A.I.G. Bonuses Strike a Nerve

Some people are vengeful, calling for jail, public humiliation or even revolution over the decision by A.I.G. to award $165 million in bonuses to employees who were in part responsible for the insurance giant’s near collapse — though few go as far as Senator Charles Grassley, Republican of Iowa, who has suggested that company executives should “resign or go commit suicide.”


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What would you do if you were one of the management team members in the present AIG, would you accept the bonus and if so why?

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though few go as far as Senator Charles Grassley, Republican of Iowa, who has suggested that company executives should “resign or go commit suicide.”

Yep. As a member of congress, I'm wondering if he believes he should suffer the same fate? :rolleyes:

I admit that the optics of these bonuses appear such that management is absolutely tone-deaf to the public relations aspects. However, that being said, let me attempt to explain what I understand these to be and why they were paid like that.

These contracts were put in place in early 2008 when the credit markets were just starting to crater. AIG realized they had a major fucking mess on their hands at AIG Financial Products in London, but they may not yet have realized that the company itself (i.e., AIG) was all but dead. In any event, they removed the guys running the unit (e.g., Cassano) but needed people with knowledge of the transactions to help them unwind them. (So btw did every other company that had significant exposure to this shit.) So they did the only rational thing they could do -- gave them contracts that said if they stuck around they would get a so-called "retention bonus" in March of 2009 (note, the date couldn't be past March 15th of 2009 if they wanted to deduct the expense in 2008 -- a point that now seems laughably irrelevant.) This is pretty common procedure in corporate America when you are shutting down an operation -- you pay the people who know how it works to stick around till you can close it (something that doesn't just happen by throwing a switch.) In retrospect, the choice of the term "bonus" was unfortunate. Maybe something like "deferred salary" would have been more palatable.

Now like every other taxpayer that has seen money vanish down this black hole, my personal preference would have been to see these assholes chained to their desks, stewing in their own urine and feces till they finished cleaning this mess up. But sadly, the real world doesn't work that way. Slavery, whether indentured or otherwise, is illegal both here and in Brittan. And as viscerally satisfying as that prospect would be, the only way this mess was going to get uncooked was to employ the assholes that created it on terms that they would accept.

Looking at the facts objectively, these bonuses seem rational, though despicable. However, the thing I really find despicable is the political leaders trying to curry favor with the public by riding their outrage instead of lowering temperatures and cleaning up the mess like they are supposed to. I also note that these "bonus payments" are less than 0.1% of the money that was pumped into AIG and the biggest outrage is coming from Congresspeople who think nothing of padding a stimulus or rescue bill with 10% extra to cover the graft for their supporters. I also not that all the noise about taxing these payments at 100% is a little silly in that most of the people receiving these payments are in England and not subject to US taxes -- grandstanding at its finest.

<div class='quotetop'>QUOTE (pjorourke @ Mar 17 2009, 05:59 PM) <{POST_SNAPBACK}></div>

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I admit that the optics of these bonuses appear such that management is absolutely tone-deaf to the public relations aspects. However, that being said, let me attempt to explain what I understand these to be and why they were paid like that.

These contracts were put in place in early 2008 when the credit markets were just starting to crater. AIG realized they had a major fucking mess on their hands at AIG Financial Products in London, but they may not yet have realized that the company itself (i.e., AIG) was all but dead. In any event, they removed the guys running the unit (e.g., Cassano) but needed people with knowledge of the transactions to help them unwind them. (So btw did every other company that had significant exposure to this shit.) So they did the only rational thing they could do -- gave them contracts that said if they stuck around they would get a so-called "retention bonus" in March of 2009 (note, the date couldn&#39;t be past March 15th of 2009 if they wanted to deduct the expense in 2008 -- a point that now seems laughably irrelevant.) This is pretty common procedure in corporate America when you are shutting down an operation -- you pay the people who know how it works to stick around till you can close it (something that doesn&#39;t just happen by throwing a switch.) In retrospect, the choice of the term "bonus" was unfortunate. Maybe something like "deferred salary" would have been more palatable.

Now like every other taxpayer that has seen money vanish down this black hole, my personal preference would have been to see these assholes chained to their desks, stewing in their own urine and feces till they finished cleaning this mess up. But sadly, the real world doesn&#39;t work that way. Slavery, whether indentured or otherwise, is illegal both here and in Brittan. And as viscerally satisfying as that prospect would be, the only way this mess was going to get uncooked was to employ the assholes that created it on terms that they would accept.

Looking at the facts objectively, these bonuses seem rational, though despicable. However, the thing I really find despicable is the political leaders trying to curry favor with the public by riding their outrage instead of lowering temperatures and cleaning up the mess like they are supposed to. I also note that these "bonus payments" are less than 0.1% of the money that was pumped into AIG and the biggest outrage is coming from Congresspeople who think nothing of padding a stimulus or rescue bill with 10% extra to cover the graft for their supporters. I also not that all the noise about taxing these payments at 100% is a little silly in that most of the people receiving these payments are in England and not subject to US taxes -- grandstanding at its finest.[/b]

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Agreed. Well articulated here:

http://www.nytimes.com/2009/03/17/business...no_interstitial

Would any of you ladies want to work in an environment where people don&#39;t live up to contracts? Tthat&#39;s what these bonuses were, contracted. Say a guy hires you for x hours at $yyyyyyy then through no fault of your own he fails to achieve an orgasm. He goes ahead and pays you. The next day you get a call from a third party that explains to you, privately as well as on ASPD, that he funds the other chap&#39;s hobbying and since you couldn&#39;t bring him to orgasm obviously you are at fault and demands the money back. I realize this isn&#39;t a perfect analogy, but it gets at the notion of making good on agreements.

The answer is put in place compensation plans going forward that are much more aligned with shareholder (that being the US Govt) value creation than rentention or project related milestones. Put you can&#39;t fix the past.

Let&#39;s see.

AIG owes us taxpayers over $140 billion.

Having the right people run the company will probably make an appreciable difference in the odds of us getting paid back.

AIG is competing with companies that pay millions of dollars a year to top employees.

If the people who got bonuses make 0.2% difference in how well the $140+ billion is managed, the bonuses will more than pay off to the US taxpayer.

Do we really want our money in AIG to be managed by workers who earn in the lowest 10 percent of their job description? Maybe we should hire some of the highly qualified and effective people who run the various federal government agencies. Perhaps we can make AIG run as smoothly as the post office, FEMA, or Congress.

As for the people getting the bonuses being the ones who screwed things up, maybe, but even if they are the cause of the problem, will having them leave AIG and go elsewhere help AIG and/or our taxpayer investment in AIG? Even a good new "outsider" executive who doesn&#39;t know how the company is run is going to have a long period of turmoil as he takes over. Would immediate massive changes in the management at AIG actually help the company?

Remember, even the "worst" of these executives at AIG can probably get highly paying jobs at competing companies. Once at these other companies, they could probably help those companies take business from AIG.

Even if they are "rats", do we want the rats to desert the ship that us taxpayers now own, or stay on for a while and try to help keep it from sinking?

I would call them enemy combatants and rendition them to China....they know how to handle financial thieves. They were a insurance company that basically renamed what was a insurance risk so as it not to be regulated and we the taxpayers have just eaten that risk.

That said I agree with what PJ posted damn near 100%. What is the world coming to.

What some of you propose is akin to rewarding a bank robbing guard with not only the money he stole but a bonus for helping fix hole&#39;s in the security.

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Rudyard K wrote>
Yep. As a member of congress, I&#39;m wondering if he believes he should suffer the same fate? :rolleyes:[/b]

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Nothing to do with the topic, but glad to have you here. No rolleyes here!


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WTF Wrote>
That said I agree with what PJ posted damn near 100%. What is the world coming to.[/b]

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Now I am indeed concerned....

What I don&#39;t understand is why the public outrage is directed at AIG executives? As unfortunate as these retention bonuses are given the current state of the economy, they are legal contracts... liabilities. The government seemingly failed to do their due diligence in investigating the liabilities of the company they were looking at purchasing (controlling interest anyway). IF, and that&#39;s a big IF, these liabilities are indeed so obnoxious, why was the funding not withheld pending a renegotiation of these bonuses? Mortgage companies are being required to renegotiate valid loans so that people can stay in their homes as a condition of receiving bailout money, why not require renegotiate retention bonuses prior to buying AIG so that it doesn&#39;t have to file bankruptcy and NONE of the bonuses get paid? Someone dropped a ball here and it ain&#39;t AIG.

It just seems like grandstanding for anyone who voted for the TARP bailout, or this spendulous crap, to have anything negative to say about the liabilities they themselves voted for purchasing. It&#39;s easy to emote and blame the few rich, smart folks (smart enough to run a company into the ground and walk with millions in bonus pay) when a presidency was won on class envy and socialist wealth redistribution. But it&#39;s hard to make any of that stand up to a modicum of logic.

Word! to all of the above.

PJ got it right. If the government wants to negotiate terms for the money they are now giving and take out $165 million than fine, but all this wailing and gnashing of teeth is pure political theater.

The single worst thing Congress could do now is to pass legislation abrogating the contracts. Although it is possibly in COngress&#39; power to do so under the Commerce clause it would send an awful signal that contracts are at the whim of Congress, really bad for business.

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It&#39;s easy to emote and blame the few rich, smart folks (smart enough to run a company into the ground and walk with millions in bonus pay) when a presidency was won on class envy and socialist wealth redistribution.[/b]

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Lovely EC, partially; it was also won on an economy that was collapsing, a war that is highly unpopular, against a party (Republicans) that over and over refuted its core principle of fiscal restraint and that hasn&#39;t had an idea beyond tax cuts as the panacea for all ills in more than a decade.

<div class='quotetop'>QUOTE (Woody of TX @ Mar 17 2009, 09:13 PM) <{POST_SNAPBACK}></div>

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No rolleyes here![/b]

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Wasn&#39;t rolling at you Woody...but at Grassley.

Nevertheless...The answer to the first question?..Yes. The second?...Because that was the deal I made. It&#39;s as simple as that.

How about we pay the God Damn bonus&#39;s to those smart cats that we seem to think we just can&#39;t do without in the business world and then Extraordinary rendition them to China. Maybe they then could sell the U S and the rest of the world a load of toxic crap and the Chinese government can go about trying to make good on that paper. That way our Republican members of this board will get two for the price of one. Honored contracts from crooked thieves and reinforced feelings about rendition and for good measure I&#39;ll waterboard out a confession from the bastards on the way over if anybody is unsure of what lowlife&#39;s these guys really are. Problem solved. We will not have to worry about them doing this more than once in China.....in fact my bet is that they would not have tried this in China.


Seriously these guys set up a risk model that did not take in account a tanking housing market, just how smart are these guys? The question to me seems not to be how smart these guys are , it is how dumb will we be? If they get away with tanking the world economy and getting their bonus&#39;s AND facing no repercussions then they will be considered smart in the Bernie Madoff sense that he actually got away with ripping people off for so long without being caught. I do not look up to , nor consider those type of people smart.......I take a self responsible approach and think myself dumb if I can be talked into such nonsense. &#39;&#39;Class envy&#39;&#39; hardly, &#39;&#39;socialist wealth redistribution&#39;&#39; is talk radio talking point meant for the ditto heads. Hopefully we are above that level of understanding except in gist.

I suspect that the grandstanding will eventually turn into political posturing. The Dem&#39;s KNOW they can do nothing. It is a natural divide between parties for the most part. It is another issue to divert attention away from the real screw-ups of the Obama administration. Here&#39;s how it goes.

1) Execs get bonuses and tell congress to kiss their ass.
2) Dems get taxpayers all worked up over it since the general public does not understand the legal implications of NOT paying the bonuses.
3) Dems threaten to tax it at 100%, etc knowing they cannot do it but yet look good trying to "defend" the taxpayers (and hide their screw-up)
4) Republicans take opposing view points in some fashion
5) Dems then say they could not get the bonuses back because the Rep&#39;s fought them
6) Taxpayers eventually blame Rep&#39;s instead of Obama administration leaders and Dem&#39;s
7) In 6 months people will not remember who AIG was after it gets carved up and sold off.

Another great purchase by the Democratic congress. We paid $170B for a company that is worth $3B today. Who should be fired again?

<div class='quotetop'>QUOTE (discreetgent @ Mar 18 2009, 06:49 AM) <{POST_SNAPBACK}></div>

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Lovely EC, partially; it was also won on an economy that was collapsing, a war that is highly unpopular, against a party (Republicans) that over and over refuted its core principle of fiscal restraint and that hasn&#39;t had an idea beyond tax cuts as the panacea for all ills in more than a decade.[/b]

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Darling DG, now, I realize I&#39;m not an economist or political analyst or anything remotely similar, but correct me if I&#39;m wrong here... Both candidates had plans for aiding the economy. Which one won? The one who said he&#39;d tax the bejeezus out of the wealthy and spread that to the poor (defined by his concept of wealthy and poor, we already know one person who disagrees with his concept but that&#39;s another thread) - is that not the basic tenant of socialism? Perhaps my terms are mixed up, but I do know that it is not any form of free market/capitalism. Furthermore, the Messiah (and his party) forced on those same poor folks, whom he claimed to have such compassion for, this porkulous bill that prints money out of thin air and creates debt that no one alive is likely to see the end of all in the name of nationalizing companies that rightfully ought to have gone under. Again, maybe my calling it socialist is off - but it sure isn&#39;t any form of free market/capitalism.

Both candidates had plans for ending the war. Which one won? The one who wanted to pull out immediately regardless of outcome. This doesn&#39;t directly relate to class envy but indirectly, who actually fights wars? Not the children of privelege, but the children of middle/poor America, so who feels that sting the most? Subtle, yes. But class envy nonetheless.

Can&#39;t argue about how un-Republican the GOP has become. It&#39;s a damn shame no Libertarian has a snowball&#39;s chance of ever winning anything or I&#39;d turn in my political designation in a heartbeat.

There are always hundreds of tangents and roots for these things but if anyone could simplify it into basic language - class envy and socialist wealth redistribution is what I see as the base for Obama/Dems being where they are. That, and an unfortunately under educated and overly emotional voting public (again, another thread but relevant here IMO).

<div class='quotetop'>QUOTE (Edrienne Cole @ Mar 18 2009, 11:30 AM) <{POST_SNAPBACK}></div>

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I hear what she says, but I&#39;m distracted by a desire to slide that sheet out of the way. :D

I disagree.

First, it&#39;s not that AIG knew they had a mess on their hands but that this group caused the mess. The idea of laying off risk is terrific but the reality is that this group at AIG was acting almost like a shadow government or shadow central bank and concentrating all that risk in their hands, without any ability to print money or to guarantee payments with tax revenue and certainly without capital.

Second, this group, these individuals, have inflicted tremendous personal harm on unbelievable numbers of human beings. The law represents the fundamental notion that when you do wrong you should be punished. This is the opposite of that; these people are being rewarded for doing wrong, and that is why this strikes people as being fundamentally and terribly bad. We don&#39;t as a society have the means to deal with this kind of complete social betrayal. In China, these people would be hounded - on the internet, on the street. They should be shunned but we have no mechanism for that. Expressions of outrage are the best we can do. If the argument is that we shouldn&#39;t express outrage, then I&#39;d suggest all you shut the bleep up about your political beliefs because a big chunk of what you say is expressing outrage - including of course outrage against those expressing outrage.

Third, I can&#39;t remember the baseball manager who said, "We finished last with these guys and we can finish last without them." The idea being floated that not paying these bonuses would result in worse performance, that these people might then leave and trade against AIG, carries more than a whiff of a threat of terrorism. So we shouldn&#39;t negotiate with terrorists but we should pay them if they work for AIG?

Fourth, the facts are not in - and may never be in - but this bonus arrangement has the stench of cronyism and our history is full of successful (and unsuccessful) over-turning of arrangements reached at less than arms length designed to unjustly enrich. These are legal terms and now that the government owns AIG it could have argued this and had AIG and these people sue for their money. That would have been a spectacle. (Or as MacroMan suggests, pay them in AIG stock.)

Fifth, this crap about the sanctity of contracts is mind blowing. The government reneges on contracts all the time and then dares you to sue them - which, them being sovereign, is hard to do. They pull the plug on funding they&#39;ve previously guaranteed. They cancel contracts without following the literal terms. (And we don&#39;t live up to treaty obligations as usual practice.) They do this because they can get away with it. And that is how the real world works. People refuse to pay bills all the time and that then invites the possibility of a lawsuit or a settlement - and yet the sanctity of contract still exists and the world continues in its petty pace from day to day. It&#39;s a pathetic straw man argument to extrapolate from these asswipes at AIG to every contract the US government makes. Yes, not paying these shits is exactly like dismantling nuclear weapons and the US government is launching a broad assault on the sanctity of contract using AIG as its opening salvo.

In finance, to use a simple example, many repo contracts "fail," meaning one party fails to deliver. Sanctity of contract indeed. We even have jargon for this occurring and yet people keep entering into repo&#39;s.

What horrifies me - and what&#39;s really beginning to roil the financial "underworld" - is the way AIG has been spending bailout money. We are seeing the political fallout begin: why is the US taxpayer bailing out a German, French and Swiss bank when those are the responsibilities of their own countries? The next level is that a company like Goldman has taken US taxpayer dollars and not disclosed this to Congress and the public. Treasury likely knew but the head of Goldman talked to Congress about how they didn&#39;t need US money and now it turns out they&#39;ve taken it under the table. That may come back to bite them in the ass and I, for one, would like to see the government require Goldman to pay back the taxpayers. The third level is where things are getting, well, almost incoherent: AIG seems to have bought the securities underlying these contracts for 100%. This not only makes no sense but there&#39;s no way you can say it makes any sense without believing in a) AIG is utterly and completely stupid, B) Treasury is run by morons or c) AIG did it because they thought they could get away with it, meaning they took US taxpayer money and doled it out to their friends. (There is a 4th possibility being floated, that Paulsen and the other insiders wanted this money to go to their firms sub rosa.)

Since day 1 of this crisis, since the idea of TARP was floated, the idea has been these assets aren&#39;t worth that much and the government needs to price them somewhere between face and salvage value. The idea was this money would then be "invested" in buying assets which would over time be worth more and that would repay the US taxpayer. And now we find that AIG paid face value. And they did this after putting up billions in extra collateral which only was necessary because the obligations were considered to be worth much less. For all the hue & cry about lending money to GM, this amounted to a $27B outright gift from the US taxpayers to these financial institutions. Huh? What the fuck? And we&#39;re paying bonuses for this kind of performance?