Chaos at AIG

[Kidlicious]

Question: How is AIG paying bonuses any worse than GM paying a dividend? Both are paid out from retained earnings, or should be. However, neither company has earnings and both have taken a lot of the government's money.

I suppose you would include bail out money in retained earnings.

[Imran Siddiqui]

Interesting thing that I've been reading is that people who are recieving the "bonuses" agreed to take a $1 a year salary and get their pay through bonus... which may mean thinking about these as traditional bonuses is flawed.

[snoopy369]

Hmm, well to some extent could it simply be deferred compensation (ie, similar to Manny Ramirez agreeing to take $5m this year and $20m over the next ten years for his salary this year)? That seems odd though, you could just actually do deferred compensation in those cases...

[DinoDoc]

Interesting thing that I've been reading is that people who are recieving the "bonuses" agreed to take a $1 a year salary and get their pay through bonus...

I'm gonna have to call BS since most stories I've seen have called it a retention bonus.

AIG is shelling out $450 million in so-called retention bonuses.

http://www.latimes.com/business/la-fi-aig-bonus18-2009mar18,0,2706487.story

[Darius871]

The AIG (government-installed) CEO is testifying live now for anyone interested.

[Imran Siddiqui]

I'm gonna have to call BS since most stories I've seen have called it a retention bonus.

AIG is shelling out $450 million in so-called retention bonuses.

http://www.latimes.com/business/la-f...,2706487.story

I'm baseing it on what Cuomo has found from his subpoena.

If you are being paid $1 in salary and have a million dollar "retention bonus", it really ends up being deferred compensation.

[Darius871]

Lol, the most interesting exchange so far has been not only that the Board and Compensation Committee have been extensively planning this disbursement for three months, but moreso that the Federal Reserve representatives have been present in and fully apprised of these discussions and decisions for that time period, but neither AIG nor even the Fed bothered to mention a single peep to Congress nor even the Treasury Secretary. I know the Fed is independent, but you'd think they could foresee a little tiff arising from this and have D.C. weigh in...

Edit: he just added that AIG was under the impression that the Fed would be properly communicating with D.C., which is why nobody knew. I can't wait to see Bernanke's next Q&A session!

[Darius871]

I have to admit he's making a halfway convincing case: long story short, the Board's concern (aside from the obvious risk of contract lawsuits) was that the recipients of these bonuses are being paid to people whose mission is to "wind down" the Financial Products division, meaning once their job is done, they will have no jobs.

When you're facing such a certain axe down the road, there's huge incentive to jump ship now absent compensation to make up for it, meaning without the bonuses, a lot of them would jump ship and cause chaos at this complex division and potentially drive the company into insolvency which would require either bankruptcy (bringing down half the financial system with it, and making it impossible to pay back the TARP investment to date) or further TARP money; in either case destroying a $1.5 trillion Financial Products portfolio, the taxpayer would stand to lose FAR more than the piddly-**** little $165 million lost here. Basically it was a choice between a crap sandwich and a **** sandwich, so they reluctantly chose the former. Or at least that's the theory.

[Ramo]

There are folks who don't buy that explanation.

AIG, which received more than $170 billion in emergency federal aid, has become the chief exhibit for both sides of the debate. Executives say they must pay retention bonuses to keep employees who are unwinding its Financial Products division, which nearly brought down the insurance giant with trading in exotic derivatives.

But a former senior Financial Products executive who spent eight years at the firm disagreed. Because the division is shrinking and no longer seeking new business, many workers have lost their relevance. The only key positions are employees who are working to extricate AIG from $2 trillion worth of outstanding contracts, the executive said.

"The guys who are getting paid all the big money are not really the ones who are important to the company," he said.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031703565_pf.html

[Zkribbler]

How is AIG paying bonuses any worse than GM paying a dividend?

GM paid a DIVIDEND?!? Those #@$^&*@!!

[Darius871]

There are folks who don't buy that explanation.

Of course, and I don't necessarily buy it; it's just a lot more understandable and realistic than I'd expected. The idea of the most experienced and intertwined executives (even if "many" have lost their relevance) and technically savvy non-executive employees at Financial Products division just deciding there's no upside to staying there and packing their bags would leave all the constant incoming and outgoing obligations of a $1.6 trillion portfolio in shambles, and nobody on either side of the debate denies that collapse of that portfolio (made up largely of CDS's on which countless other parties continue to rely) would have disastrous ripple effects throughout the entire economy. When looking at circumstances that extreme it's tough for me to get angry.

Then again, to me it's just all the more reason to nationalize the damned thing and chop it up rather than keep teetering like this.

[DinoDoc]

Edit: he just added that AIG was under the impression that the Fed would be properly communicating with D.C., which is why nobody knew. I can't wait to see Bernanke's next Q&A session!

Apparently they did know but decided against doing anything about it or tell the public:

Obama, Congress knew about AIG bonuses for months
By JULIE HIRSCHFELD DAVIS – 18 hours ago

WASHINGTON (AP) — Cue the outrage. For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back.

Why the sudden furor, just weeks after Barack Obama's team paid out $30 billion in additional aid to the company? So far, the administration has been unable to match its actions to Obama's tough rhetoric on executive compensation. And Congress has been unable or unwilling to restrict bonuses for bailout recipients, despite some lawmakers' repeated efforts to do so.

The situation has the White House and Treasury Secretary Timothy Geithner on the defensive. The administration was caught off guard Tuesday trying to explain why Geithner had waited until last Wednesday to call AIG chief executive Edward M. Liddy and demand that the bonus payments be restructured.

Neither Obama nor Geithner learned of the impending bonus payments until last week, senior administration officials told The Associated Press late Tuesday, speaking on condition of anonymity about internal discussions.

Publicly, the White House expressed confidence in Geithner — but still made it clear he was the one responsible for how the matter was handled.

"I do know that Secretary Geithner last week engaged with the CEO of AIG to communicate what we thought were outrageous and unacceptable bonuses," White House spokesman Robert Gibbs said. Gibbs declined to provide a timeline that would show when members of the administration — including the president and others at the White House — became aware of the bonuses.

In an interview with The Associated Press, Obama's chief economic adviser Lawrence Summers said: "In the context of what we're doing, Secretary Geithner was notified, he has said, last week. As he reported to the rest of us, he moved aggressively and immediately, aggressively and immediately, to recoup whatever could be legally recouped. He recognized that you can't just abrogate contracts willy-nilly, but he moved to do what could be done."

The bonus problem wasn't new, as many lawmakers and administration officials knew only too well. AIG's plans to pay hundreds of millions of dollars were publicized last fall, when Congress started asking questions about expensive junkets the company had sponsored. A November SEC filing by the company details more than $469 million in "retention payments" to keep prized employees.

Back then, Rep. Elijah E. Cummings, D-Md., began pumping Liddy for information on the bonuses and pressing him to scale them back. "There was outrage brewing already," Cummings said. "I'm saying (to Liddy), 'Be a good citizen. ... Do something about this.' "

Around the same time, outside lawyers hired by the Federal Reserve started reviewing the bonuses as part of a broader look at retention and compensation plans, according to government officials who spoke on condition of anonymity. The outside attorneys examined the possibility of making changes to the company plans — scaling them back, delaying them or rescinding them. They ultimately concluded that even if AIG's bonuses were withheld, the company would probably be sued successfully by its employees and be forced to pay them, the officials said.

In January, Reps. Joseph E. Crowley of New York and Paul E. Kanjorski of Pennsylvania wrote to the Federal Reserve and the Treasury Department pressing the administration to scrutinize AIG's bonus plans and take steps against excessive payments.

"I at that point realized that we were going to have a backlash with regard to these bonuses," Kanjorski said in an AP interview. In a meeting with Liddy later that month, he said he told the AIG chief that "all hell would break loose if we didn't find a way to inform the public ... and that we should take every step to put that information out there so we wouldn't have the shock."

Around the same time, Congress and Obama's team were passing up an opportunity to put in place strict laws to revoke bonuses from recipients of the $700 billion Wall Street bailout. In February, the Senate voted to add such a proposal to the economic recovery bill that cleared Congress, but in final closed-door talks on the measure, that provision was dropped in favor of limits that affect only future payments.

"There was a lot of lobbying against it and it died," said Sen. Ron Wyden, D-Ore., who proposed the measure with Republican Sen. Olympia J. Snowe of Maine. He said Obama's team is sending mixed messages on what will and won't be tolerated on bonuses, with the president coming out strongly against excessive Wall Street rewards but top officials not following through.

"The president goes out and says this is not acceptable, and then some backroom deal gets cut to let these things get paid out anyway," Wyden said. "They need to put this to bed once and for all."

Last Wednesday, an apparently tense conversation between Geithner and Liddy brought the matter to a head. Geithner had learned of the bonus payments the previous day, said a Treasury Department official familiar with the government's dealings with AIG.

Liddy, in a letter to Geithner on Saturday, referred to their "open and frank conversation" over the retention payments on March 11. "I admit that the conversation was a difficult one for me," Liddy wrote.

On Thursday, as Treasury lawyers scrambled to find a way to cancel the payments, Geithner informed the White House of the situation, and senior aides there relayed it to Obama, the administration officials said.

Meanwhile, the administration moved to get ahead of what was certain to be an embarrassing story.

Unprompted, officials leaked news of the bonuses to select reporters late Saturday afternoon, highlighting what Geithner had done to try to restrain the payments. The story quickly became fodder for the Sunday news talk shows.

Then on Monday, the president himself came out strongly on the issue, calling the payments "an outrage" and publicly directing his team to look for ways to cancel the payments.

Questioned repeatedly to explain this in light of the fact that the administration had already scoured its options and come up empty — and that the bonuses had already gone out the door to their recipients — Gibbs said that the president wanted his aides to make sure "to exhaust all legal remedies."

That's done little to quell the expressions of outrage that were blasting about by Tuesday.

"It's shocking," said Sen. Mitch McConnell, R-Ky., the minority leader, that "the administration would come to us now and act surprised."

Associated Press writers Ieva M. Augstums, Jeannine Aversa, Martin Crutsinger, Ben Feller, Jim Kuhnhenn and Jennifer Loven contributed to this report.

[DanS]

Liddy has gotten himself into a **** sandwich of a job. I don't envy him. He's getting paid squat and is being hammered by everybody nationwide for crap done well before his watch.

[MrFun]

Some Republicans love getting their hands dirty just as much as some Democrats.

Sen. Chris Dodd (D-Conn.) looks like he may be facing a fresh political firestorm.

Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision. .

“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon.

“But for that language, there would have been no language to deal with this at all.”

Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill. As late as today, Dodd’s spokeswoman denied the senator’s involvement.

The AIG bonuses have caused a political firestorm, with Republicans and Democrats alike looking to lay blame for who’s responsible, and leading lawmakers looking to revoke the bonuses.

Dodd’s role in the legislation will likely come up as he faces the likelihood of a tough re-election. Former GOP congressman Rob Simmons announced he was running this week, and has already taken issue with Dodd’s stewardship as chairman of the Senate Banking Committee.

[Zkribbler]

For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts

Interesting statement ... but other than this bare assertion, nowhere in the article are there any facts suggesting that Obama or members of his administration knew about the bonuses "for months."