Congress' Handling of AIG Bonuses Is Shameful

This is great. Our irresponsible Congress has declared war on innocent workers trying to fix the mess created by others and in part, by Congress itself.
Dear AIG, I Quit!!

Here is a good post on the current "Financial McCarthysim" currently being exhibited. Another one by Fred Wilson is here.

Another interesting point is the recent legislation to tax AIG bonuses above $250k at 90%. This is a retroactive tax legislation akin to Congress deciding driving a SUV is illegal and fining everyone who currently owns one. No different.

The height of the lunacy was the admission from Congress that members voted for it even though they assumed and realized it "would not pass a Court challenge". In other words, they succumbed to the angry mob they themselves incited. Let's not forget, these bonuses were not a secret and Treasury Secretary Tim Geithner knew about them months ago, as did many members of Congress.

In an effort to extort those who received the bonuses to give them back, the NY AG Cuomo demanded the names of those who received one. The implied threat here was the names would be made available to a then frenzied public. One must not forget these folks were already being subjected to death threats, had armed security at the building and patrolling parking areas. This was no idle concern on their part.

Let's look back shall we? Remember a little event called 9/11? What would have happened if the President and Congress attacked "Arabs" the way they currently are attacking "Wall St." and "Bankers". If we decided to pass retroactive legislation stripping Arab mosques of their tax free status as houses of worship and refund monies would that have been accepted or cheered by the public? Would the ACLU have remained silent?

We are a nation of rights and laws. The willing suspension of those for any group, no matter how distasteful it may be cannot be tolerated. Why? Someday you may be in the group targeted.

In the Federalist Papers #35, Alexander Hamilton wrote:

There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue. It might be demonstrated that the most productive system of finance will always be the least burdensome.

Yet, this is exactly what this Congress did... it is shameful.

Congress, in its infinitesimal childlikeness, held hearings to publicly eviscerate those NOT RESPONSIBLE for the problems at AIG. Now, they are leaving. Who will replace them? Who will try to assure the U.S. taxpayers get repaid? Would anyone in their right mind go work there now?

This was a pyrrhic victory for Congress. The theologian, Reinhold Niebuhr writing of the need for coercion in the cause of justice warned that: "Moral reason must learn how to make a coercion its ally without running the risk of a Pyrrhic victory in which the ally exploits and negates the triumph"

Guess Congress did not get the memo...

Disclosure: No position

Comments

[y3115y:]

AIG gave congress many million dollars, this is why your congressmen work for AIG, not you.

Mar 26 12:15 PM

[reality chk:]

Need to look at the root cause not just the byproduct. If Giethner approved these bonusses he will carry the responsibility and will have to be accountable for his actions. Even-so his actions were reactionary just like any politician. The Root Cause is the fact that a defunked company borrowed money and in turn they paid bonusses with that money to the very people who put the company on death row. The common man who's money they used does not understand how is it posible sizable bonusses of this amounts can be paid to execs who allready make multi million dollar base wage and screw up this big.
Please debate the Root Cause with out diversions from the root cause.

Mar 26 12:16 PM

[reality chk:]

Good now that we got this out of the way. Nationalize AIG and the rest of the bailed out banks. Make all their employees Government employees and pay them the prevaling government wage. $30K to $100K / year. ...


On Mar 26 11:31 AM I weep for this country. wrote:

> People we own AIG! Why are we trying to destroy it? It should be
> unamerican to bash the good people at AIG who are now working there
> knowing how bad they are perceived and yet staying loyal to the company.
> Keeping good employees who see some future in their current roles
> in the only way we will see any of that money that Congress decided
> to give to Goldman and France. Remember the people who caused the
> crisis left! And most of AIG is made up of good, solid insurance
> units that up until now were making money. But this grandstanding
> is now hurting that part of the business that had nothing to do with
> Financial Products whatsoever and which hold the key to taxpayers
> recouping what the Fed gave to the counterparties!

Mar 26 12:20 PM

[Leftfield:]

I agree with several above, such as Responsibility who brings up the rules and gimmicks Wall St. and Washington live by. I have watched rules, costs and conditions constantly changed to my detriment in my small business and small investment property. These people, their ultra-rich clients and paid politicians have been where the wealth of our society has been funneled piecemeal from former middle America's pockets.

Lots of adjustments need to be made, not least by those who routinely expect huge bonuses even now that the Wall St. system they created has imploded. Changing rules and tax laws happens all the time, I won't bore you with specifics I've suffered to my meager income many times. If the bonus tax was poorly drafted, it's yet another indictment of an even worse group, Congress.

Wall St. and DC have profited obscenely from the demise of the former middle class these last few decades. Look at Wall St. Journal, 3/24/09, p:C1, "AIG's Bonus Unit Now in IRS's Sights" to read of a small part of the work this fine institution does for the rich, the large banks and international corporations with offshore tax havens.

Right now, plenty of gleeful accountants are getting on the radio to try to answer tax questions posed by the ridiculous IRS system that supports countless otherwise unnecessary accountants and lawyers. There has been an ongoing explosion of this crap impoverished Americans deal with to profit the few.

Keep voting the incumbents out.

Mar 26 12:34 PM

[I weep for ...:]

Reality check:
Do you even realize that many of these executives were brought in after the fall to fix that unit. In fact, the man who heads up the unit was brought over from Merrill and guess what yes, you have to give him money in order for him to take the job since he is good enough to go somewhere else. Who would go there now? You own the company, it is losing value everyday. You can't blame Matt Lauer, who is getting ratings and making money for NBC, for the problems GE is having in their financial unit. Would it make sense not to pay him and then have him go to ABC? No, you would end up hurting the division that is making money! This is a conglomorate and there is plenty of good business units there that are now going to lose value because of the demonization of the parent. This FP unit is a fly speck on the Company as a whole but if we keep this up the whole company goes down along with all value the taxpayer could possibly reap from a sale. Your lack of understanding of how business works is fine, the problem is that Congress shares your ignorance.

Mar 26 01:16 PM

[NHFDSQD2:]

AIG should have been allowed to fail, it is called capitalism--Though I do not agree with the bonuses in these times, it sets poor precedent that the Congress is now back-dooring a contractual obligation made to AIG. Most of these career politicians should be booted out of office in the next election. It is clear that they do not support the US Constitution, and are trying to become dictators. Isn't that why our founding fathers left England? The strong survive in business, and the weak go bankrupt or get bought out. AIG is now reaping the rewards of the Payola to politicians (Dodd, Obama, etc.). This brave new world is going to be ruined by the greed of politicians. Set a 1 term limit so we only have to deal with the likes of Franks, Dodd, Pelosi, Reed, Byrd, Snow, Waters, etc. for limited time.
As Leftfield said--keep voting incumbents out until they serve the people, not lobbyists and failing businesses.

Mar 26 01:28 PM

[lostark98:]

Which is it; term limit or vote out? I submit intelligent voting is the way to go as it renders the need for term limits obsolete.


On Mar 26 01:28 PM NHFDSQD2 wrote:

> Set a 1 term limit so we only have to deal with the likes of
> Franks, Dodd, Pelosi, Reed, Byrd, Snow, Waters, etc. for limited
> time.
>
> As Leftfield said--keep voting incumbents out until they serve
> the people, not lobbyists and failing businesses.

Mar 26 02:14 PM

[LAD:]

Citing Alexander Hamilton's writings is a good idea because these papers were the foundation of our system of government. This system as it was defined has been totally destroyed by the irresponsible actions of many people over a long period of time. With freedom comes responsibility. It appears you think the individuals who received these exorbitant bonuses were in some way acting responsibly. If they were using good judgment and acting responsibly then their team certainly wasn't. Is there any evidence that those individuals receiving bonuses spoke up, or made a decision in some way to not support that team?

Mar 26 02:14 PM

[jackooo:]

Todd....
The letter means nothing. Many times the employees of TWA fell on the sword due to Carl Icahn and other CEO types. It is just the way it is.

Mar 26 02:52 PM

[NHFDSQD2:]

lostark98, I argue your point--we are in a two party system ruled by who has the most cash. This was demonstrated superbly by President Obama. You have two choices that the media and most everyone else promote, either the Incumbent or the Rep./ Dem. The need has come for term limits, so we do not get stuck with a poor candidate, just because he brings in the most cash for the party.
I guess IYO, Lets continue with the same idiots in office, until the sheep stop following the heard--what will that take 100 more years.
It is time to change the political horizon. Neither Republicans nor Democrats serve the people anymore, they serve lobbyists and themselves. They look for the loophole and money line that will make them a career politician--of which there should be none!

Mar 26 03:13 PM

[reality chk:]

I'm all for reasonable compensation based on the requirements of the job. Compensation has escalated out of control. The sky is the limit with these superstars. Let's be reasonable Get this company healthy again then you can expect to be copensated acording to your level of involvement in the recovery. This is about Fair and Equitable compensation. The Wall Street types have been operating like pirates, Take all you can and run.

Here is what you suggest: You pay a painter $1,000 to paint your house Blue. He paints it Pink. Now he wants another $1,000 to paint it the color you asked for the first time. Based on your comments you would hire another painter pay him the $1,000 plus a bonus of $1,000 to get the house painted. So far you have spend $3,000. Are you getting what you paid for?


On Mar 26 01:16 PM I weep for this country. wrote:

> Reality check:
> Do you even realize that many of these executives were brought in
> after the fall to fix that unit. In fact, the man who heads up the
> unit was brought over from Merrill and guess what yes, you have to
> give him money in order for him to take the job since he is good
> enough to go somewhere else. Who would go there now? You own the
> company, it is losing value everyday. You can't blame Matt Lauer,
> who is getting ratings and making money for NBC, for the problems
> GE is having in their financial unit. Would it make sense not to
> pay him and then have him go to ABC? No, you would end up hurting
> the division that is making money! This is a conglomorate and there
> is plenty of good business units there that are now going to lose
> value because of the demonization of the parent. This FP unit is
> a fly speck on the Company as a whole but if we keep this up the
> whole company goes down along with all value the taxpayer could possibly
> reap from a sale. Your lack of understanding of how business works
> is fine, the problem is that Congress shares your ignorance.

Mar 26 03:13 PM

[Still Renting:]

The letter should have been signed "John Galt".

Mar 26 03:28 PM

[Still Renting:]

Google REX 84


On Mar 26 09:25 AM 2houndz wrote:

>;;;
> Situations like this usually do not have a happy ending. How long
> before they are loading people on freight cars?
>

Mar 26 03:38 PM

[Realsmartguy:]

AIG didn't "steal" any money from people. Their hazardous product, credit default swaps, served a useful purpose until they started selling them as bets and not as credit insurance. The government was correct to prevent the AIG collapse because of the implications for the world economy.
There is nothing wrong with performance based compensation. They do incent people to perform at hifgher levels than straight pay regardless of outcomes.
The Congress and the administration are driving a huge wedge between differing groups of our society for the sole reason of insuring their own re-election. They are using the crisis in our markets for the same reason.
Why would an investor sink hundreds of billions of dollars into AIG and then do everything possible to insure that it fails ? Those lousy congress members and the pinheaded bureaucrats are destroying our country.


On Mar 26 11:23 AM Responsibility wrote:

> The Congress should be shameful for being late to be taking hard
> actions against the excesses of Wall Street and its associates whom
> many are members of the Congress or people like Geithner and those
> lawyers who will be coming out to cover for their Wall Street associates.
>
>
> For too long, these people made their rules and used their gimicks
> to steal money from people who are less knowledgeable about financial,
> tax, and legal matters, instead of performing their duties of protecting
> the financial well being of the public and betraying the public trust.
> The crisis has finally waken up enough people who agreed that "enough
> is enough" and is keeping pressure on the negligent Congress and
> Washington to do something.
>
> Even the public has shown certain shamefulness about themselves for
> being tolerant and conforming to wasteful behavior. When will Wall
> Street, financial people, corporate executes, the lawyers, and their
> associates be willing to take responsibilities for what they have
> done or for what they have failed to do?
>
> This is not about the small (relative to the huge amounts being spent
> on bail outs) amounts of money. This is about correcting some fundamental
> problems and changing people's irresponsible attitudes, in order
> to restore some trust in the system.

Mar 26 03:41 PM

[Fedupofallt...:]

$170 Billion going down the tubes because congress and the media (indeed Todd, your own article) saw an opportunity to benefit by grandstanding. i'm sure our kids and grandkids will thank us for this - I wonder how much Jake Desantis was manageing - the guys who quit in France have combined books of $234 BILLION and were happy to help wind it down without loss until this shitstorm was concocted.
Just to clarify - the bailout was wrong, companies that fail should fail. BUT the decision was made to invest and at that point we (the owners/ investors) should be doing everything we can to bring our company back to profitability asap so we can recoup our investment and maybe, just maybe, gain a couple of bucks out of it (which we'll never see). Trashing our investment, hounding it daily and supporting the public hatred of the employees trying to make sure that this happens is NOT the way to go about it!

Mar 26 04:03 PM

[Randy Miller:]

We have to sort out the propaganda, coming from Wall Street, some in the government. etc

Henry Paulsen used fear to stampede Congress into the original TARP plan, and Barney Frank helped him. Even today, Bernanke keeps saying things would have been much worse if there had been no bailout.

Liddy reads death threats to plant fear that Congressman will be culpable if names were released.

Liddy and others planting the fear that only the guys who made the mess could straighten it out. And that we are cutting our own throats by criticizing the current crowd at AIG.

So, what if, instead of TARP, Congress had passed a law giving FDIC authority of AIG and other large companies, as Geithner proposed today. FDIC could have stepped in on a Friday night in October, split off the genuine insurance side of AIG, the strong viable parts, and said they would be open for business on Monday morning with temporary government ownership until those units could be sold. They could have frozen the Financial Products division, and re-written the contracts to say that the government would use the proceeds from the sale of healthy units to pay the counterparties WHEN THEY ACTUALLY HAD A DERIVATIVE FAIL TO PERFORM.

That is the one pertinent fact that seems to be ignored. I think it was the head of OTS who said last week in Congressional testimony that not one of the the super senior traunches that AIG FP insured has gone into default. Their value may be lower, but they are still performing. IF AIG FP had just re written the CDS contracts to say that we will pay up if the insured derivative actually fails to perform, they would not have needed to send one dime to Goldman Sachs, the French banks, the German banks, etc. In some cases AIG has used taxpayer money to buy some of the CDO's , etc, which will be fine as long as they keep paying. The value of the counterparty CDO had gone down, and because of the way AIG FP wrote those contracts, AIG had to pay up to cover the lowered value. The banks in particular were using the value of the insured CDO's as capital for regulatory purposes, so when the CDO value went down, their capital base shrunk, and they were going to have problems with their regulators. If the governments had just said, even though these CDO's have lost value, they have still not defaulted, so list them in your capital statements at par, in this one special case. You would be telling the actual holders of those CDO's that they would be made whole in the event of a default, which is what insurance is supposed to do.

Of course the speculators holding naked CDS would be hosed. We need to know how much AIG money went to those speculators. A month ago I was concerned we would never know. One value of the populist outrage is that it drew public attention to AIG per se, so the good reporters could say yes, the bonuses are bad, but look what has been going on in the back room. Instead of distracting us from those back room dealings as has been charged, the outrage brought more attention to them.

The way the contracts were originally written would be like writing fire insurance for a house in the woods, and during a forest fire AIG would have to pay money just for the fire approaching the house, even though the fire never gets there or damages the house. This was not a contract written in the best interests of anyone but a small group of people.

But... Cassano still got his fees, and put them in the bank.

Mar 26 05:03 PM

[ed233:]

It seems to me that there is a right way and a wrong way about proceeding with this whole matter. The issue of bonuses shouldn't have come up in the first place if the government had acted properly and proceeded to place the compnay under receivorship, protected those that should have been protected and gave the boot to those that were responsible for the whole mess. Why do the representatives of the people grant their seal of approval acting on behalf of taxpayers without even taking time to read appropriate documents that it is their responsible to have investigated. Why even have them there if they are going to cave in to every executive request without propery discovery. Unbelieveable!!

Mar 26 10:06 PM

[mediapro:]

Gentle author and posters.

I realize that this site is populated by the fabulously wealthy, but please look at what prompted the arguments from "realty chk", "responsibility" and "leftfield" before standing on the sanctity-of-contracts soapbox.

What made Tom Brokaw's "Greatest Generation" great was living through the devastation of unprecedented greed and plunder of our national treasure by the robber barons of the late 1800's, the monopolists, and finally an eeirily similar derivatives and leveraging gambit by no other than JP Morgan and Company and declaring through their sweat and WW II sacrifice -- never again.

Though some decry Social Security, the GI Bill and other depression/WW II era investments in our shared responsibility, it was this shared sacrifice IMHO that created our wealth as a nation.

What have we come to when one man for his labor makes 300, 400, 600 times the person who actually makes the goods or delivers the services upon which a company depends? The justifiable reaction to a $750,000 retention bonus as reward for having the ability to unwind a highly leveraged, wink-wink scam has an apt methaphor -- obscenity.

The path that we have traveled since the innocent post-war days should leave any of us ashamed that our country has come so dangerously close to the wastebin of history. The steady, yet persistently rising gap between the haves and have-nots; our ridiculous belief that by re-distributing middle class wealth up to the most priveleged under the Friedman/Laffer economic model; and passing along the risk until it reaches the greatest fool has made fools of us all.

Standing on the sanctity of contracts, citing the Federalists papers, and pity for the person who can obviously afford to give back $750 K and not feel much pain pales in comparison to the guy one paycheck from poverty. What is understandable is the rage and outrage from the rest of us who might be fortunate to make that amount of money in a productive lifetime.

Until we have a shared sense of outrage at our lack of concern for these innocents in this latest greed-fueled gambit, we will continue down a road that thankfully few honest, genuine people travel.

Mar 27 12:23 AM

[Tom Armistead:]

I verified it, the head of OTS said there were no losses on the super senior CDS insured by AIG.

So there were no losses, taxpayers have put out 185 billion and there is no end in sight.

An investigation is called for, by an independent prosecutor, there was an incredible amount of money boondoggled with smoke and mirrors.


On Mar 26 05:03 PM Randy Miller wrote:

> We have to sort out the propaganda, coming from Wall Street, some
> in the government. etc
>
> Henry Paulsen used fear to stampede Congress into the original TARP
> plan, and Barney Frank helped him. Even today, Bernanke keeps saying
> things would have been much worse if there had been no bailout.<br/>
>
> Liddy reads death threats to plant fear that Congressman will be
> culpable if names were released.
>
> Liddy and others planting the fear that only the guys who made the
> mess could straighten it out. And that we are cutting our own throats
> by criticizing the current crowd at AIG.
>
> So, what if, instead of TARP, Congress had passed a law giving FDIC
> authority of AIG and other large companies, as Geithner proposed
> today. FDIC could have stepped in on a Friday night in October, split
> off the genuine insurance side of AIG, the strong viable parts, and
> said they would be open for business on Monday morning with temporary
> government ownership until those units could be sold. They could
> have frozen the Financial Products division, and re-written the contracts
> to say that the government would use the proceeds from the sale of
> healthy units to pay the counterparties WHEN THEY ACTUALLY HAD A
> DERIVATIVE FAIL TO PERFORM.
>
> That is the one pertinent fact that seems to be ignored. I think
> it was the head of OTS who said last week in Congressional testimony
> that not one of the the super senior traunches that AIG FP insured
> has gone into default. Their value may be lower, but they are still
> performing. IF AIG FP had just re written the CDS contracts to say
> that we will pay up if the insured derivative actually fails to perform,
> they would not have needed to send one dime to Goldman Sachs, the
> French banks, the German banks, etc. In some cases AIG has used taxpayer
> money to buy some of the CDO's , etc, which will be fine as long
> as they keep paying. The value of the counterparty CDO had gone down,
> and because of the way AIG FP wrote those contracts, AIG had to pay
> up to cover the lowered value. The banks in particular were using
> the value of the insured CDO's as capital for regulatory purposes,
> so when the CDO value went down, their capital base shrunk, and they
> were going to have problems with their regulators. If the governments
> had just said, even though these CDO's have lost value, they have
> still not defaulted, so list them in your capital statements at par,
> in this one special case. You would be telling the actual holders
> of those CDO's that they would be made whole in the event of a default,
> which is what insurance is supposed to do.
>
> Of course the speculators holding naked CDS would be hosed. We need
> to know how much AIG money went to those speculators. A month ago
> I was concerned we would never know. One value of the populist outrage
> is that it drew public attention to AIG per se, so the good reporters
> could say yes, the bonuses are bad, but look what has been going
> on in the back room. Instead of distracting us from those back room
> dealings as has been charged, the outrage brought more attention
> to them.
>
> The way the contracts were originally written would be like writing
> fire insurance for a house in the woods, and during a forest fire
> AIG would have to pay money just for the fire approaching the house,
> even though the fire never gets there or damages the house. This
> was not a contract written in the best interests of anyone but a
> small group of people.
>
> But... Cassano still got his fees, and put them in the bank.
>
>

Mar 27 07:24 PM

[bones33:]

The common thread to all the posts here is how fed up everyone is with the circus they call congress.We should do what the Icelandics did and kick them all in the ass.

Apr 02 12:52 AM