The AIG Bonuses Scandal

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Because I can't believe no one has started a topic on this yet...

 

BURN THEM!

I know the real line is "burn her" but the rabid, cross-eyed, scream somehow seemed appropriate.

 

I'm pretty disappointed all around. Furious with AIG, yet I think it's unfair that their contracts are being effectively voided (a contract is a contract, no matter how unfair or unethically written). Furious with the Obama Admin's handling of this. This has shaken my faith in Tim Geithner quite a bit. Honestly I don't know what to say other than that - right now, anyway. I know the Obama admin inherited a lot of crap when they moved in, and I'm annoyed that the confirmation process for key positions (especially in treasury) is and has been so bumpy. But they should have (and in my mind, could have) handled this better, IMO.

Grrr.

 

Out of curiosity, is the proposed retroactive tax on bonuses such as these legal in the U.S? I know in Canada, taxation measures are usually effective the date their announced (at the earliest); sometimes they will be retroactive, but only if they benefit the taxpayer, not penalize them.

Anyway, "grr" is right. I like the arguement that bonuses such as these are needed to attract talent. I wasn't aware that AIG had talented people deserving of such bonuses.

 

Splunge,

As I said in the other thread where this was brought up - there's no way a tax on the bonuses is constitutional. It is the very definition of ex post facto, which is spelled out as being illegal in Article IX of the Constitution. I doubt the Senate will pass it, and even if it does, it will be struck down by the courts.

I'm not sure what the Obama administration could have done differently about this though. The vast majority of funds AIG has received were from the original bailout in September (some of that money was appropriated by the Obama administration, but the initial legislation was passed while he was still in the Senate). That the money was given out no strings attached is what is so disappointing (and Obama did have a hand in it.)

Of course, that had to be a good law because it was completely free of earmarks! I still don't get why some people hate earmarks and assume earmark=pork.

 

I don't see how they can pass a law to tax certain people. As far as I'm concerned it is blatantly constitutional.

All that aside, the reason we are all seeing such bluster and brimstone about this is all a smokescreen. Everyone is focusing on this pittance paid to some executives and ignoring where all the real AIG money is being spent. Well, except for this guy.

 

Although I agree that politicians all over the world going after bonuses is a misdirection the fact remains that to me it seems a bit odd that the people in charge get bonuses (a bonus is per definition something extra isn't it?) despite that their companies have been "shooting out free money" as the man in the movie said. I do not really mind giving executives fat bonuses if they have actually run their company in a good way making lots of money but giving them extras while they have been running their company into the ground? Do not get that.

 

Sorry, I won't watch your link, TGS. I don't have to open a cesspool to know what's in it. I absolutely despise Glenn Beck. So if you want to make your point, at least to me, you will have to explain it.

But I'm sure it's all the "government's fault" that AIG is full of incompetent fools.

 

OK, here is the short version. AIG is being used as a conduit for taxpayer money to shore up banks around the world and here in the United States. Billions of taxpayer dollars were poured into AIG and then AIG funnelled it to other institutions in an attempt to keep everything quiet. Here is an article from CNN about it (hopefully, you don't despise them )

So basically, all the screaming, whining, and gnashing of teeth by Obama and friends about the bonuses are just a smoke screen to distract people from where the REAL MONEY is going. Afterall who cares about a couple of million when billions are being spent.

Spoiler

CNN) -- Troubled insurance giant AIG, already under fire for intending to pay out $165 million in bonuses and compensation, succumbed Sunday to congressional pressure, identifying banks that received chunks of the company's billions in federal bailout funds last year.


AIG says it "recognizes the importance of upholding a high degree of transparency" relating to bailout money.

AIG, a recipient of at least $170 billion in federal bailout money , got an $85 billion loan from the Federal Reserve.

The list released Sunday of "counterparties" that benefited from the bailout is topped by European banks Societe Generale and Deutsche Bank, which received $4.1 billion and $2.6 billion, respectively.

Wall Street firms Goldman Sachs and Merrill Lynch round out the top four, receiving $2.5 billion and $1.8 billion, respectively.

In releasing the list, AIG said it "recognizes the importance of upholding a high degree of transparency with respect to the use of public funds," in a statement.

Lawmakers have been pushing for AIG to release a list of its counterparties since last fall, arguing taxpayers have a right to know how federal aid is being used.

Earlier this month, in reference to lawmakers' request for a list of AIG's counterparties, U.S. Rep. Carolyn Maloney, D-New York, told CNNMoney it was critical to determine whether AIG's collapse would have resulted in a market catastrophe.

"We were told AIG posed systemic risk to our economy," she said. "How do we know if that's true if we don't know where the money went?"

AIG Payouts
Below are the top 10 largest payouts, according to a report released Sunday by AIG.

Societe Generale: $4.1 billion
Deutsche Bank: $2.6 billion
Goldman Sachs: $2.5 billion
Merrill Lynch: $1.8 billion
Calyon: $1.1 billion
Barclays: $0.9 billion
UBS: $0.8 billion
DZ Bank: $0.7 billion
Wachovia: $0.7 billion
Rabobank: $0.5 billion
Officials from the Federal Reserve and AIG have resisted disclosing the identity of the banks, citing concerns about competition and confidence in the market.

Responding to questioning about AIG on March 5, Fed Vice Chairman Donald Kohn told the Senate Banking Committee that revealing the names of the banks would prevent financial institutions from doing business with AIG and other recipients of federal bailout money. "They would draw back from doing business with those folks," Kohn said.

Kohn's comments drew scrutiny from the committee, namely chairman Sen. Chris Dodd, D-Connecticut, who replied, "Right now the public is deeply, deeply troubled by all of this. And it's their money that is being fed into these operations, and they, frankly, don't understand -- nor do we -- the legal arguments you're giving, but at a time we need to engender public trust and confidence in these very difficult steps, that kind of an answer undermines that effort very significantly."

AIG, in its statement Sunday, said it consulted with the Fed about the benefit to the public of disclosing the counterparties, and whether doing so would cause "competitive harm." Watch report on AIG naming names »

The company also faced criticism over the weekend from White House officials and some congressional lawmakers who reacted strongly to news that AIG had intended to pay out $165 million in bonuses and compensation.

Don't Miss
AIG bonuses spark outrage in D.C.
Commentary: Why is Fed keeping AIG's secrets?
Under pressure from the Treasury, AIG scaled back those plans and pledged to reduce 2009 bonuses -- or "retention payments" -- by at least 30 percent. That did little to temper outrage at the initial plan, however.

In a letter Sunday to Treasury Secretary Tim Geithner, U.S. Sen. Russ Feingold urged the Obama administration to explore "legal options" to prevent the millions in AIG payouts.

"I write to ask why any bonuses would be legally required, given the company's abysmal performance," said Feingold, D-Wisconsin. iReport.com: AIG, 'You failed'

Also Sunday, CBS' "60 Minutes" aired an interview with Federal Reserve Chairman Ben Bernanke, who said the AIG bailout rankled him.


"Of all the events and all of the things we've done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG," Bernanke said."

AIG lost a record $62 billion dollars in the fourth quarter of 2008. It has more than 74 million insurance policies issued in 130 countries around the world.

 

I am not surprised.

A few weeks ago, in an effort to rescue Opel, a General Motor's daughter, my state's minister president flew to America and visited GM's headquarter to negotiate with them. He obviously offered state money, and returned with the mutual announcement that he and GM had made a deal to save Opel. When he arrived in Germany he learned that, without bothering to tell him, GM's managers had pawned all of Opel's patents to the US treasury as a security for government aid. With their patents, engineering made in Germany, firmly under US control, Opel can do about nothing on their own, rendering the deal nearly worthless. Galling.

I find it hard to believe that this just happened to coincide. They just know a sucker when they see one. It's not something unique to AIG. It's a mentality thing.

 

I don't see anywhere in the article where the bonus outrage by Republicans, Democrats and the American people at large is a misdirection for AIG payouts to other institutions, and some of those cited were NOT banks, but investment firms here in the US (although the distinction has become blurred). In fact, it appears from reading the article, that AIG was pressured by Congress to reveal such info. So who exactly are you accusing of doing whatever in this in regards to the bonuses?

 

@ TGS:

I have heard (but I'm not totally sure about this) that AIG made the payments to those other banks because it owed them the money. [Edit: of course, I suppose one could make the same argument about the bonuses, but it just doesn't seem to me like the same thing.] If so, it's not like they were handed money just because AIG felt like it. And if those debt payments weren't made, there could have been a global economic collapse.

Here is one source (no idea on the credibility, though):

 

Hmm, those figures seem low. politifact has this to say about the aig mess.

So not a few Billion but over 1/3rd of the whole 170 Billion that aig has gotten.

 

I fear that the banking crisis hide under them the much much more likely and dangerous threat to the global economy. That of course being the return of protectionism. The recovery from the great depression was greatly hindered by the complete collapse of global trade. In the auto-industry this is allready apparent. France is boosting Peugeot, US is bailing out the big three and others are planning countermeasures or similar efforts to save their auto-industry. As long as this trend only affects the auto-industry the problem might not be determinal to economic development in the few future years but if it spreads to other industries (the French general strike doesn't exactly fill me with confidence) the recovery of the economy everywhere will slow down significantly.

 

So are we agreed then that Dodd & company (Treasury) did not amend those contracts BECAUSE it would have been unconsitutional and unlawful. That's the legal dimension. Nevertheless, there is a poltical dimension to appease the outrage of the American People which Obama & Company, (Congress) has pursued, which is woking at cross-purposes to the Constitution.

I think many Americans, including Obama, wish that it was Constitutional. But this is Federalist Paper #44. Clearly, Madison intends for it to be unconstitutional for Congress to amend legal contracts:

This is a protection of individual and private rights. I have to say that as much as we wish that we could get some fairness in this, as taxpayers, the courts will more than likely rule this as uncontitutional in the end. It's probably better to protect the rights of the individual, even if they are "icky" corporate fat cats who are taking our money.

http://www.constitution.org/fed/federa44.htm

 

BTA - It's not likely to stand up in court. There's probably a broad range of contracts that the government didn't want to amend because of the legal issues. And it doesn't take a rocket scientist to figure out that the bonuses would cause this kind of public reaction. Well, that's not completely true, since there are a number of Republicans who still don't get the public outrage (although some of them get it, hence the reason half of them voted with the Democrats). So maybe you are right. But the politics still won't change the Constitution.

It's the same thing that's happening with the subprime mortgages, BTA. If the government changes those contracts, or allows a judge to, everyone is threatening to sue over it, even though we are going to secure those loans with taxpayer money.

---------- Added 1 hours, 45 minutes and 51 seconds later... ----------

BTA - Still the government thought nothing of changing those much-hated union contracts by conservatives, who railed about how union employees, particularlly auto workers, were making too much. Those Republicans and conservatives had no problem attacking the hourly worker for his pay and benefits. Yet, where is all the missing conservative "outcry" over executive bonuses?

Nothing for the average blue-collar worker and everything for the fat cat, white collar executives it seems. I was thinking that a senator like Dodd was not expected to pour through hundreds of pages of legal documents, but instead he had government lawyers to do this for him and then they would make recommendations based on what's lawful and Constitutional. Yet, you are correct, that the politics are hard to ignore. Either that, or conservatives are much better at gauging their anti-union, anti-hourly worker, supporters.

 

Personally, I prefer to think of the half of Republicans who voted against as upholding their oath to the Constitution and the other half who voted with the Democrats as....

 

TGS - They are probably the same Republicans who demanded that union contracts be cancelled for the auto workers.

 

I saw on CNN where Dodd lied about approving the bonuses for AIG. Treasury did inform him that it would probably be illegal to try and negate the contracts, and then the bill was amended - by Dodd, as a result. That's fine, but then he lied about it on camera and said he had no idea how it was amended.

If he was any kind of person of integrity he would have stood by his notion supporting the Constitution, but instead he caved, fearing the poltical fallout. What a weasel.