Chaos at AIG

[Kuciwalker]

Uh, Zkrib, you're aware that a law narrowly targeting specific individuals and punishing them in some way could easily be found to be a bill of attainder, yes?

[Eli]

Uh, Zkrib, you're aware that a law narrowly targeting specific individuals and punishing them in some way could easily be found to be a bill of attainder, yes?

Wikipedia says that for this to be a bill of attainder they also have to be declared guilty of a crime, which didn't happen.

[The Mad Monk]

Then why are they being treated like criminals?

[Arrian]

Aside from the likelyhood that some of them *are* criminals?

I'd love to see the SEC, FBI, or what-have-you go Rotor Rooter on the guy who ran that deparment.

Anyway, I'm not a big fan of the tax. The ****up was the initial bailout - failing to get proper control. It seems Obama's treasury folks weren't interested in really punishing their buddies.

TCO - as gratifying it might've been, I don't think just letting AIG implode was really a good option. But then I've no idea, really, of how much damage it would've done. Just a vague sense that it would've been doubleplusungood.

-Arrian

[Ramo]

I don't really care if it's a clawback or a tax (and this is likely to be constitutional; show me the last tax that was declared excessively narrow). I'm pretty ambivalent on the whole idea, actually.

The norms in executive compensation that we've had for the past couple decades are either more or less beneficial to society. If it's less benficial (and I'm inclined to believe that's the case), that's applicable to both bailed-out firms and solvent firms. If we fail to follow up with some reforms in corporate governance (at a minimum, say, a nonbinding shareholder vote on executive compensation), this is a kind of kabuki that can only be justified by political necessity.

[Imran Siddiqui]

It's basically a sideshow. It's a small amount that may actually have been good policy (even though rich people get paid!).

[The Mad Monk]

That was a reposted Onion article, right? Please tell me yes.

Have you gotten your coupons, yet?

The site considers you a customer if you hold equity in Bank of America (among several other options), and as a taxpayer, I felt I qualified.

[DanS]

Good one, Dan. Good one.

I would like to hear from somebody who knows the answer to this question.

[The Mad Monk]

A.I.G. executives face scorn, even at their homes
By James Barron and Russ Buettner Published: March 20, 2009

NEW YORK: An A.I.G. executive who had been nicknamed ‘‘Jackpot Jimmy’’ by a New York tabloid walked up the driveway toward his bay-windowed house in Fairfield, Connecticut, on Thursday. ‘‘How do I feel?’’ said the executive, James Haas, repeating the question he had just been asked. ‘‘I feel horrible. This has been a complete invasion of privacy.’’

Mr. Haas walked on, his pink shirt a burst of color on a slate-gray afternoon. The words came haltingly. ‘‘You have to understand,’’ he said, ‘‘there are kids involved. There have been death threats. ...’’ His voice trailed off. It looked as if he were fighting back tears.

‘‘I didn’t have anything to do with those credit problems. I told Mr. Liddy I would rescind my retention contract,’’ he said, referring to Edward M. Liddy, the chief executive of A.I.G.

He ended the conversation with an order: ‘‘Leave my neighbors alone.’’

Too late. Jean Wieson, who has lived down the block for 24 years, had stopped her car in front of Mr. Haas’s house before he arrived home. She was angry about the millions of dollars in bonuses paid to its executives, the credit-default swaps that brought American International Group to its knees and the $170 billion the U.S. government has spent to prop it up. ‘‘It makes me absolutely sick,’’ she said. ‘‘It’s despicable. It’s disgusting what these people have done. They should be forced to give every cent back.’’

Those bonuses in years past helped make A.I.G. executives into prominent local citizens. They own big houses like Mr. Haas’s, with its three chimneys and its views of Southport Harbor and Long Island Sound in the distance. Some are well-known contributors to arts groups and private schools in Connecticut communities not far from the office park in Wilton that is the workplace of many of the employees in A.I.G.’s Financial Products division, which is at the center of the storm over bonus payments.

Now these executives are toxic, and those communities are rattled and divided. Private security guards have been stationed outside their houses, and sometimes the local police drive by. A.I.G. employees at the company’s office tower in New York City were told to avoid leaving the building while a demonstration was going on outside. The memo also advised them to avoid displaying company-issued ID cards when they left the office and to abandon tote bags or other items with the A.I.G. logo.

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. ‘‘It is as bad, if not worse, than McCarthyism,’’ he said, referring to Joseph McCarthy, the former U.S. senator who used indiscriminate, often unfounded, accusations to suppress opponents. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, ‘‘for their own political agenda.’’

The public’s anger, he said, ‘‘is coming from bad facts as a result of someone else’s agenda — or just bad facts, period.’’ Instead, he said, the so-called bonuses were in fact just payments that had been promised long ago to workers, including technical and administrative assistants.

A.I.G. employees are not the only ones seeking protection: An executive at Merrill Lynch, where bonuses have also come under fire, said that some employees had asked whether the firm would cover the cost of private security for them.

Scott Silvestri, a spokesman for Bank of America, which bought Merrill in December, would not respond to that claim, but he said in a statement, ‘‘The safety and security of our associates is paramount, and we will always take the appropriate steps.’’

And there may be more protests. The Connecticut Working Families party, which has support from organized labor, was planning a bus tour Saturday of A.I.G. executives’ homes, with a stop at the company’s Wilton office.

‘‘We’re going to be peaceful and lawful in everything we do,’’ said Jon Green, the director of Connecticut Working Families. ‘‘I know there’s a lot of anger and a lot of rage about what’s happened. We’re not looking to foment that unnecessarily, but what we want to do is give folks in Bridgeport and Hartford and other parts of Connecticut who are struggling and losing their homes and their jobs and their health insurance an opportunity to see what kinds of lifestyle billions of dollars in credit-default swaps can buy.’’

A.I.G. paid the $165 million in bonuses to 463 of its executives, but in the uproar that erupted when the payments were made public, Mr. Liddy asked the employees to return much of that money. He said that many of them had agreed to do so.

The New York attorney general, Andrew M. Cuomo, said Thursday that A.I.G. had handed over a list with the names of the bonus recipients. But he did not release the list. ‘‘We are aware of the security concerns of A.I.G. employees,’’ Mr. Cuomo said in a statement, ‘‘and we will be sensitive to those issues by doing a risk assessment before releasing any individual’s name.’’

It was unclear exactly what measures the officials at A.I.G. have taken in the name of protecting the company’s executives. Officials at several police departments in Connecticut towns where A.I.G. executives live said they did not know about possible threats against the bonus recipients. ‘‘We haven’t heard of it,’’ said Sgt. Carol Ogrinc of the New Canaan police. ‘‘There have been no complaints made to our department.’’

But several security companies in New York credited the financial crisis with a noticeable increase in some areas of their business, from protecting executives to dispatching bomb-sniffing dogs to check for trouble. ‘‘There is certainly anger among people about the economy and fear among corporate executives themselves,’’ said Patrick Timlin, the president of Michael Stapleton Associates, which provides bomb-dog teams.

And there is concern in places like Wilton that the scandal is tarring their town. ‘‘They’re blaming us,’’ said Konstantinos Papanikolaou, a manager at Orem’s Diner in Wilton, about a mile from the A.I.G. office park.

Jay Fiedler of Trumbull, Connecticut, said his town was also a ‘‘victim’’ — initially of a brutal economic downturn that had been fueled by problems at companies like A.I.G. and then of the outrage that has coalesced around the bonuses that A.I.G. paid.

‘‘It just so happened that it happened here,’’ Mr. Fiedler said. ‘‘The community is the victim of the fact that it takes place here.’’

Others in A.I.G.’s neighborhood were clearly angry. Tamara King, an immigration specialist at a health care company whose office is adjacent to the A.I.G. office park, said she felt disgust each time she walked past it.

‘‘You don’t want to associate with them, because it’s not a reflection on the state, it’s not a reflection on us,’’ she said. But she added, ‘‘You have so many people out of a job, and these people think they can take the money and run.’’

The largest single bonus check, for $6.4 million, went to Douglas L. Poling, an executive vice president for energy and infrastructure investments. Mark Herr, an A.I.G. spokesman, said Mr. Poling had told him he was returning the bonus ‘‘because he thought it was the correct thing to do.’’

Gerry Pasciucco, a former vice chairman of Morgan Stanley who was brought in by Mr. Liddy in November to wind down the financial products unit, said Mr. Poling had sold off about 80 percent of the unit’s assets. Mr. Pasciucco said the money from the sales would go to the U.S. government, which has handed more than $170 billion in bailout money to A.I.G. in the past six months.

‘‘He’s done an outstanding job in winding down his investment books,’’ said Mr. Pasciucco. ‘‘He did it at the right time, and we’ve made money. We would be losing money today if we waited to sell some of these assets.’’

Mr. Poling’s father, Harold A. Poling, retired as the chief executive of Ford Motor in 1994. On Thursday, Cheryle Campbell answered the phone at Harold Poling’s house in Bloomfield, Michigan, where she said she had worked as a housekeeper for 20 years. She said she was not surprised to hear that Douglas Poling had decided to give back his bonus. ‘‘You’d think, being in the kind of job he is, that he’d be one of those sharks,’’ she said. ‘‘But he’s not at all.’’

Douglas Poling has lived in the same house on a dead-end street in Fairfield for 11 years. The local papers say that he and his wife have given generously to a shelter for the homeless, to the Westport Country Playhouse and the Fairfield Country Day School, a private school where tuition runs as high as $29,300 a year.

But Thursday, his house, like Mr. Haas’s, was being watched by private security guards.

Reporting was contributed by Cara Buckley, Kenny Porpora, William K. Rashbaum, Nate Schweber and Joel Stonington.

http://iht.com/articles/2009/03/20/business/seige.php?page=2

Is it criminal for a government to terrorize its own citizens?

[KrazyHorse]

I would like to hear from somebody who knows the answer to this question.

Presumably the repayment schedule is detailed in the contract.

[Sprayber]

Is it criminal for a government to terrorize its own citizens?

Politicians know the masses hate rich executives more than they hate politicians. My bet is that this ride is far from over.

[DaShi]

http://www.nytimes.com/2009/03/20/opinion/20johnson.html?_r=1&pagewanted=print

Op-Ed Contributors
Off With the Bankers
By SIMON JOHNSON and JAMES KWAK
A.I.G. can hardly claim that its generous bonuses attract the best and the brightest. So instead, it defends the payments by arguing they’re needed to retain employees who are crucial for winding down transactions that are “difficult to understand and manage.” In other words, only the people who stuck the knife into the American International Group can neatly extract it for a decent burial.

There is no reason to believe this.

Similar arguments made during the 1997 Asian financial crisis, when currencies and stock markets collapsed in much of Southeast Asia, turned out to be a smokescreen to protect the executives who were partly responsible for the mess. Recovery from that crisis required Indonesia, South Korea and Thailand to close or consolidate banks. In all three countries, bankers protested, claiming that their connections with borrowers were critical to recovery.

In South Korea, cozy relationships between banks and the large conglomerates called chaebols were a major reason for the crisis. But after the crisis hit, Korean bankers and companies insisted that the complexity of chaebols like Samsung and LG — with their many separate but interwoven businesses — meant that outsiders would not be able to distinguish good loans from bad.

In Thailand, some argued that the preponderance of family-owned businesses — and the lack of clarity about precisely which family members were really in charge — meant that only bankers already working in big institutions like Bangkok Bank and Siam Commercial Bank could determine which borrowers were creditworthy.

The leaders of Thailand and South Korea did not listen to such arguments, and thank goodness. Some of the leading Thai banks were taken over by the government. After the crisis, a civil servant in charge of one such bank noted that its bad loans were much bigger than had been indicated before the takeover, largely because of an internal coverup. Only when outsiders took over did the public discover the full scope of the losses.

The South Korean government also demanded that the banks and the chaebols make a clean break. This generated a great deal of political noise — particularly when foreign managers were brought in, as when the Carlyle Group bought a stake in KorAm Bank in 2000 and Lone Star Funds purchased the Korea Exchange Bank in 2003.

But these reforms made all the difference. Banks became healthy and resumed lending within a few years after the crisis broke. The chaebols that survived are stronger than they were before the crisis. They are now withstanding the severe pressure of the global recession because they were forced to become better regulated, and more separate from banks.

Indonesia did not respond to the crisis so wisely, and the costs were severe. In 1997, Bambang Trihatmodjo, a son of President Suharto, had to close his troubled bank, Bank Andromeda, but proceeded to continue essentially the same operation under a different bank’s name. The new bank was only a small player in the overall economy, and the ruling elite seemed to think that no one would care. But Indonesia lost the support of the United States when it reneged on promises to replace failed bankers with more competent and honest ones.

The lesson of all this is that when insiders have broken a financial institution, the most direct remedy is to kick them out. Traders are hardly in short supply, and you don’t need to rely on the ones who made the toxic trades in the first place. Companies must always plan around the potential departure of even their star traders, or they are certain to fail. A.I.G. does not need to keep all of its traders, especially since it takes far fewer people to unwind a portfolio than to build it up.

If A.I.G. wants to argue that complex transactions, hedging positions and counterparty relationships require employees who are intimately familiar with those trades, it should at least provide evidence that the arguments for doing so are sounder than the ones made in Indonesia in 1997, when leading bank-owning conglomerates claimed that only they understood their financing arrangements, which certainly were complex. Or the Russian bankers in 1998 who were convinced that only they and their friends could possibly close the deals that they had taken on. We heard variants of the same idea in Poland in 1990, Ukraine in 1994 (and in the Ukrainian crises subsequently), and Argentina in 2002.

Any grain of truth in these arguments must be weighed against the costs of allowing discredited insiders to manage institutions after they have blown them up. Even if the conclusion is that a few experts need to be retained, offering guaranteed bonuses to virtually the entire operation is hardly the way to achieve the desired results. We should not let people think that the best way to guarantee job security is to lose lots of money in a really complicated way.

The argument that A.I.G.’s traders are the people that we must depend on to save the United States economy is as weak and self-serving as it was in Thailand, Korea or Indonesia. A.I.G. is essentially advocating survival of the weakest. Thankfully, the American people are not buying it.

[Rufus T. Firefly]

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. ‘‘It is as bad, if not worse, than McCarthyism,’’ he said

The hell with the bonuses. This guy deserves death threats for having such a shallow and narcissistic understanding of U.S. history.

[snoopy369]

Nah... McCarthyism just terrorized dirty commies. Not nearly as bad as terrorizing hard working executives.

[DaShi]