Retention Bonuses to be voluntary paid back

Listen to what AIG chief Edward Liddy told lawmakers today.

Comments

Seth says

MR 2009-03-18 11:32:11 11649

When the president & congress & the newspapers all campaign actively to demonize & deprive private citizens of their money, legally obtained, it's not voluntary! It's just Obama on his way to ruin capitalism. His party's senator wrote the bonus ammendment. His treasury secretary was in charge of the disbursements from the treasury.

Well this loophole was not put in by Dodd - according to firedoglake.com the loophole was added "at the specific request of Timothy Geithner" to protect the "legally obtained" contracts.

You seem to chastise the government for introducing a loophole to protect monies that were "legally obtained" by contract - and on the other hand you rail against Obama for "ruining capitalism" ... notwistanding that Obama specifically said use any means short of tearing up the contracts. Leaning on the employees to pay back the bonuses was the best solution - and apparently that is what will happen.

So now are you saying that these execuitives deserve these bonuses because they have contracts? In your haste to rail against democrats at any cost it seems to me that you (and Rush) are talking out of both sides of your neck.

Mark de LA says

seth 2009-03-18 14:57:13 11649

source: MR above
Please note, I don't care how much an exec makes as long as it is on merit or the company is not getting bailed out. That's just private business. A failing company's execs should not get any money in bonuses. They should just go straight to the unemployment line.

Yep, i think that's the way most of us feel.

How about politicians?

Mark de LA says

A rude question from Eliott Spitzer: (via Ben Smith)

Spitzer today:

My question is, when the group got together, and as we best understand it, it was Mr. Bernanke and Tim Geitner and Hank Paulson, and Lloyd Blankfein, I think was there as well, the CEO of Goldman. When they got together last Fall and decided very very quickly that AIG needed $80 billion, why did they make that determination? That is the issue Congress should be probing. The bonuses yes, they matter, but they are penny ante compared to this money. Why, if they knew that that money was going to go back to Goldman, BofA and Morgan Chase, did they need it? What were they getting the money for and what was the premise that made them pay that money up front?

Spitzer, meanwhile, dismissed the bonus issue. "Bonuses are the flavor of the month," he said.

Mark de LA says

All you had to do I watch Obama's speech for the demonization. Read the internet which started this whole newsfront. If they were so bad why didn't the administration remove them subsequent to hyping the taxpayers for more money to keep them afloat. The government now owns 80% of them - that's a majority vote on their board. Would it be AIG's campaign contributions?

Mark de LA says

& now, Fannie Mae plans bonuses of up to $611K (each) for 4 execs;Freddie Mac has similar plans - check their connections with congress & the president. Please note, I don't care how much an exec makes as long as it is on merit or the company is not getting bailed out. That's just private business. A failing company's execs should not get any money in bonuses. They should just go straight to the unemployment line. The same should apply to politicians.

Seth says

Yep, i think that's the way most of us feel.

Seth says

The NYT has posted the retention bonuses contract AIG signed with there employees here. It is unclear to me when this was executed, perhaps somtime in 2008 after? the first bailout when "AIG was in full melt down mode".

source: NYT

Haven’t read the contract yet, but notice that this plan is “effective as of December 31, 2007.” That usually means that it was adopted before and often AFTER that date. So, what do the board resolutions say? When was this thing, in fact adopted, because there are recitals that suggest that AIG was in full melt down mode when adopted, and if adopted late in the game, could it be undone on that basis?

— Posted by EL

... Justifying Delonass sentiments

Seth says

Inside AIG-FP, Feeling the Public's Wrath ... very interesting ... i want the movie rights to this saga.

Mark de LA says

Well writing something off as Rush, conservative, liberal is a piss poor argument for/against anything; not even being an argument - just ad hominem trash-talking. I think I am the first one to say the i-word (impeachment). Rush didn't yet. Lots have said throw the bums out!

What you say about CDS may have legs except how did they come into creation except for the pressure on the banks to lend to those who had no hope of paying back the loans when the variable rates kicked upward? There were those who raised red flags & even Bush tried to get Congress to regulate, but apparently that wouldn't have played well in the 2008 elections or previous ones.

Seth says

MR 2009-03-20 07:54:08 11649

What the Congress did & attempted to do was against the constitution, IMHO. They attempted to pass laws against individuals by taxing them ~ 100% on their bonuses.

source: ...
The Constitution of the United States, Article I, Section 9, paragraph 3 provides that: "No Bill of Attainder or ex post facto Law will be passed." "The Bill of Attainder Clause was intended not as a narrow, technical (and therefore soon to be outmoded) prohibition, but rather as an implementation of the separation of powers, a general safeguard against legislative exercise of the judicial function or more simply - trial by legislature." U.S. v. Brown, 381 U.S. 437, 440 (1965).

...

Yep this is probably unconstitutional and just show on the part of congress.

Seth says

source: M above
What you say about CDS may have legs except how did they come into creation except for the pressure on the banks to lend to those who had no hope of paying back the loans when the variable rates kicked upward?

Watch your wording ... there is no evidence that CDSs (Credit Default Swaps) were created in response to pressure to make sub prime loans. CDS are a level up in abstraction from the CDO, some of which were derived from the sub prime mortgates. I dont think that AIG even loaned any mortgates. Rather they sold CDSs which were used to insure virtually anything that some brainstormer could make up a risk for. People were even betting on the demise of corporations and insureing them with a credit default swaps sold by AIG. Everybody up that food chain were getting crazy rich on the fees and squeezes on these new fangeled derivitives. Wath some of the fine documentaries at CNBC or NPR on what happened - its no secret now and look at the crazy stock splitting ride that AIG took to its fall. Sure pressure to get people into houses was a factor; but I doubt it was even a major factor in the financial bubble that burst in September.

Mark de LA says

Seth says

source: MR
It's more than unconstitutional, it is outrageous. It is inciting a mob to the homes of some of the executives & their neighborhoods including union led organized events. I think that Chris Dodd, Tim Geithner & perhaps some in the administration should be impeached!

Sounds like Rush to me.

But seriously the real problem is the systemic risk that AIG created by selling CDSs without sufficient collateral to back them up. The hedge fund sitting on top of the AIG could not eliminate the risk that people who bought the CDS were insuring themselves against. The creation of that paper wealth under those false pretenses was one of the biggest frauds ever perpetrated. So allowing the very people who perpetrated the fraud to profit from it is outrageous, and does justifies extraudinary measures to remedy. Imo, Liddy's remedy of "the employees giving back at least half of their bonuses" goes only half way to a remedy. The rest is just bluster, show, and bloviation - the strong points of Washing politicians and conservative radio commentators - but not the people who will come up with the practical solutions which will eventually restructure the upper tier of our banking system.

Seth says

To justify most of my comments about AIG and CDSs please read this piece. It's 8 pages long but it chock full of facts and well worth the time if you want to talk knowledgeable about AIG. Most of this has been confirmed by the NPR and CNBC documentaries.

One point i made was that the sub prime was a small fraction of the CDS mess. Well now we can quantify that fraction ...

source: page 4
In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.

... $64B/$500B = 13%

Mark de LA says

seth 2009-03-20 15:21:29 11649

So is AIG just another pyramid Ponzi scheme like Enron & the upcoming cap & trade Carbon tax?

Mark de LA says

Let me put it bluntly, without mortgages (perhaps also credit cards as well) for people who wouldn't pay them back there would be no need for CDO's , CDS nor any of the funny money derivatives. At some point it all began to feed itself, but had the people who got the mortgages actually paid them back there still would be no problem. It is the idea of a sub prime mortgage that began to sink the ship. If a bank had made a loan on a house in the normal way, lets say for only half the value of the property then if a default occurs the bank is ahead if foreclosure occurs. Money itself, along with corporate bonds & stocks are abstractions of real things - it wasn't the abstraction that necessarily hurt. It was the notion of insurance without the regulation requiring reserves to pay in case of the negative event occurring. I say the people who were not watching in the Fed, Treasury, Congress & various responsible agencies need to lose their jobs & treasure - perhaps a little jail would also help. At some time it clearly became a Ponzi scheme. I would like to see some in Congress impeached. We must hold elected & appointed officials accountable for doing their jobs at least in the economic domain if not all others. Although there are protections against legislators being held accountable for political reasons I suspect that there is something we can do before the next election to drive the point home short of:

Seth says

source: MR definitively pins down the blame

Let me put it bluntly, without mortgages (perhaps also credit cards as well) for people who wouldn't pay them back there would be no need for CDO's , CDS nor any of the funny money derivatives.

Yeah sure just blame human nature - people should discipline themselves - which of course is true - they should.

On the other hand a bit of adult supervision might help us not go bust the next time ... start reading on page 4.

Mark de LA says

Woof! Woof!

Mark de LA says

The word distraction is a favorite Obama teleprompter word, use it often it strengthens your arguments. (NOT)

Mark de LA says

Yep, except that house prices are a market thing. More foreclosures = more houses available and prices go down. Banks in trouble means lower prices for the foreclosures they own. People nearing their bump in interest tend to want to sell , etc. Prices don't just start going down. It's not evil spirits in the middle of the night.

Seth says

MR 2009-03-22 16:55:06 11649

There were many factors contributing to the bursting of the housing bubble; and i'm not at all sure that you have identified the original causes. Me, i think that the prices were starting to get beyond what the middle class could afford ... hence too many houses were available and prices dropped according to demand destruction. But prices go up and prices go down. Sometimes a savvy analyst can nail a cause, but for the most part, up and down is what markets do. The fallacy in the upper echelons of the financial industry was to think that they could continue to rise with no appreciable downturn the way that had for the previous 50 years or so.

Mark de LA says

seth 2009-03-22 10:27:31 11649

MR 2009-03-22 10:14:24 11649

-snip-

Your bold statement is in fact true. Then why have you done it over and over again? That is the irony. Hint: i would never blame human nature for the mess, nor have i blamed human nature for the mess.

This is basically a boldface lie! Show me the quoted!

source: MR above
"Let me put it bluntly, without mortgages (perhaps also credit cards as well) for people who wouldn't pay them back there would be no need for CDO's , CDS nor any of the funny money derivatives."

That's true, but a technical thing not a human nature frailty. It's like (my argument is) saying without fires there would be no need for fire insurance or without car crashes there would be no need for car insurance. The notion of insurance spreads the costs over a pool of individuals. The flip side is that the costs go up over time because someone else is helping pay for accidents, health care etc. You missed the point, anyway! Your claim was that CDSs & greed was the cause of the financial meltdown. I say it was the fact of sub prime loans that made the market for CDSs & other derivatives. Without sub prime mortgages the insurance is unnecessary because foreclosure & other measures determine the pricing. The government & Freddy Mac & Fannie May were encouraging & probably coercing (with connections to people like Barny Frank & Tony Resko & Chris Dodd ) banks & other financial institutions to make loans to people with insufficient proof that they could pay them back. The rest was a house of cards built on the dream of owing a house. Furthermore, someone was not watching the finance world to regulate CDO & CDS so that as insurance they had to have reserves to pay in the case of foreclosures. That last was also a fault of government.
I never blame human nature as an excuse for anything. I am for freedom of the individual.

I am for responsibility of the individual .. etc.

Seth says

source: MR above

I am for responsibility of the individual .. etc.

Well at least we agree that it is ridiculous to blame human nature for the mess ... so let us let it go at that.

Just a few things to clean up ...

My point was not that "CDSs and greed was the cause of the financial meltdown". The CDSs might have been fine had AIG reserved enough capital to pay off on them without going bankrupt. What caused AIG to go belly up was trying to raike in premiums and not planning for all the contingencies of paying them off. The only word I have for that is "fraud". That is why the insurance industry is regulated. The people at AIG who perpertrated that fraud are to blame as well as those who should have regulated the process ... see Taibbi's article for details. But "greed" was not to blame ... that is just human nature.

There is not just one "the cause" of the financial meltdown, there are many. Sure one contributing factor was the subprme mortgates, another was loan brokers bending the actual rules that were in place, another was that house prices didn't keep going up, and another was that some financial geniuses though they had found a magical way to insure themselves against risk, and another was that the government allowed the industry to run amuck. It does seem that we have hit on most of the same reasons.

Mark de LA says

seth 2009-03-22 17:24:47 11649

MR 2009-03-22 16:55:06 11649

No bubble bursts for no reason. Krauthammer nails it again as far as the current situation:

source: ...

It is time for the president to state the obvious: This recession is not caused by excessive executive compensation in government-controlled companies. The economy has been sinking because of a lack of credit, stemming from a general lack of confidence, stemming from the lack of a plan to detoxify the major lending institutions, mainly the banks, which, to paraphrase Willie Sutton, is where the money used to be.

...The tech bubble burst because the hype of anything tech was gold (symptoms of the last century's gold rush). You are right about real estate bubble & prices always rising myth; OTOH, that myth was caused by sub prime loans creating a greater desire for more housing thus raising the prices. Supply & demand. That bubble burst when too many mortgages defaulted (actually less than a few % at the start). It is mainly a hype & confidence game.

Seth says

Well here is one of the examples that i was calling for ....

source: NYT: Dear A.I.G., I Quit! The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.
Readers' Comments

DEAR Mr. Liddy,

... it is well worth a complete read. Now we hear the other side of the story. Now we might be getting a hint of why Obama's tone changed from his first reaction, "every means necessary to block the bonuses", to what his said in his most recent press conference ...

source: Yahoo, full text of Press Conference 3/24/2009

You know, there was a lot of outrage and finger-pointing last week, and much of it is understandable. I'm as angry as anybody about those bonuses that went to some of the very same individuals who brought our financial system to its knees, partly because it's yet another symptom of the culture that led us to this point.

But one of the most important lessons to learn from this crisis is that our economy only works if we recognize that we're all in this together, that we all have responsibilities to each other and to our country.

Bankers and executives on Wall Street need to realize that enriching themselves on the taxpayers' dime is inexcusable, that the days of outsized rewards and reckless speculation that puts us all at risk have to be over.

At the same time, the rest of us can't afford to demonize every investor or entrepreneur who seeks to make a profit. That drive is what has always fueled our prosperity, and it is what will ultimately get these banks lending and our economy moving once more.

OBAMA: OK, Ed Henry. Where's Ed? There he is.

Q: Thank you. Mr. President. You spoke again at the top about your anger about AIG. You've been saying that for days now. But why is it that it seems Andrew Cuomo seems to be in New York getting more actual action on it?

And when you and Secretary Geithner first learned about this 10 days, two weeks ago, you didn't go public immediately with that outrage. You waited a few days. And then when — you went public after you realized Secretary Geithner really had no legal avenue to stop it.

[... unrelated question and answer snipped...]

Q: But on AIG, why did you wait — why did you wait days to come out and express that outrage? It seems like the action is coming out of New York and the attorney general's office. It took you days to come public with Secretary Geithner and say, look, we're outraged. Why did it take so long?

OBAMA: It took us a couple of days because I like to know what I'm talking about before I speak.

All right.

Now of course hyperpartisans will fault him for the slowness of his original response, the muted tone of his subsequent response, and will be jumping their ideals back and forth to match. But i would like to observe that what is actually happening, execuitives relenquishing their bonuses under jaw boning pressure from the administration and Congress, is the best solution.

Mark de LA says

Your hyper n-wording notwithstanding, I think the situation is much like the cartoon below.

Do you remember the outrage about Bush & Brown's so-called "slow" response to hurricane Katrina? I am also reminded of Matthew XX,2-14 and the parable of working in the Vineyard. These men were hired & a contract was made! Get my comments on Sen. Dodd on the 11639 while remembering the Dodd Amendment. Jawboning against private citizens & corporations is pure shit; just like Obama's ACORN roots; Alinsky's rule #11, eh?

Seth says

source: MR above
Jawboning against private citizens & corporations is pure shit

Oh really? What's wrong with jawboning ... especially when it's effective? What are the alternatives?

Mark de LA says

seth 2009-03-25 12:43:58 11649

source: MR above
Jawboning against private citizens & corporations is pure shit

Oh really? What's wrong with jawboning ... especially when it's effective? What are the alternatives?

We are a nation of laws - use the legal system as it was intended don't incite lynch mobs. They had a good chance to sue for fiduciary non performance & possibly criminal malfeasance. Instead, they demonized a group of private citizens with a giant megaphone. It was all a ruse anyway to get people hating anyone with money & corporations in general so that they could pass their confiscatory tax plans to support their trillion dollar deficits as far as the eye can see.

Mark de LA says

You folks on the left have the President & majorities in Congress & yet you still complain that there is an opposition. I think you would probably feel more comfortable in a Soviet style government.

A better way is to announce your principles & core beliefs & state how each of your principles gives birth to projects aligned with those principles & how each of those projects align with your core beliefs & the way you accomplish the projects ...etc. on down the line until you have a coherent set of things to act upon & a way to act in . Then at intervals review what you have done that you say you will have done. Correct your plans at various mid-course points. Continuously review the means & ends for adherence to your fundamental principles & core beliefs in transparency before the American public.

Congress can't seem to be transparent in it's legislation & pork. They can't keep track of where the vast sums of money is going. It is a flushgov.com kind of thing that will change how they do business or something in the spirit of the French Revolution. Perhaps we need something like California's referendum process at the national level to reform Congress. Apparently Congress can't reform itself; preferring to do those things which guarantee their incumbency rather than the good of all.

Seth says

MR 2009-07-10 06:58:17 11649

... & NOW more AIG bonuses?? This article paints a dim picture of the company & even how it may be worthless to investors when it finally pays off the taxpayer loan. So why pay bonuses if that is the best they can do? It also gives a glimpse into the workings of government in determining wages & bonuses - see 11722. The timeline of the newsfront is not yet available but the news cloud has 54 articles & some blogs.

Yeah getting good persistent and timely news front URI apparently is not an exact science yet. There is that pesky problem of identifying exactly what is what as things change.

The AIG bonuses must rangel any citizen. Problem is if the administration gets heavy handed it will be accused of meddling in private industry, if it does not it will be accused of dolling out public money to private individuals and sombody will find some association and there will be a scandal. Damned if you do and damed if you don't.

Sometimes me thinks that making decisions in Washington by vectoring the conservitive with the liberal directions ends up with a bad result. We might end up with a better result if when the conservitives are in power the liberals shut up, and visa versa.

Mark de LA says

seth 2009-07-10 10:21:15 11649

MR 2009-07-10 06:58:17 11649

Your latter is a stupid idea! If you stand for something you let the chips fall. If you poll for the best solution you have no backbone.

Retention Bonuses to be voluntary paid back

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