AIG Bonuses

[ragswl4]

I think that if one takes the entire cost of the recovery (in the Trillions) and defined it as a boxcar full of bb's, the $165 million might be one bb. Bigger hills to climb and this AIG bonus thing is just a distraction. The real business and work that needs doing if WAY beyond this little scandal. At least that's the way I see it. I just pray the decision makers are smart enough to dig us out of this or we will see stagnation just as Japan did when their real estate went bust about 20 years ago. Best of luck to all who are suffering from this calamity.

[RyFitz13]

Wow - I figured I was going to log in and have a ton of folks arguing about how wrong I was. Glad to see my opinion's not quite as unique as I was beginning to suspect!

The current problem, as I see it anyway, is that the people in power who are questioning these bonuses are themselves causing a couple more problems:

1) The whole ends-justify-the-means situation that smorris described. Trying to steer aroudn the political slant on this one, I'll just say it's my opinion that the media in the recent past has stirred up a lot of discontent about the broadening of certain legal rights the gov't has given itself, but in this case the media is mostly rah-rah behind AG's and other gov't officials clearly violating due process and, thus, the laws they're supposed to be upholding! If there's a suspicion of a problem, lets pursue it in a lawful manner - not this court of public opinion garbage.

2) And this one hits us right in the pocket: How many MORE tax dollars are we spending right now investigating and (one assumes) eventually prosecuting alleged wrongdoers in one way or another over the money we're already outraged about spending in the first place??? Come on folks - let's not waste even MORE money because we're mad about wasting other money in the first place!

[docrowan]

Mr. Paulson and Mr. Bernanke were adamant that the government role would be as overseer and influencer, but that would not be involved in day-to-day operations and they would not have voting rights like other shareholders. It is now clear that these companies were misled. The government intends to meddle as intently as they can.

"The borrower is slave to the lender." A truth at least 3,000 years old. Taking money from the government opens you up to public scrutiny in a way that no amount of papparazzi can equal. Now instead of a limited number of shareholders, policy holders, and business partners to answer to, AIG has every citizen of the United States who feels they own a piece of the company. In a very real sense we do, whether the contracts were written that way or not.

I think the sense of outrage comes from the incredible arrogance that has continued to be displayed by the management of all the bailed companies. On a personal level, we all understand hard times. If I came to you asking for a $1,000 loan so I could keep my lights on and pay for groceries, you would be pretty upset if you found out I had virtually no prospect of paying it back and that I spent $100 of it on woodworking magazines.

[LCHIEN]

i always had this saying:
If you borrow 10 Million from the bank you owe the bank 10 Million.
If you borrow 1 Billion from the band the bank owns you.
If you borrow 100 Billion from the bank you own the bank.

[germdoc]

At the risk of repeating myself, here's the money quote from Motley Fool article:

"Apparently, AIG didn't realize that almost 40 years of 15% growth multiplied by a big fat zero equals just that: zero. It didn't consider that its leverage left it exposed to a liquidity crisis, and it didn't consider that its non-insurance businesses could bring down the whole company."

http://www.fool.com/investing/genera...han-enron.aspx

Now, I wouldn't argue that DeSantis did anything wrong or wasn't misled by his company. I'm still having trouble figuring out how he can expect a million-dollar bonus from a company that's bankrupt and needs bailing out (again: the BIGGEST FINANCIAL FAILURE IN HISTORY, in case this hasn't sunk in yet).

It's very simple: if your Dad foolishly squanders the family money gambling in Vegas, will you still get your allowance?

[Gator95]

On the subject of the current attempt to save the global finance system, as in may other things, people seem to be just looking for a reason to be pissed off.

All those directly responsible for the current mess at AIG are no longer there. Those left behind were promised bucks to clean up the mess. Maybe a cap on the bonus is appropriate ($250K?) but pitchforks and torches are not.

[Pappy]

I am one of those that felt outrage at the bonuses being paid with 'our' money. After reading some of the logic to the contrary presented here, I may have changed my thinking. Some may have been undeserving of the bonus money and certainly most were not in 'need' of the extra money but, as pointed out, it was part of the financial obligations of the company.

[RyFitz13]

It's very simple: if your Dad foolishly squanders the family money gambling in Vegas, will you still get your allowance?

Fair enough. But would anyone blame you for being ticked off at your Dad for gambling your allowance away?

Not necessarily here, but in a lot of other places I've seen folks who are seriously torqued off at the people who got the bonuses simply because they accepted the bonuses they were already contractually due.

We just need to try to make sure the anger - and the punishments - are directed towards those who screwed up here. It's the fault of the company for committing to pay these bonuses when they didn't have the money to do so, not the fault of the payee receiving the bonus his/her employer committed to paying them! The whole "shame them into repaying their bonus" thing is really just a case of misdirected anger.

Should AIG as a company return $165 million of the bailout funds? Maybe so - I don't know enough about the terms of the bailout to make that call.

Should the folks who were paid those bonuses have to return them to AIG or to the Fed? Not anymore than every other employee of AIG, or any other bailed-out company, should have to return their paychecks.

And on that point - I wonder just how much of the bailout funds went directly into payroll... If the company truly had no money left, you'd have to assume a good chunk of the bailout just went to meet payroll. Is that the next thing the media will jump up and down about?

[radhak]

It's very simple: if your Dad foolishly squanders the family money gambling in Vegas, will you still get your allowance?

Hoot!!! That's a gem - I need to print and frame it. Sums up my thoughts succinctly !

All those directly responsible for the current mess at AIG are no longer there. Those left behind were promised bucks to clean up the mess. Maybe a cap on the bonus is appropriate ($250K?) but pitchforks and torches are not.

Okay, I'll put down my pitchfork now, but no bonus at all - just an hourly rate .

Of course, I might be behind the times, because my contract says, "...bonus of up-to 15% might be there as a reward for good work, but not guaranteed..." (not in that plain english, of course). How come there are contracts with guaranteed bonus? Isn't that what a salary means?

[430752]

Yeah, read that letter too. Not as well written as I would've expected from a mega powerful banker, and one who received an after-tax bonus of $750k+. But lets not quibble on writing skills. Let's just say I'm as peeved as the next guy about this, which is to say pretty peeved. And in years past I would've called for all their heads on pikes, and their families' too. But maybe age or maybe the degree of the trouble we're in have made me think differently on this one. First, it is a very troubling notion in America that the gov't can interfere in legal private contracts. Very troubling, but there are times and places, I'll let you all to decide outside of this forum if this is one of them. Second, and perhaps more importantly, we're acting stupidly here. These guys know where the bodies are buried. You don't piss them off. They know how this thing was set up and where its weaknesses are. This means two things, the obvious one is that they won't be around to unravel it. But more importantly, the other reason is that when they're set adrift they can go elsewhere and bet against the house. Yep, cut their bonuses, make them quit, and they'll go straight to the private fund that will set them up to short sell and bet against all the bad plays AIG made, and there are plenty of bad plays. They know where (what is left of) AIG is weak. And they'll burn it down for another's profits, and they we'll have to give more money plus lose the money we already put in. You never get rid of the people that know where the bodies are buried.

[stocktr8er]

My .02

Because of the bailout (right or wrong), AIG did not go into bankruptcy. This did two things: kept contracts valid and allowed pieces of AIG to be sold with thought and not at auction.

Doing a quick google for AIG assets sells and I find item going for $1.5b to
$40B. If the AIG exects that stayed on facilitated these sells, then why is
$1m out of line for payment in whatever form. That's less than .067% for a $1.5b sell. They've earned their keep, pay 'em.

A realtor sells a house for 3% commision and many feel this is well worth it because of the skills and expertise needed.

What I don't understand is how everyone is so focused on this .1% of the bailout given as bonuses. Where the H**L has the other 99.9% gone. Add to that the funds raised fro the selling of units??? I can guarantee if we tear this apart, you would see AIG contributions to political figures close to the same size as the bonuses without any outcry. (Not a political statement but more of a statement of our media and what they deem important.)

[JR]

(Not a political statement but more of a statement of our media and what they deem important.)

I agree with everything you wrote, but I'd quibble on this point. I've been watching CSPAN, and it appears to me the media are reporting exactly what is being said in congress. Our representatives are raising Cain on this topic. Some have also spoken out about the payments made by AIG to its counterparties, but mostly in the context of challenging whether payments were made to "worthy" organizations.

It might also be interesting to note that the indignation crosses party lines. They're all fulminating at the highest pitch.

JR

[Ed62]

I might have come across as a witch hunter. Not so. Do I blame the execs for accepting the bonus? No, I don't. There are likely some, maybe many, who actually earned what they were given. But I just don't want to see my children and grandchildren pay for somebody who not only didn't do a good job, but actually really screwed up. Maybe the 90% tax on the bonus is the best way to handle it.

Ed

[vaking]

At first I'd like to bring your attention to the following fact: The government did not bail out financial industry as it is commonly presented. The government offered bail-out money to some large retail banks like Citi or BofA. But it watched calmly as Lehman Brothers went down and helped broker a deal for Bear-Sterns but did not pay a penny itself. The reason is that retail bank is the one that lends money for small businesses, student loans, mortgages, etc. Large-scale failure of retail banks affects regular folks, so that's why government had to step in. Investment banks do not have such a direct effect on peoples' everyday lives and Government did not feel pressed to get involved. AIG is certainly not a retail bank. It had insurance division and Investment business. The government had let other investment businesses collapse and so far no other insurance companies have received any bailout- so logic suggests that AIG should have been in bankrupcy by now. Yet somehow AIG managed to secure a bailout to the ammount that is 5 times larger than the entire US automotive industry daired to ask. How did AIG manage that? When you answer this question you will understand why there are so much emotions involved.
The key is that AIG insurance business specializes in providing trading insurance. It underwrites securities being offered to investors. If AIG insurance faulters - a lot of investments will become uninsured. Among those investments are many government securities, such as state and municipal obligations. And that means that Goverment will have to pay higher interest rates to sell its own bonds. In other words - AIG bailout happened because government was protecting its own money. Simply speaking - AIG had government black-mailed. The reason for AIG failure was that AIG investment business lost so much that it was dragging all of AIG into bankruptcy. In other words - US Government does not care for AIG investment business at all and is not willing to give it a dime, it is being blackmailed into giving money to AIG insurance and suddenly it learns that AIG investment business is being paid bonuses. I know I would have been pissed.
I am just trying to clarify the situation, I will refrain from expressing my views on what is legal, just or fair and what is witch hunt. That will definitely get political.