailout funds already committed. In their minds, this is small potatoes.
In a recession that rivals the Great Depression, leaders in private and public life have to come out of their ivory towers and get some perspective. We are in a period of "high tech bread lines." Millions of dollars being payed out to individuals when the economy as a whole is suffering is naturally garnering major resentment. Common sense would have told them to defer these bonuses until the economy is growing again.
The largest bonus of $6 million, went to Doug Poling and there are two ways to look at it. In the macro version, AIG might say, "We are losing money and we are not paying out bonuses to anyone this year." On the other hand, contract law is the basis for successful commerce. AIG was and is deeply interconnected with global finance as as the insurer or collateral of last resort. It had to be saved, some argue, or it may have destroyed a large portion of the global financial and corporate system.
The big mistake was underestimating public backlash over paying people millions of dollars at a firm that is being propped up by tax payer dollars—even if Mr. Poling at al had nothing to do with the losses. Apparently, Barney Frank is even considering applying the tax to any bank that receives over $5 billion in bailout funds including institutions like Fannie Mae (
FNM) and Freddie Mac (
FRE). I don't feel sorry for Wall Street, the public should be angry, and demand a solution, but we would be nuts to punish ourselves in the long run with political solutions.
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Hmmm.... 165 million is a lot. 1.6 TRILLION at risk (i.e. if the employees, knowing their business was being closed, had walked and just left the books to unravel) is a shitload more!
I wonder how the remaining employees will feel when asked to commit 100% to running the company down safely knowing that, at any time, the politicians - who lets face it dont exactly have a great track record themselves - can renege on bonuses, abrogate contracts and orchestrate public anger so dire that death threats are made.
Seems like these people are putting the whole $170 billion investment (including the 87 billion debt) at risk - NICE GOING
Congressman X: " Do you have good people who understand these derivatives?"
Regulator: "Yes"
Cong: "Did you have to give them a $2 million bonus to keep them?"
Regulator: (Laughing) " No, they get around $100,000 per year in salary"
The guys in AIG FP who insist they need to be kept are guilty of extortion. Get real.
Maybe the system is working. 15 out of the top 20 have given the bonuses back. Some of them are doing that because it is the right thing. Some fear exposure. Let's see, fear of being exposed doing wrong..... I think they call that accountability. And as far as the death threats, that's a red herring. Nobody takes them seriously, Liddy read them for the shock value. Most of the bonus money will come back, the foreigners who keep it should be fired, and then we can get onto the real issue, which is the payments to the banks and Goldman Sachs.
I noticed when Obama defended the request for more government power over financial institutions other than banks he had no specific example of how that power would be exercised other than to bring down salaries that are "too high." Based on what? The mob already brought down the merely middle-class pay of auto workers on the perception that those wages were "too high" (in the auto bail-out negotiations), and Obama, who complained last night of stagnant wages, did nothing to stop it or defend what had been labor's crown jewels. To the most vocal and vigorous in our US mob, a moderate income is "too high." We are, with this, unleashing hell, and it's not even a socialist hell, it's a socialist-fascist inferno. As was China's.