Streams

AIG Goes To Washington

Wednesday, March 18, 2009

Diane Brady of Business Week offers quick-reaction to the hearings taking place on Capitol Hill looking in to AIG bonuses and bailout money. What do you think? Should AIG pay the bonuses back? Comment below with your opinion: Heck Yes! Heck No! Why Bother...

Guests:

Diane Brady

Comments [39]

db from nyc

The shocking thing is that everyone is outraged by this recent AIG episode. This is the type of hubris that has always permeated the elite echelons, corporate and government. If there is one thing that has become clear during this recent train wreck is the level of collusion between the rich, corporate media and government. The government in the US has always protected and reinforced the income and benefits of the super-rich. The position of privilege buys you a free pass to take even more.

This is not new behavior. George Washington was the richest man in America when he assumed the position of the first president of the United States. Do you really think his priority was looking after the poor and underprivileged? To do so at the time would be jeopardizing his assets and the assets of his friends. Including the human assets (slaves) held by himself, Jefferson et. al.

The humorists, Jon Stewart recently illustrates how this collusion works in his scathing grilling of CNBC and Jim Cramer http://www.huffingtonpost.com/2009/03/10/jon-stewart-rips-into-jim_n_173454.html and http://www.huffingtonpost.com/2009/03/10/jon-stewart-slams-jim-cra_n_173738.html.

These folks have been enriching themselves with our money for over 200 years!

Mar. 18 2009 12:12 PM
Jessie from NYC

I am irritated with the metaphor of "unwinding" the AIG credit default swaps - "unravelling" would be more apt as they were taking advantage of loopholes which allowed for this high risk activity to be deemed legal. These bonus recipients were smart, in the most devious of ways,using their skills to construct the most obfuscating and indirect instruments in order to disguise what was clearly a hugely overinflated illusion of reward versus the genuine fact of risk. This denial of risk, this "failure of imagination"-another much-overused term unacknowledged by those who happily and greediily participated in the promise of money for nothing, is a kind of short-sightedness which is typical of those who profit by minute-to-minute manipulation of the market.They played the system.They lost, but we pay.
I am curious as to by whose authority these bonuses were mandated-maybe "bribe" is a better terminology-someone gave the incentive to these people-they would not have done it if there had not been the promise of a reward.
I am certain that all of this activity was destined to come to this conclusion-any house built on sand as this was will eventually sink under its own weight. But that we are now paying to shore it back up is -it seems, yet another action of denial -and fails to give any incentive for any other behavior, since there is no consequence for the perpetrators, why would they not risk it again?

Mar. 18 2009 11:58 AM
Miles Hunter from Newark, N.J.

A credit default swap for a particular instrument can be purchased by someone or everyone, whether or not they face a loss on the underlying security.

Therefore, if we have security "X", owned and held by person "A", person "A", PLUS any third party can purchase a swap to pay out in the event of a default on security "X". The seller of the swap could face massive loss exposes on the same security. Those with no interest in the security (i.e. those just gambling) should receive a return of their "premium", but no payout.

Mar. 18 2009 11:57 AM
Alvin from Manhattan

Two points:

1. If AIG went bankrupt, what would get paid first? Typically, it would be salaries and wages. Bonus recipients might have to get in line behind the bondholders, stockholders, and contraparties. In a bankruptcy, those folks are lucky to receive a nickel on the dollar. Since the taxpayers prevented an imminent AIG bankruptcy, shouldn't the Treasury have re-prioritized who gets paid first (if at all), and how much? Bonuses could have been eliminated or greatly reduced. Even without a formal bankruptcy, the situation might have qualified as a "force majeure", in which case all bets are off.

3. There are two types of bonuses at Wall St. firms: Performance/retention bonuses, and employment contract obligations to people at higher titles. Performance/retention bonuses, typically, don't have to be paid until the employees are informed of what they will receive. Usually, the amount is announced in December and paid the following year, as a tax benefit to employees, while the contract obligations are known well in advance. I would ask the Treasury: What did they know about bonuses, and when did they know it?

Mar. 18 2009 11:54 AM
superf88

33 -- well put.

Mar. 18 2009 11:46 AM
James B from NYC

Expecting politicians to be 'non-partisan' in either their behavior or the expression of their views is as sound as expecting tigers to become vegetarians. Obviously, the opinions expressed & the disagreements that arise stem PRECISELY from the fundamental philosophical (or if u prefer, ideological) views of the various Congress members. They have both the right as well as perhaps the obligation to bring those views to bear on the issues at hand. If the Republicans feel that mistakes are being made as a consequence of too much government involvement or the wrong kind of government involvement in the various measures adopted for dealing with the current economic mess it is their right & it is for our benefit that they say so & why. No one should have expected the Democrats not to express their views when the Republicans controlled the Presidency, and no one should expect the converse now. Our system of government DEPENDS upon partisanship. So when we hear complaints about 'partisanship', we are hearing pleas for false & misleading or absent consensus & vacuous 'unity' which will not help us either to understand nor solve our collective problems.

Mar. 18 2009 11:43 AM
Dubai-Boy from UK

This has distorted out of perspective - its CLEAR that AIG's corporate machine was merely moving forward. There was no malice here. It was just another day for AIG - unfortunately, they now have an absolute ruler.

Mar. 18 2009 11:42 AM
Paulo from Paterson


Hey, if anybody wants to give the bonuses back, great. However, I think if Congress goes ahead with efforts to take away the bonuses, it's time to start looking for another country. First of all, any attempt to take the bonuses away will be struck down as unconstitutional by the Supreme Court since the Constitution specifically bars this type of ex post facto punitive legislation against specific individuals.

Secondly, having the government arbitrarily confiscating people's property in response to hot-button, sensational issues and public disgust without the rule of law behind them is a dark road to start traveling down. Not only will it be a slippery slope to stand on, it will also worsen the economy in the short term by generating the fear that it is only the beginning of more government confiscations.

Mar. 18 2009 11:42 AM
Ben from Manhattan

Did anyone see John Stewart last night. He made an excellent point. AIG got about 170 BILLION, the 160 million is 1/10 of 1% of the tax payers money. I know what was done was ethically reprehensible, but come on, isn't there some other scandal we can talk about that hurt the American in a significant way?

Mar. 18 2009 11:42 AM
naomi from ny

the issue is not that AIG employees will jump to competing companies that do the same thing (as mentioned, there aren't many and Lord knows they are not hiring) The issue is that people who know the company know where the bodies are buried that means they know where the weaknesses are. Nobody wants them to take that expertise to other companies who will use that knowledge to short sell the company! That's why AIG employees are actually being extremely heavily recruited!

Mar. 18 2009 11:42 AM
C.Tennyson Crowe from Ridgewood, New York

If these executives truly have to be retained in order to clean up the mess they created how about this for a bonus: $1 and they don't go to jail.

Mar. 18 2009 11:42 AM
Lorraine from brooklyn


Bonuses are not a portion of PROFITS?

Mar. 18 2009 11:41 AM
OJL from Newark

I blame the government for not having the insight and wisdom to build in language in the TARP to prevent these big financial companies from mishandling our money. Now they pretend to be outraged . . . it's a joke. They should have seen this coming and made it easy to recuperate our money of these companies abuse tax funds!

Mar. 18 2009 11:41 AM
Laurie Spiegel from Tribeca

My understanding, though I don't work on Wall Street, is that bonuses are considered part of the actual salary. But by paying a substantial part just once a year as a bonus they avoid withholding taxes. So insteado of a tax dodge they called them a bonus. The use of that word has now backfired. They should have been called "tax dodging lump salary payments".

Mar. 18 2009 11:41 AM
david from ditmas park


"retaining" these people to untie the knot that they created is like expecting an arsonist to apply their knowledge of how to start a fire to use the same methods to put it out.

Mar. 18 2009 11:41 AM
Lee from Scarsdale

I heard yesterday that in fact the people at the AIG unit are in fact being heavily recruited.

Mar. 18 2009 11:41 AM
Jeff from Brooklyn

I'm pissed off about 200 million of our tax payer money being irresponsibly and unethically spent. But I least I know about it.

What about the 50 BILLION plus (by some accounts) that is missing in Iraq.

200 M= .
50 B= 000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

Mar. 18 2009 11:40 AM
Renate Bridenthal from Manhattan, NYC

Andrew Ross Sorkin, in Tuesday's NY Times Business Section, writes on p. 4 about the executives who got retention bonuses:
"If they leave -- . . . they might simply turn around and trade against A.I.G.'s book. Why not? They know how bad it is. They built it."
A forensic accountat told me that means that vengeful traders, once outside, could "bet" against the company and bring it down.
Isn't that blackmail or extortion or a protection racket?
I hope one of your guests, perhaps Sorkin himself, could respond to that.

Mar. 18 2009 11:40 AM
Mary Beth Kooper from nyc

Let's see the fine print of these aig bonus contracts. Any good lawyer would have put clauses in to not pay out under circumstances as ridiculous as these. Another point is, these types of bonus arrangements are the precise reason that these people took such outrageous risks, they did not have a sufficient downside to doing so!

Mar. 18 2009 11:40 AM
Janie from NYC

As angry as I am about the bonuses -- I'm very uncomfortable with the proposed legislation to tax the bonuses at 100%. I don't like tax law being used to make a statement or to punish people. Then who's next? Abortion providers? Anyone or any group legislators or government doesn't like? I think it's a dangerous road to go down...

Mar. 18 2009 11:40 AM
rylee from nyc

If bonuses were based on performance, probably not earned. If bonuses were based on retention and they left, should not be paid. If they stayed, bonus payment should not occur until they help to "unravel" the mess they made. If the company had gone out of business they wouldn't get ANYTHING. This practice is endemic to the industry, "churn and burn" mentality. Incentive payments need to be recalibrated to reality- the new reality.

Mar. 18 2009 11:40 AM
Stuart from nyc

Why do we hear so little about the fact that when TARP1 was begin constructed there was a mild call to limit compensation that no one in Washington including and especially then Senator Obama particularly pushed for. Until his recent, fairly cynical, excoriations of AIG, Obama seemed to tread very lightly with the bank. Could this have something to do with the money behind his campaign, the Wall St. familiar faces all over his cabinet? Please discuss.

Mar. 18 2009 11:39 AM
Arthur Aptowitz from Forest Hills-Key Food-Queens Blvd and 108th Street

In the novel world of AIG,employees who made sales which proved to be toxic MUST be retained. Seems like we've got a surplus of such people who are unemployed (e.g., Bear Stearns,. Lehman, etc.), just as capable of creating toxic assets and therefore untangling them!

Mar. 18 2009 11:39 AM
Lorenzo

"Incredibly complex" basically means that nobody is responsible, the issue in all of this financial mess is that too many were too specialized and nobody had control of the whole at the end.. I think the corporate world will need to re-address the issue of responsibility

Mar. 18 2009 11:39 AM
Dennis from Westchester

I spent 15 years working in the derivatives market...I'm sick and tired of hearing how complex these instuments are. The companies claim if they don't pay the bonuses they'll lose the "talent".

I think there are a couple hundred graduates at warton and kellog who are ready will and very able to give it a shot.

Mar. 18 2009 11:38 AM
BROOK from Rye, New York

here's the other multi-million dollar question: Why should we care if these guys go somewhere else? Do they truly understand default swaps if one can stamp "Fail" on their c.v.s?

Mar. 18 2009 11:38 AM
smidely

How silly.

THey are in business of making money and they are making money. For themselves.

Until they are kicked out of the building (and they are starting to think they never will be, to their shock), this is their ONE JOB.

If the government is dumb enough to let them -- legally -- then that's the taxpayers' tough luck.

For the first time in years these guys actually are getting rich LEGALLY!

ANYBODY on the street feels this same way. Ask one. Oh, they're too busy making money.

Mar. 18 2009 11:38 AM
Chris

Could someone please talk about the material issue at hand?!?!

Goldman Sachs received $13 billion in a plan conceived by Hank Paulson, its former CHAIRMAN, in a government funded bailout of AIG.

$170 million in government waste is a ROUNDING ERROR in the Pentagon's budget.

Mar. 18 2009 11:38 AM
downtown from downtown

Not only should they give the bonuses back, but some (if not all) of the money should go towards services to assist Iraq/Afghanistan war veterans...who were shafted by the Bush Administration and don't seem to be getting a lot of help from the Obama Administration.

Mar. 18 2009 11:37 AM
ted from manhattan

for me it is about accountability. it is another example of how politicians talk accountability and when it comes time to account, they fail.

let's consider how the govt is yelling for accountability in schools and how the deal with students, teachers, and schools. maybe politicians so go back to school and relearn how to function correctly.

it is about accountability and owning up to our mistakes and then correcting them. we heard sports reporters demanding that arod, "man up." wall st, congress and many others, it is time to MAN UP.

cheers,
ted

Mar. 18 2009 11:35 AM
pomerol from Brooklyn

NAME THE BONUS RECIPIENTS!

Mar. 18 2009 11:35 AM
Susan

As Dennis Kucinich would say, "wake up Americ!!!" The bonuses are trivial. The continuous infusion of cash to the feckless, brainless, and outright criminal is outrageous. Each of these giveaways comes with dire warnings that there is no time to consider the idiocy about to be perpetrated, we must capitulate immediately, and the results are predictably ghastly. It is disingenuous to keep repeating, like a mantra, "we're all in this together." No, we are not: bailouts go to banks and insurance companies too big to fail, feckless holders of mortgages they cannot or, worse still, will not pay, auto giants, and state governments who get to dole out the pork (see Harry Reed's LA to Vegas railroad). Meanwhile, if you live in a rental (usually, poorer people), you will be evicted if you can't pay the rent. If you put money into your retirement account (actual money, not the money you DID NOT put in your real estate investment (AKA your 'home'), you get to pay for all these bailouts, despite having suffered losses proportionally greater than any of them. Please address why real estate is privileged above all other investments, banks above all other businesses, etc. Until these questions are addressed equitably, people will be enraged, and rightly so: I repeat, we are NOT all in this together, and we know it.

Mar. 18 2009 11:34 AM
the truth from Atlanta/New York

They should pay back plus interest!

Mar. 18 2009 11:33 AM
Matthew from Rockland County

I heard someone yesterday explain that these latest bonuses everyone is enraged about are actually more Salary for normal people than bonuses for the executives, has anyone actually checked the facts on the amounts of payments and or the recievers of the checks? Are these really executives making hundreds of thousands per years already, or are they checks that make a $13,000 a year job into a #32,000 a year job much like quota based cellular phone sales.

Mar. 18 2009 11:33 AM
Karen from Manhattan

And yes, they should return the money -- it's the principle that counts.

Mar. 18 2009 11:33 AM
Karen from Manhattan

The real issue is the payments by AIG at 100% on the dollar to Goldman Sachs -- Hank Paulson's former firm -- Deutschebank and other large banking entities. Obama used the bonuses to leverage AIG into finally disclosing such information.

Sounds to me as though there was some money laundering going on at AIG vis a vis the other banks, and that's what I'd like Congress to pursue.

Mar. 18 2009 11:32 AM
RA from CT

I seem to recall that during debate on the original TARP bill, some of the Democrats wanted to add executive compensation caps in the bill, but the Republicans objected on the basis of the government interferring in the private market, so executive compensation caps were removed from the bill. Is my memory correct?

Mar. 18 2009 11:32 AM
Pat from nyc

I want these people to go to prison. Frank Partnoy, who wrote "Confessions of a Wall Street Trader", has shown that they all knew what they were doing was gambling and money laundering.

And Standard and Poor's is also responsible, becasue they took money from these brokerage houses to give false AAA+ ratings to these garbage derivatives.

Mar. 18 2009 11:31 AM
hjs from 11211

as i said earlier what did bush team and the dem congress think wall st was going to do with a blank check, feed the poor, rebuild the national infrastructure, buy girl scoot cookies?

Mar. 18 2009 11:07 AM

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