Wednesday, March 18, 2009

AIG Bailout - What is it really about?

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Where's the Beef at AIG?By Marilyn M. Barnewall
March 22, 2009
NewsWithViews.com
http://www.newswithviews.com/Barnewall/marilyn101.htm
If the way Congress has mismanaged "The AIG Affair" doesn't tell you what a bunch of clowns represent you, nothing will. If you believe Congress is really trying to solve the AIG problem (which, to be totally truthful, Congress created) you should not read the rest of this article. It will make you angry.
Yes. To answer a popular question, Timothy Geithner, our inept Treasury Secretary, had to know about the employee bonuses being paid to AIG. If he did not know about the bonuses, he wasn't doing his job as the head of the New York Federal Reserve Bank (which he was, at the time the bonus agreement occurred). It's this simple: If he is so naïve or dumb that he did not know what was happening, he has no business being Secretary of the Treasury for the United States of America. And, these appear to be the only two possibilities: Either he lied, or he is dumb and naïve.
When I was president of the MacGruder Agency, a bank financial consulting firm, I signed a lot of contracts with commercial banks. When a bank wanted to retain me, I gave them my consulting contract which was then given to the bank's lawyers. Each bank added its own requirements. My contract told them they would have to pay for my first class airfare, for example. It told them how many hours I would work during a "day" and how many of my days each year the amount they were paying would buy.
They required specific things of me, too. I was promising to create a credit-driven private bank for them. They required me to specify costs and services provided. In other words, the contract made clear what we could expect from one another.
From the largest to the smallest banks in America with which I worked, believe me if I did not perform as my contract said I would, they could have terminated the contract any time. Now, when a group of people are so inept as to bring a company to bankruptcy, there is plenty of reason to say "You didn't earn your bonus this year." There is rarely - if ever - a contract offering money for performance that does not have a specific performance clause in it.
There was one logical question to be asked of Edward M. Liddy, President and CEO of AIG, when Congress raked him over the coals at hearings last week. You know which hearings I mean - where everyone was "outraged" over the employee bonuses? One question needed to be asked and I certainly didn't hear anyone ask it. Thus, the "outrage" lacks credibility.
"Where's the beef?"
Translated: "Where are the employment contracts signed by AIG? I need a copy to determine what you promised to pay these people and what you required of each employee to earn this bonus. Black out the names if need be, but I need to see a copy of the contracts you say you absolutely must honor!"
Without a copy of the AIG contract giving bonuses of $165 million to employees, no one really knows whether or not the bonuses had to be paid.
"But we need this money to retain these employees," was the story given.
Really? Then maybe you can explain why over three dozen of them have already left the company.
Because the right questions were not asked, I mark the Congressional hearings off as "artistic performance," not serious questions and answers trying to solve a problem.
Rather than ask one simple question - the right question - Congress instead passed what appears to be unenforceable legislation. Pelosi's past actions have proven how little concern she has for the U.S. Constitution, so it should surprise no one that she is willing to tromp on the civil rights of a group of people to over-compensate for not doing sufficient due diligence before giving AIG huge amounts of money. This problem exists because of her arrogance and stupidity!
AIG isn't the only mistake Congress made. For example, did you know that Goldman Sachs is offering money to employees they had to terminate because of the economic crises that company helped create? Yep. Such a nice thing to do, too, offering their former employees tax dollars to pay their moving expenses to locations where it might be easier to find employment. Haven't heard about that one yet?
Surely you read the Wall Street Journal article this week about Fannie Mae paying bonuses to its employees? These are retention bonuses of from $470,000 to $611,000 to be paid in 2009 to executives. Frankly, we would all be better off if every executive at Fannie Mae and Freddie Mac were not "retained." The performance of the company certainly doesn't justify doing anything to encourage Fannie's executive managers to stay nor for paying them a bonus.
Bear in mind, Fannie and Freddie just reported combined losses of nearly $108 billion largely from home mortgage defaults. Who decided to bank those mortgages? Executive managers they want to retain via a bonus are responsible for such decisions. If they were not, they should have been. The Treasury Department will provide up to $200 billion for Fannie and $200 billion for Freddie.
The two mortgage behemoths currently need $60 billion in additional funds (since TARP) to cover loan losses to date. There are so many mortgage bankers looking for jobs right now, it is very doubtful anyone is going to walk away from their job over a lost bonus. If they do, we still win. With a little help from Congressman Barney Frank (D-MS) and Senator Chris Dodd (D-Del), they got us into this mess. We could benefit from their departure.
Are you feeling "outrage" yet? How about this:
Thirteen of the firms that received billions of dollars of bailout money owe hundreds of millions of dollars in UNPAID TAXES.
See how generous you are, America? You not only loan AIG money so it can pay foreign banks billions and billions of dollars, you pay back taxes owed for companies who haven't paid their own tax bills! What a country!
One company that received bailout funds owed $113 million in unpaid federal income taxes, another $1.1 million (plus another $223,000 in federal employment taxes). Oh, they can't release the names of these companies to you. That wouldn't be fair. Apparently it's fair for you to get billed for everything but kept ignorant of for what your tax dollars pay (and those of your children and grandchildren).
All of the banks and other firms that received federal money signed contracts stating they had no unpaid taxes so if they lied, we can prosecute them. That, of course, won't get your money back, but it will help you with the "outrage" and reduce the costs involved with your anger management classes.
Using AIG as an example, here's what is outrageous.
After the big AIG fall last September, Edward M. Liddy, 62, took over two positions with AIG, succeeding Robert B. Willumstad. Prior to taking on responsibilities for the failing AIG, Liddy was affiliated with Sears as Chief Financial Officer (CFO) and later was Chairman of Allstate Insurance.
AIG has been presented to the American public as an "American-based" company. It has offices in New York, but its corporate headquarters is in London. The company's roots are in Shanghai - which is part of the People's Republic of China. Specifically, AIG was founded by C.V. Starr as American Asiatic Underwriters in Shanghai in 1919. In 1921, Starr founded Asia Life Insurance Company. It was the first company to offer life insurance to the Chinese people. .In 1975, Maurice R. Greenberg, Chairman and CEO of AIG at the time, traveled to Beijing for the first time. He made many similar trips during future years.
Is that what you call an American company? I don't.
AIG was involved in credit swaps - you don't need to know what they are to understand what AIG did, so I'm not going to waste words explaining it - with 25 international financial institutions. These financial institutions are called "counterparties." Had you, dear taxpayer, not been so generous, when the credit swaps went bad and AIG was unable to pay insurance losses on them without billions of tax dollars, the company would have gone into bankruptcy… probably Chapter 11. AIG first gave these "counterparties" the collateral supporting the loans. You understand the collateral process. Just look around your neighborhood and you'll be sure to find someone who's been foreclosed on. The bank took possession of the collateral on your neighbor's mortgage loan by kicking their butts out into the street. That's the collateral process. So, AIG first gave their "counterparties" loan collateral. Later, AIG gave them billions of your tax dollars and, lo and behold, it made the "counterparties" whole.
Who were these wonderful American companies you helped by giving money to AIG so it could give it to its counterparties? Société Générale (France); Goldman Sachs (New York); Merrill Lynch International; Deutsche Bank (Germany); Calyon, Crédit Agricole (France); UBS (Union Bank of Switzerland); Barclays (England); Coral Purchasing, DZ Bank (Germany); Bank of Montreal (Canada); Rabobank (the Netherlands); Royal Bank of Scotland; Bank of America (U.S.); Wachovia Bank (U.S.); HSBC (Household Bank, England), and Barclays Global Investors (England).
Looking at the amount of money injected via funds given to AIG because it needed to be saved and then somehow got into United Kingdom coffers, I'm sure we can expect a thank you note from the Queen, any day now.
In other words, while your legislators are keeping you either entertained or nervous with "outrage" they themselves created, the American taxpayer has once again gotten the fickle finger of fate shoved in their faces - but it's a golden finger!
They are keeping your attention diverted from what is really going on in the hallowed halls of your United States Congress.
The employee bonuses totaled only $165 million. The payments to all of those foreign entities listed above almost totals $100 billion.
You've been had. Again.
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AIG Bonuses
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AIG - the biggest shark of all
Robert Scheer
Thursday, March 19, 2009
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/03/18/ED0316IQ82.DTL
There must be a criminal investigation of the AIG debacle, and it looks as if New York's top lawman is on the case. The collusion to save this toxic company in order to salvage the rogue financiers who conspired to enrich themselves by impoverishing millions is being revealed as the greatest financial scandal in U.S. history. Instead of taking bonuses, the culprits should be taking perp walks.
I'm not just referring to the swindlers in the Financial Products Subsidiary of AIG who devised and sold those insurance policies on derivatives that brought the world economy to its knees. They do seem deserving of a special place in hell, and presumably the same divine power that according to Scripture labeled usury a high moral crime and threw the money-changers out of the temple will consider that outcome.
However, the real culprits are the AIG leaders who, as New York Attorney General Andrew Cuomo revealed Tuesday, signed those bonus contracts a year ago to reward the very people "principally responsible for the firm's meltdown." That's a cool $44 million divided among the top 10 shysters, even though the depth of their chicanery was well known to top management.
As Cuomo noted in a letter to Rep. Barney Frank: "The contracts shockingly contain a provision that required most individuals' bonuses to be 100 percent of their 2007 bonuses. Thus, in the spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before."
The lame argument that those bonus-baby employees needed to be retained in order to sort out the mess they had created was also shot down by Cuomo, who revealed after his office's initial investigation had pierced AIG's veil of secrecy that "(e)leven of the individuals who received 'retention' bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million."
But the $165 million in taxpayer funds used to reward them is but a sideshow in a far larger drama of moral decay swirling around the banking bailout. It should not distract from the many billions, not paltry millions, of our dollars being diverted to reward the very folks who brought us such misery. Consider the $12.8 billion of the $170 billion that taxpayers gave AIG in bailout funds that AIG then secretly diverted to Goldman Sachs, a company that evidently has a lock on both the Treasury Department and the Federal Reserve no matter which political party is in power. It was the biggest payoff among those that AIG made to a score of foreign and domestic financial giants.
The bailout is a response to a banking crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Bill Clinton's treasury secretary. Another Goldman Sachs chairman-turned-treasury-secretary, Henry Paulson, in the Bush administration designed the trillion-dollar bank bailout that will go down as the greatest swindle in U.S. history.
It was because of Paulson that AIG was saved from bankruptcy hours after Goldman rival Lehman Brothers was allowed to go down the drain. Why that reversal of strategy in a top-secret meeting called by then-New York Fed Chair Timothy Geithner, a Rubin protege and now Barack Obama's treasury secretary? Why was Goldman's Lloyd Blankfein the only financial industry CEO in attendance? When that news leaked out, his role was defended as that of a noninvolved concerned citizen with expert knowledge and whose firm had no direct monetary stake in the outcome.
That was a lie.
Goldman Sachs was into AIG insurance policies for at least $20 billion, which is why the firm got that $12.8 billion while Paulson was in charge. It took six months for the embarrassing facts to finally come out. The bailout program was administered by Neel Kashkari, a former Goldman Sachs VP - why are we not surprised at that?
Another pretend innocent in all this is AIG's CEO Edward M. Liddy, famed defender of the $440,000 AIG executive retreat in Monarch Beach, Calif., held on the heels of the taxpayer bailout. His actions now are defended as mistakes made by a well-intentioned outsider who decided to work for a dollar a year after Paulson appointed him head of AIG. That is just garbage.
Liddy was complicit in Goldman Sachs' role in creating this mess. As a director of Goldman Sachs, he was paid $685,770 in 2007 and would have come in for some questioning if the firm had gone down. Liddy even headed its audit committee during the five years before he resigned that seat to take over AIG in September 2008. As for his salary sacrifice, not to worry- in 2005, when he was still CEO of Allstate Insurance, he received $26.7 million in compensation.
What we have here is a rare glimpse into the workings of the billionaires' club, that elite gang of perfectly legal loan sharks who, in only the most egregious cases, will be judged as criminals - Bernard Madoff, former chairman of NASDAQ, comes to mind. These other amoral sharks, who confiscated billions from shareholders and the 401(k) accounts of innocent victims, were rewarded handsomely, rarely needing to break the laws their lobbyists had purchased.
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Paul: Bill to tax bonuses an 'outrage' and unconstitutional
03/19/2009 @ 11:43 am
Filed by David Edwards and Rachel Oswald http://rawstory.com/news/2008/Paul_Bill_to_tax_bonuses_unconstitutional_0319.html
House overwhelmingly passes bonus tax
Rep. Ron Paul (R-TX) yet again went against the grain in Congress when he stood up in the House and argued against a proposal that would tax 90 percent of AIG executive bonuses, saying that it was a "disgrace," a "distraction" and an "outrage" that undermined the Constitution.
"I rise in opposition to this rule and the bill because of the problem -- because of the lack of need for this and the disgrace that this has brought upon us," Paul said. "Yesterday, for instance, the Federal Reserve met and they came out and they announced that they would create new money to the tune of $1.25 trillion."
Paul, a dark horse Republican candidate for president in 2008 who still enjoys considerable popularity with a base of hardcore supporters, noted that the value of the dollar went down significantly after that announcement by the Fed.
"Today...on emergency legislation, we're going to deal with $165 million of bonuses, which obviously shouldn't have never been given, but who's responsible for this?" Paul said. "It's the Congress and the president who signed this [$787 billion stimulus bill that allowed the bonuses to go forward]. So this is a distraction, this is an outrage."
He chided his fellow House members who were considering supporting the new tax legislation for only caring about the millions in bonuses when they should be concerned with the trillions in deficits the country is facing.
"So everybody can go home that voted for this bill, say, 'Look, I'm clamping [down] on this $165 million but I don't care about the previous $5 trillion the Fed created and the $1.25 trillion they created yesterday,'" he said. "Think of the loss of purchasing power in less than 24 hours."
Paul urged his House members to support his bill, H.R. 1207, which would change the way the Federal Reserve is audited.
"Let's quit appropriating funds in an unconstitutional manner. Let's quit bankrupting this country," Paul said. "The Fed is not even required to answer any questions. So it's about time we have an open book about the Federal Reserve and solve some of these problems."
House passes tax bill Thursday afternoonDespite the protestations of Paul and a few others, the House voted overwhelmingly to pass the bonus tax legislation Thursday afternoon.
Roll Call reports the vote was 328-93 to impose a 90 percent tax on employee bonuses at companies that received federal bailout funds.
"While the vote was bipartisan, the GOP was split on the bill, with Minority Leader John Boehner (Ohio) voting against it and Minority Whip Eric Cantor (Va.) voting in favor of it," reported Roll Call.
CNN notes that the measure, which now heads to the Senate for consideration, would tax individuals on any bonuses received in 2009 from companies getting $5 billion or more in money from the Troubled Asset Relief Program. Those with incomes more than $250,000 would see their bonuses taxed at the 90 percent rate.
"We can't have any concept of we're getting even, but we must have a concept that we're trying to show that Congress ... cannot tolerate that," said Charlie Rangel (D-NY), chairman of the House Ways and Means Committee on Wednesday.
Said House Speaker Nancy Pelosi, "We must also protect the American taxpayer from executives who would use their companies' second chances as opportunities for private gain. Because they could not use sound judgment in the use of taxpayer funds, these AIG executives will pay the Treasury in the form of this tax."
Speaking before the House on Thursday, Boehner questioned why they were only taxing 90 percent of the bonuses.
"Why 90 percent?... We can get 100 percent back because the Treasury Secretary has the ability to get it all back. The Administration has the ability to get it all back," Boehner said. "Why don’t we just get it all back? Why are we bringing this bill to the floor today to give members political cover when in fact the Treasury Secretary has the authority, the Administration has the authority to get all of it back?"
Correction: This article has been updated to correct a misstatement about which bill the amendment that excluded executive bonuses agreed to before February was attached to. An earlier version stated that it was the March omnibus spending bill.
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AIG Bonuses Spur Taxpayer OutrageBy SUDEEP REDDY and NAFTALI BENDAVID
March 18, 2009
http://online.wsj.com/article/SB123732993601162741.html
In American International Group Inc., taxpayers at last have a target for their anger over the financial crisis.
Since the $165 million bonuses the beleaguered (and oft-bailed-out) insurer paid over the weekend, a sense of outrage spread fast and furious.
Legislators say they have been inundated with irate emails and phone calls. Security has been beefed up at the company as death threats and hate mail floods AIG employees' mailboxes. And in a sign of the anger trickling down to the grass roots, Facebook statuses and Twitter feeds are spewing AIG hatred.
In Randolph, N.J., Sharon Schlam updated her status message on the social-networking site Facebook Monday night upon learning that she and other workers at the state's Department of Youth and Family Services were being furloughed to save the state money.
"I want AIG to know that DYFS workers are getting furloughed for two days and that's against our contract," she wrote. "But enjoy your bonuses."
Ms. Schlam, 32, said she understands the reasons for the AIG bailout but not why anyone needed a retention bonus. "Where else are they going to go?" she said. "I don't think anybody needs a retention payment. People are lucky that they have their jobs."
Indeed, AIG's payouts came as this recession sits entrenched in its 16th month -- a time period that has seen millions lose their jobs, hours and wages cut, home values plummet and credit lines tightened. They are frustrated over bailouts, stimulus spending that hasn't yet kicked in and a perpetual state of uncertainty.
Dana Meier, 46, said she had sent a flurry of angry emails to the White House and lawmakers in her home state of Oregon over their handling of AIG. She said the issue is not a Republican or Democrat one, adding that she and her ex-husband even have found common ground on hating AIG.
Ms. Meier, who has two children, lives in Rogue River, Ore., and works out of her home for Seattle-based VivoAnimals selling supplements for horses and other animals.
"Our business is hurting because it's hard to attract new customers, we have to educate them on our products, and that costs money," she said. "But it's not like we're getting a bailout."
She added, "Why is AIG allowed to get away with this? Every time I hear someone say AIG is too big to fail I picture the AIG guys sitting there going, 'Yep, we got 'em!' I don't think it's that we're all stupid, I think it's that they're all pretty crooked."
Suddenly, politicians are in the precarious position of sidestepping constituents' anger and convincing voters that the government, too, is a victim. Lawmakers pledged Tuesday to return taxpayers' money.
"We intend to do everything in our power to prevent the payments from being made and to recoup the payments that have already been made," Sen. Charles Schumer (D., N.Y.) said on the Senate floor. "We will take this back and return it to its rightful owners, the American taxpayers."
Mr. Schumer and other senators signed a letter to AIG Chairman Edward Liddy demanding that he try to renegotiate the bonuses. "For a company that would not exist anymore but for a $170 billion taxpayer-funded rescue, it is simply morally unacceptable to spend $165 million on bonus payments," the letter said.
Indeed, a part of the reason Americans are so angry is because the company technically does belong to them. The $173 billion it received in federal aid made the government an 80% owner. And while legislators are moving swiftly on proposals that would get the money back into government coffers, some taxpayers still blame them.
Mike Markey, an electrician in Swanzey, N.H., emailed his representative and both senators to express frustration that lawmakers had not acted sooner. "Why don't you people look into these things before you make a law?" wrote Mr. Markey, 61. "They just handed them a dump truck full of money, and then get mad when they do something with it."
In St. Helena, Calif., Clay Timon exchanged email with his congressman, Rep. Mike Thomspon (D., Calif.), who agreed with Mr. Timon that the bonuses should be blocked. "Not only is it bad P.R., it's just plain stupid," said Mr. Timon, a retired executive of a branding design firm. "What's the worst that will happen? They lose these people."
"Risking a lawsuit would be better than just handing them money," said Mr. Timon, 65. "Wouldn't that be a nice court case?"
Upon hearing about the AIG bonuses, Jay Arons left a voicemail in the office of Rep. Dave Camp (R., Mich.), expressing his disapproval. "Anything you can do to speak up against it, I would appreciate it," he recalls saying.
A spokesman for Mr. Camp said the office has received dozens of calls about AIG bonuses on Monday and Tuesday, adding to a continuing stream of thousands of complaints in recent months about the overall bailout and executive compensation.
Mr. Arons, an account executive for a radio company in Midland, Mich., said he recognizes that AIG going under would create a "ripple and snowball effect" and so the firm needed to be saved. But the way top AIG employees have been helped compared to other firms is unfair, he said.
"If these are the guys who put AIG in this place to begin with, it's just wrong," said Mr. Arons, 43 years old. "I don't care that there's a contract. Fine, sue the U.S. government."
Reaching out to his representative should add pressure on the government to halt some bailout payments, Mr. Arons said. "We're going to get angry and we're going to get bitter," he said. "We may create some awareness that we're just not going to take it anymore. The government will stop the funding. It'll definitely have a profound effect on businesses that truly need the money." —Kelly Evans, John McKinnon and Michael Crittenden contributed to this article. Write to Sudeep Reddy at sudeep.reddy@wsj.com and Naftali Bendavid at naftali.bendavid@wsj.com
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The Real AIG Conspiracy
By Prof. Michael Hudson
URL of this article: www.globalresearch.ca/index.php?context=va&aid=12784
Global Research, March 18, 2009
It may seem odd, but the public outrage against $135 million in AIG bonuses is a godsend to Wall Street, AID scoundrels included. How can the media be so preoccupied with the discovery that there is self-serving greed to be found in the financial sector? Every TV channel and every newspaper in the country, from right to left, have made these bonuses the lead story over the past two days.
What is wrong with this picture? Is there not something over-inflated about the outrage led most vociferously by Senator Charles Schumer and Rep. Barney Frank, the two leading shills for the bank giveaways over the past year? And does Pres. Obama perhaps find it convenient that finally, at long last, he has been able to criticize something that he believes Wall Street has done wrong? Even the Wall Street Journal has gotten into the act. The government’s takeover of AIG, it pointed out, “uses the firm as a conduit to bail out other institutions.” So much more greed is involved than just that of AIG employees. The firm owed much more to other players – abroad as well as on Wall Street – than the assets it had. That is what drove it to insolvency. And popular opposition has been rising to how Mr. Obama and Mr. McCain could have banded together to support the bailout that, in retrospect, amounts to trillions and trillions of dollars thrown “down the drain.” Not really down the drain at all, of course – but given to financial speculators on the winning “smart” side of AIG’s bad financial gambles.
“The Washington crowd wants to focus on bonuses because it aims public anger on private actors,” it accused in a March 17 editorial. But instead of explaining that the shift is away from Wall Street grabbers of a thousand times the amount of bonuses being contested, it blames its usual all-purpose bete noire: Congress. Where the right and left differ is just whom the public should be directing its anger at!
Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1% – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a “pass-through” to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence.
Until finally, on Sunday night, March 15, the government finally released the details. They were indeed highly embarrassing. The largest recipient turned out to be just what earlier financial reporters had said was rumored: Mr. Paulson’s own firm, Goldman Sachs, headed the list. It was owed $13 billion in counterparty claims. So here’s the picture that’s emerging. Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.
It now looks as if Mr. Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG’s counterparties. This is where public outrage should be focused.
Instead, the leading Congressional shepherds of the bailout legislation – along with Mr. Obama, who came out in his final, Friday night presidential debate with Sen. McCain strongly in favor of the bailout in Mr. Paulson’s awful “short” version – have been posing as conspicuously as possible for the media to cover a deflected target – the AIG executives receiving bonuses, not the company’s counterparties.
There are two questions that one always must ask when a political operation is being launched. First, qui bono? Who benefits? And second, why now? In my experience, timing almost always is the key to figuring out the dynamics at work.
Regarding qui bono, what does Sen. Schumer, Rep. Frank, Pres. Obama and other Wall Street sponsors gain from this public outcry? For starters, it depicts them as hard taskmasters of the banking and financial sector, not its lobbyists carrying water for one giveaway after another. So the AIG kafuffle has muddied the water about where their political loyalties really lie. It enables them to strike a misleading pose – and hence to pose as “honest brokers” next time they dishonestly give away the next few trillion dollars to their major sponsors and campaign contributors.
Regarding the timing, I think I have answered that above. Talking about AIG bonuses has effectively distracted attention from the AIG counterparties who received the $183 billion in Treasury giveaways. The “final” sum to be given to its counterparties has been rumored to be $250 billion, do Sen. Schumer, Rep. Frank and Pres. Obama still have a lot more work to do for Wall Street in the coming year or so.
To succeed in this work – while mitigating the public outrage already rising against the bad bailouts – they need to strike precisely the pose that they’re striking now. It is an exercise in deception.
The moral should be: The wetter the crocodile tears shed over giving bonuses to AIG individuals (who seem to be largely on the healthy, bona fide insurance side of AIG’s business, not its hedge-fund Ponzi-scheme racket), the more they will distract public attention from the $180 billion giveaway, and the better they can position themselves to give away yet more government money (Treasury bonds and Federal Reserve deposits) to their favorite financial charities.
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Obama Received a $101,332 Bonus from AIGDan Spencer
March 17, 2009
http://canadafreepress.com/index.php/article/9413
Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to Opensecrets.org. The two biggest Congressional recipients of bonuses from the A.I.G. are - Senators Chris Dodd and Senator Barack Obama.
The A.I.G. Financial Products affiliate of A.I.G. gave out $136,928, the most of any AIG affiliate, in the 2008 cycle. I would note that A.I.G.’s financial products division is the unit that wrote trillions of dollars’ worth of credit-default swaps and "misjudged" the risk.
The Washington Post reports a "mob effect" at A.I.G financial products division:
A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all.
With the anger and rage that is being exhibited against A.I.G., perhaps the bonuses Obama received from A.I.G. explain Obama's A.I.G crocodile tears.
Now that the Wall street Journal has revealed that A.I.G. paid bonuses of $1 million or more to 73 employees, it's time to ask if recipients of A.I.G. "bonuses," including President Obama, will give what now ought to be taxpayer money back?
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Spitzer Takes Aim at ‘Real Disgrace’ at A.I.G.
The New York Times
March 17, 2009, 7:02 pm
http://dealbook.blogs.nytimes.com/2009/03/17/spitzer-takes-aim-at-real-disgrace-at-aig/
Eliot Spitzer must miss his glory days when he was the scourge of Wall Street as New York’s attorney general (and not that upstart Andrew M. Cuomo). With the bonus battle exploding at the American International Group, Mr. Spitzer has jumped into the fray — and dismissed the bonus scandal, arguing that it is obscuring the “real disgrace” at A.I.G.
“Why are A.I.G.’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?” he asks in an article on Slate.
Mr. Spitzer notes that A.I.G.’s trading parties were all the big banks including Goldman Sachs, many of which received billions of dollars from the government’s Troubled Asset Relief Program. “So now we know for sure what we already surmised: The A.I.G. bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already,” he writes.
“It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure,” Mr. Spitzer writes.
Recounting how the economic crisis is affecting workers, with tax increases, pay cuts and layoffs, Mr. Spitzer asks: “Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash?”
In his article on Slate, Mr. Spitzer says several questions need to be answered, “in public, under oath, to clear the air,” including: “What is the deeper relationship between Goldman and A.I.G.?” Mr. Spitzer warns that “failure to answer these questions will feed the populist rage.”
Of course, Mr. Spitzer knows a bit about rage and how it can come back to bite. When he was governor of New York, Mr. Spitzer enraged so many lawmakers in Albany with his fierce tone and aggressive actions that he had no support last March when he ran into his own legal problem: consorting with a prostitute. State lawmakers cheered when he was forced to resign as governor.
Wall Street cheered as well.
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video
AIG Bailout
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AIG likely won’t be able to pay taxpayers back
Ties to foreign partners siphoning off some of the $170 billion lent to it
Associated Press
March. 16, 2009
Pressure is mounting on the government to revise its bailout of AIG to ensure that taxpayers are repaid as much as possible of the $170 billion lent to the troubled insurer.
Experts warn we shouldn't expect to get much back.
The problem stems from AIG's obligations to its trading partners. So far, the hobbled insurance giant has honored in full its contracts with U.S. and foreign banks. It's paid out more than $90 billion in taxpayer money to keep some of the biggest names in finance from losing money on bad bets linked to subprime mortgages and other risky assets.
As the cost of the rescue swells, experts says it's becoming harder to envision a scenario in which the government could recoup its full investment. Even though the AIG payouts to major banks have angered critics of the bailout, it might be legally impossible to claw back any of the billions already doled out.
"A contract is a contract," said Russell Walker, a risk management professor at Northwestern University. "That money all went to people who bought protection from AIG."
The government agreed to uphold those contracts when it seized control of American International Group in September. It argued that failing to repay the debts of the globally interconnected company could cause catastrophic losses at big international banks, potentially toppling the financial system.
Scrutiny of AIG's dealings with its trading partners comes after revelations over the weekend that the insurer plans to pay out tens of millions in executive bonuses. President Barack Obama on Monday accused AIG of "recklessness and greed." He pledged to try to block it from handing out the bonuses, which AIG insists it's contractually obligated to pay.
Obama's aggressive stance toward the AIG bonuses raises the question of whether the government could also pursue the billions paid to AIG's trading partners. Under growing scrutiny from Congress, AIG on Sunday finally identified those trading partners that indirectly benefited the most from its bailout.
Among the largest recipients, Goldman Sachs received $12.9 billion; Merrill Lynch got $6.8 billion. AIG also funneled billions into foreign banks, including $11.8 billion to Germany's Deutsche Bank and $8.5 billion to Britain's Barclays PLC.
Asked if he'd favor trying to see if those AIG contracts could be broken so the government could recover some of those payouts, Rep. Barney Frank, chairman of the House Financial Services Committee, stopped short of endorsing the idea. But he said "that's something that has to be examined."
"I would want to know the consequences of not paying those debts," Frank, D-Mass., told The Associated Press.
Other critics want the government to go further. They say AIG's trading partners should be forced to take less than 100 percent of the value of their derivatives contracts with AIG. They noted that the protection AIG offered — in the form of complex products called credit-default swaps — was unregulated and that AIG's trading partners knew the risks and should have to assume some losses.
"If you're in Las Vegas, and you leave the casino to go play craps with a bunch of people on an alley way, you shouldn't be able to go to the state and ask for your money back," said Barry Ritholtz, a financial analyst and author of "Bailout Nation: How Corrupt Money Shook Wall Street."
No bailout recipient has burned through more taxpayer money than AIG, which is now about 80 percent owned by the government. A 90-year-old insurer, it was listed as recently as last year as the world's 18th largest publicly traded company. Back then, AIG's stock traded for about $40 a share. Today, you can buy one share for just under a buck.
The government has made four separate attempts to save the company, including a $30 billion cash injection two weeks ago. The latest lifeline came as AIG reported a $62 billion fourth-quarter loss, the worst three-month performance in U.S. corporate history.
AIG's dire reality has raised doubts about the government's claim that it will recoup much of its investment in the company.
The government's plan to get its money back rests on breaking up and selling AIG's profitable units, including its insurance and aircraft-leasing arm. But given the company's financial woes and the depressed value of financial assets right now, experts doubt those businesses could fetch a high enough price today to reimburse taxpayers for the full $170 billion.
AIG could wait a few years, in hopes of selling the assets at a higher price. But by then, taxpayers will be owed an even larger amount, once interest is added in.
Federal Reserve Chairman Ben Bernanke, defending the $30 billion lifeline the government provided to AIG, said earlier this month that the government may eventually be able to "recover most or all" of the taxpayers' investments.
That's a step back from the rhetoric used by Bush administration under then-Treasury Secretary Henry Paulson. Last fall, Paulson said the government's capital injections into financial firms were "investments" that would likely make money.
AIG, meanwhile, expresses optimism. Spokeswoman Christina Pretto said the company's "No. 1 priority is to repay taxpayers."
She said the company expects to repay about $34.5 billion "over the next several months."
It would do so partially with equity stakes in two large overseas insurance companies and partially with securities backed by cash flow from the U.S. insurance business. The government could then sell those stakes to raise money toward the $170 billion it's owed.
Pretto said the Fed is receiving interest and principal payments on $41.6 billion in securities it bought from AIG's business partners to wind down AIG's obligations to them. She said the government should see profits on those investments, which include complex mortgage-backed securities that AIG agreed to insure.
But Mark Williams, a former Fed examiner and finance professor at Boston University, said the AIG wind-down inevitably will cost taxpayers money. And he thinks it will take much more money — perhaps an additional $200 billion — to finish winding down AIG's financial dealings so its core businesses can be sold off.
"No longer can we call it an investment," he said. "We just have to call it what it is — and that's sinking money in a hole."
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AIG should hire meTimothy Geithner, AIG Bonus paymentsBy Klaus Rohrich Monday, March 16, 2009
http://canadafreepress.com/index.php/article/9371
Treasury Secretary Timothy Geithner is upset because AIG is unable to stop some $165 million in bonus payments to some of the insurance giant’s employees. When Mr. Geithner approached AIG Chief Executive Officer Edward Liddy about withholding the bonus payments because AIG had received $170 billion is US government aid, Mr. Liddy explained that the company was contractually obligated to make those payments and besides, they were needed to keep the company’s highly specialized staff in the company’s financial products division from seeking employment elsewhere.
If AIG is paying bonuses to employees that helped the company lose over $65 billion last year, the largest corporate loss in history, then they should seriously consider hiring me as head of their investments division for the following two reasons. First, they wouldn’t have to pay me a huge salary or equally large bonuses. I would do the job for $14.00 per hour and a year-end bonus indexed directly to the amount of money I managed to lose the company. The London office of AIG is reputed to have lost the company about $430 billion (which to me is piffle) and the employees responsible walked away with millions in bonuses as a result. Which brings me to the second reason they should hire me, which is that I could easily lose $65 billion for the company in the first quarter alone, if I worked a little overtime. Since I have attention deficit disorder I could invest company funds in so many risky ventures in such a short time span, it would make their heads spin. Why even the most astute auditors wouldn’t be able to keep up with, much less trace how I could lose such tremendous amounts for the company. Hiring me would accomplish a lot for Mr. Liddy and AIG, as they could demonstrate to federal regulators that the company is being prudent with all that TARP money by paying its senior executives just over minimum wage and giving them niggardly bonuses to boot. It would get Timothy Geithner off their back, who could then devote more time tracking down Americans who cheat on their taxes and get the IRS to recover the money. There must still be a grandmother in Gnarled Gulch, South Dakota who hasn’t declared the income she derived from babysitting the neighbor’s kids and who needs to be made an example of. My curriculum vitae is resplendent with investments I made that went south. Why I think I’m personally responsible for bringing about ‘Black Monday’, as I made an investment in the stock market on October 15th, 1987, the business day just prior to the massive market crash. Last year I managed to lose a fortune without even trying in a real estate investment that returned less than 70¢ on the dollar in just under a year, no less! I am perfectly suited for a position at AIG’s top management because I have a track record that such a company could be proud of. My presence at AIG would allow the company to continue sending TARP funds to foreign banks to satisfy its dubious debts, while proving to the Obama administration that they were “prudent” in their executive compensation policies.
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A.I.G. Planning Huge Bonuses After $170 Billion BailoutBy EDMUND L. ANDREWS and PETER BAKER
March 15, 2009
http://www.iht.com/articles/2009/03/15/business/15aig.php
WASHINGTON — The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.
A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.
“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.
Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday “a difficult one for me” and noting that he receives no bonus himself. “Needless to say, in the current circumstances,” Mr. Liddy wrote, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”
An A.I.G. spokeswoman said Saturday that the company had no comment beyond the letter. The bonuses were first reported by The Washington Post.
The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.
Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.
The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.
The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.
Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and “retention pay” had been agreed to in early 2008 and were for the most part legally required.
The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.
The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.


The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.
But the official said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured.
A.I.G. did cut other bonuses, Mr. Liddy explained, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives.
Mr. Liddy wrote that A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to $1.
Ever since it was bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused one of the biggest financial crises in American history.
A.I.G.’s main business is insurance, but the financial products unit sold hundreds of billions of dollars’ worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall.
A.I.G. had set up a special bonus pool for the financial products unit early in 2008, before the company’s near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit and prepared to pay it in a series of installments, to encourage people to stay.
Only part of the payments had been made by last fall, when A.I.G. nearly collapsed. In documents provided to the Treasury, A.I.G. said it was required to pay about $165 million in bonuses on or before Sunday. That is in addition to $55 million in December.
Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.
The financial products unit is now being painstakingly wound down.
Mary Williams Walsh contributed reporting.
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AIG Seeks More US Funds As Firm Faces Record LossBy: David Faber, CNBC Anchor and Reporter
23 Feb 2009
http://www.cnbc.com/id/29353282
American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.
Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.
That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.
In addition, if AIG's book value falls below a certain level, as it seems certain to do, it will trigger default in certain of its debt instruments, say people familiar with the situation.
All of this adds up to a huge headache for the Federal Reserve and Treasury, which have already provided over $150 billion of assistance to AIG.
Talks between the government and AIG are focussed on how the company can swap some of the debt held by the government for equity in AIG.
The problem is that the government's ownership stake cannot exceed its current 79.9 percent, leaving officials to try and find a creative way to transfer value to the US in exchange for AIG reducing its debt so that it can then borrow more from the government to meet its collateral calls.
AIG has borrowed roughly $40 billion from a $60 billion credit facility provided it by the Federal Reserve Bank of New York. If it can find a way to pay that down by swapping equity, it hopes to take it back up to a level that will allow it to meet its collateral and capital calls.
AIG's board is scheduled to meet this Sunday night in hopes of hammering out an agreement with the government. But in case it can't, AIG's lawyers at Weill Gotschal are preparing for the possibility of bankruptcy.
That seems unlikely, but last November, the government took control of many of AIG's credit default swaps and so a bankruptcy of the holding company might not pose the systemic risk it once did.
AIG said in a statement it had not yet reported results and would provide an update when it does so in the near future.
"We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG's financial challenges," AIG said. U.S. Treasury officials declined to comment.
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