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Bailout Nation: Freddie, Fannie, and more


Subdude

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First of all, it is pretty much guaranteed that the Financial Products group will be wound down. The US government has no interest in maintaining a credit swap insurer as a going concern, so it is irrelevant if it is competitive. The argument would be different for the insurance bits of the business, but they are not at issue here.

Second, AIG has already paid out bucketloads of retention bonuses to keep key employees around during the the winding-up period. These bonuses are simply more gravy on top.

Yes, but winding down their financial products division is a little more complicated than someone coming over the PA system exclaiming "lights out", followed by a flick of a switch. AIG has not declared bankruptcy and agreements that were made previously are still in effect. Those individual employees that were involved with originating these deals are going to be valuable when renegotiating or divesting the CDS's. That is a critical function, and even (or perhaps especially) if it is a temporary function, AIG is going to need competent, experienced people in order to do this. And if you don't give them some kind of a meaningful incentive to stick around until the job is done, they're going to do just like crunchtastic is and preemptively look for employment elsewhere; nobody wants to be the last guy on a sinking ship. And if you have to replace them on this kind of a job, that's even worse. Not only would AIG end up paying a premium on highly-skilled temp labor, but they'd be bringing in people that aren't familiar with the business; that doesn't help anybody.

Third, I haven't seen any evidence that the employees are underpaid. It is just AIG maintaining that, and not to put too fine a point on it but they're hardly the most credible bunch at the moment.

I agree that contracts should not be unilaterally abrogated, and this is why the payments are being made. By the same token, AIG has been paying out on their CDS obligations, not voiding them. AIG is not in bankruptcy, so the contracts continue to be honored.

Guilty until proven innocent, eh? How do you know what sort of pay is adequate? How do you know that this is excessive? Besides which, I thought that the core of this issue was that AIG was honoring contracts that stipulated the payout of bonuses. If AIG doesn't pay out according to the contracts, they get sued. This should be a no-brainer. They have pre-existing liabilities; those liabilities have to be paid or else those liabilities just get transferred from one account to another on their balance sheet, then start incurring legal expenses. Why is this issue perceived as debatable?

Thus the biggest chunk of the bailout money has gone to payments on CDS claims that AIG was unable to fund itself. This settlement process isn't handled by high roller front office employees, it is done by the back office functions who typically are miserably paid.

Do you think that the back office employees manage themselves, whether strategically, as a matter of setting business policy, or from day-to-day? Is there no hierarchy? Are there no critical paths? Is there not a single person whose compensation should be at least in part based upon performance?

The bonuses at issue are as small as $1,000. Are you also telling me that for some reason bonuses in the amount of $1,000 are being contested in the court of public opinion because the employees set to receive it are big shots that are already excessively paid? Well if that's the case, then I must be a big shot. Hate me. Send a press team to interview and deride me. Send protesters to wave around signs in front of my one-bedroom domicile. Then try and convict me; send me to jail--I made incredibly too much bonus money last year. I must be scum.

As for stabilizing the financial system, it is indeed a worthwhile goal, but one might argue that paying millions more to those who helped bring about the collapse is a curious way to achieve it.

I would agree that certain executives should be held accountable (probably just a handful of people in total), but is there anybody more qualified to fix AIG than the people that followed the wrong orders competently? Serious question.

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If there are other firms chomping at the bit to hire away these AIG guys, then something is seriously wrong with the foundations of capitalism. They've taken insurance, which is a very well understood way to make money, and screwed it up. Are folks at other companies really thinking, "Hey, we're making a lot of dough, I ought to bring in some AIG execs and screw this up, too"?

In other words, I don't see how it's mathematically possible to underpay AIG executives, unless we're talking about fining them.

That's right, all 400 of the people whose bonuses are being debated in the public forum are responsible for the undoing of capitalism, and none of them deserve any additional compensation for the very important work that (most of) them are now doing to fix and restore value to the AIG stock which the public owns. All of them ought to be punished, they all should be expected to quit, and they should be made to incur legal expenses as they file lawsuits that AIG couldn't possibly win...because the public is willing to spite them at the public's own expense.

Yeah, that makes a whole lot of sense. :rolleyes:

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That's right, all 400 of the people whose bonuses are being debated in the public forum are responsible for the undoing of capitalism, and none of them deserve any additional compensation for the very important work that (most of) them are now doing to fix and restore value to the AIG stock which the public owns. All of them ought to be punished, they all should be expected to quit, and they should be made to incur legal expenses as they file lawsuits that AIG couldn't possibly win...because the public is willing to spite them at the public's own expense.

Yeah, that makes a whole lot of sense. :rolleyes:

It doesn't? Who are these AIG execs that need to be bonused? Can we find some individuals and point out their merit?

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Y'all shouldn't pick on Niche. He is simply parrotting the company line that executives have used for years to drive up these ridiculous salaries far beyond what the execs were worth in the first place. What Niche...and the execs...leave out, however, is that during a deep recession, where the unemployed and part-tme and marginally attached totals exceed 15% of the workforce, there are literally thousands of people who could do these jobs. As a defender of outsized compensation, Niche is attempting to make you believe that these execs are business superheroes, doing things no mere mortal could do. The problem is, the financial collapse showed that these people are NOT super-intelligent. They are simply well connected drunken fratboys getting salaries they don't deserve. AIG would lose nothing by cutting the bonuses and letting these losers at capitalism leave. There are plenty of unemployed financial execs who would work for far less...and do a better job.

Contractual bonuses are a different story of course, but that just points out how poorly these companies were run that a bonus is due without performance to justify it. I have to ask though, how funny is it to read the king of HAIF free marketers attempt to justify something as anti-competitive and anti-free market as guaranteed bonuses that are not tied to performance?

I made incredibly too much bonus money last year. I must be scum.

You are also now unemployed, proving that the size of the bonus bears no relation to the value of the employee.

Edited by RedScare
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Y'all shouldn't pick on Niche. He is simply parrotting the company line that executives have used for years to drive up these ridiculous salaries far beyond what the execs were worth in the first place. What Niche...and the execs...leave out, however, is that during a deep recession, where the unemployed and part-tme and marginally attached totals exceed 15% of the workforce, there are literally thousands of people who could do these jobs. As a defender of outsized compensation, Niche is attempting to make you believe that these execs are business superheroes, doing things no mere mortal could do. The problem is, the financial collapse showed that these people are NOT super-intelligent. They are simply well connected drunken fratboys getting salaries they don't deserve. AIG would lose nothing by cutting the bonuses and letting these losers at capitalism leave. There are plenty of unemployed financial execs who would work for far less...and do a better job.

Contractual bonuses are a different story of course, but that just points out how poorly these companies were run that a bonus is due without performance to justify it.

What do you suppose is the unemployment rate among people with an intensive education in finance, or some other credential approximating that? They may not be superhuman, but would you think it the same as a ditch digger in Detroit? Are the two sorts of jobs really comparable? And out of the similarly-qualified, how many would be willing to work for a company as unstable as AIG on a temp job without some kind of special consideration as far as compensation goes? And would one of these newly unemployed people from other firms that have had to downsize be any less worthy of criticism than are the people they'd be replacing at AIG?

Incidentally, as someone who falls along that spectrum, I'd like to specifically rebuke Red's comment about people like me being "simply [a] well connected drunken fratboy getting [a] salary that don't deserve." I'd like to point out that I am 1) not simple by any meaning of the word, 2) I especially well-connected, 3) I had actually taken a significant cut in salary in order to work for a company where a large portion of my compensation was based on performance-based bonuses, and 4) if anybody has ever met me, they would immediately recognize that I am not--nor have I ever been--a frat boy. The free-flowing scotch and (infrequent) use of the corporate jet were well-deserved and sometimes very necessary perks. There were times for getting drunk, and there were times to get down to business; that's something you'd learn pretty quickly in such a job. No output, no bonus, no perks, and--ultimately--no job.

Seriously, guys, you can play the obstructionist blame game or you can accept that AIG has to honor its liabilities and not get sued in order to avoid a wave of lawsuits, ridiculous rates of turnover, and productivity interruptions, all of which ultimately cost you your own money. Take your pick.

I have to ask though, how funny is it to read the king of HAIF free marketers attempt to justify something as anti-competitive and anti-free market as guaranteed bonuses that are not tied to performance?

How funny is it to read the king of HAIF spin doctors to peg me as a free marketer? Not very. Not really at all, actually.

Free markets are anarchistic, and they ultimately compromise themselves by way of monopolistic corporatism, leading to something ugly and despotic. Clearly there have to be restraints, and clearly it is not enough to create them by law--they must also be administered competently. Anti-trust is a good example. AIG is too big to fail, and that is an issue that should fall under the umbrella of anti-trust laws, but that doesn't. I'd like to see it broken up. The same should be true of very large banks and investment banks. Economies of scale diminish at the extremes even as systematic risk grows geometrically.

There are approximately 400 different bonus plans under discussion. I don't know how they're set up. Who's to say that the amounts rewarded aren't reflecting performance in some form or another? At the very least, you should be demanding more information. There is plenty of room to grant a reasonable benefit of the doubt.

I'd make a snide personal attack on you right here--probably something having to do with the essential assumption comprising the foundation of Napoleonic Law--but I pride myself on substance above rhetoric. I will refrain.

It doesn't? Who are these AIG execs that need to be bonused? Can we find some individuals and point out their merit?

I can't. I don't have copies in my possession of all 400 contracts, much less a working knowledge of each person's performance. I'd suspect that you don't, either. Prove me wrong.

Edited by TheNiche
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I'd make a snide personal attack on you right here--probably something having to do with the essential assumption comprising the foundation of Napoleonic Law--but I pride myself on substance above rhetoric. I will refrain.

Not only would no one get the snide reference, but I'd merely remind you that since I do not practice law in Louisiana, I have no use for the Napoleonic Code. ;)

BTW, I think you missed my statement about contractual obligations. I don't doubt that the bonuses are legally required to be paid, but in this environment, corporations could save a lot of money by making new contracts much tighter. Corporate execs have simply proven themselves not to be that bright. They just looked good in a bubble economy.

Edited by RedScare
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Not only would no one get the snide reference, but I'd merely remind you that since I do not practice law in Louisiana, I have no use for the Napoleonic Code. ;)

Do not discount the wisdom of those empowered by Google.

BTW, I think you missed my statement about contractual obligations. I don't doubt that the bonuses are legally required to be paid, but in this environment, corporations could save a lot of money by making new contracts much tighter. Corporate execs have simply proven themselves not to be that bright. They just looked good in a bubble economy.

Corporations should always save money by making new contracts as tight as they possibly can be. Though it may have been too large to fail, AIG's standing in the labor market was nevertheless as a price taker, not a price maker.

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I can't. I don't have copies in my possession of all 400 contracts, much less a working knowledge of each person's performance. I'd suspect that you don't, either. Prove me wrong.

How can I prove you wrong? Is it even possible? Now that we're paying these bonuses, at least in part, shouldn't we be able to see why we're paying them?

And if you don't have any information about these executives, why are you so convinced they need bonuses to stay at AIG? Do you have some inside info?

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How can I prove you wrong? Is it even possible? Now that we're paying these bonuses, at least in part, shouldn't we be able to see why we're paying them?

And if you don't have any information about these executives, why are you so convinced they need bonuses to stay at AIG? Do you have some inside info?

You can't. I've only established that it is plausible that AIG's compensation programs are not mismanaged. Neither you or I have the evidence to decisively argue whether it has been mismanaged or not. But that's my point. Businesses make decisions which plausibly could be either good or bad all the time and we never hear about them even when their impact on society could be many times the significance of this one. This one is no different, really, yet it generates noise among ill-informed people who are too quick to cast blame on others.

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You can't. I've only established that it is plausible that AIG's compensation programs are not mismanaged. Neither you or I have the evidence to decisively argue whether it has been mismanaged or not.

I'm not arguing about management of AIG's compensation programs. I'm arguing about management of AIG. And I have some evidence that AIG was mismanaged. Which sort of changes the whole compensation program deal.

But that's my point. Businesses make decisions which plausibly could be either good or bad all the time and we never hear about them even when their impact on society could be many times the significance of this one. This one is no different, really, yet it generates noise among ill-informed people who are too quick to cast blame on others.

"Too quick to cast blame"? We should wait until when, exactly, before casting blame? I think the instant the government invested our money in AIG was a fine time to cast blame.

So, do you really believe that other firms are trying to steal AIG's best and brightest, and that these bonuses are all we can do to keep them? And that we can't let them leave and maybe find someone better and brighter at a company that isn't on the skids?

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I'm not arguing about management of AIG's compensation programs. I'm arguing about management of AIG. And I have some evidence that AIG was mismanaged. Which sort of changes the whole compensation program deal.

OK, let's play the blame game for a moment (and hopefully only this moment more). Does it really change the whole situation? From the top down, indiscriminately, excluding nobody out of those 400 employees that are eligible? I could understand a few exceptions being made, and in fact, I fully expect that they will be. I have no doubt that out of those 400 people, somebody isn't performing or living up to their contract. F___'em. If there's any way at all around it, people like that shouldn't get paid. In fact I'm not clear whether the bottom line figure that has been cited by the AP includes AIG's total exposure to bonuses or whether it is adjusted to indicate only what is actually due to people based on their performance as employees. The whole thing could be getting managed just fine, but since you and I both lack specifics, neither of us would have any way of knowing with certainty. And that only furthers my previous point.

"Too quick to cast blame"? We should wait until when, exactly, before casting blame? I think the instant the government invested our money in AIG was a fine time to cast blame.

So, do you really believe that other firms are trying to steal AIG's best and brightest, and that these bonuses are all we can do to keep them? And that we can't let them leave and maybe find someone better and brighter at a company that isn't on the skids?

Really? I think that at that instant, the priority should've been figuring out how to fix AIG and divest it from the public accounts. Unless there's malicious intent or criminal negligence, I don't really believe that there's ever a good time for blame, especially when that process distracts from a forward-looking vision--which it is. But it's always a good time to make the future a better one. Sometimes making the future better involves replacing some key executives; nothing personal, it's just good business. People make mistakes, and even though Red seems to think that I think that corporate executives don't, he's wrong. They do and I know that they do. I make mistakes too. That in and of itself is not a crime and I refuse to get pissed off over it. I just want to fix it! Don't you agree?

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FWIW I can tell you that in the headhunting world there is already a perceivable anti-AIG bias for non-executives. Mid- and mid-high level professional and management is getting the skeevy eye. Despite the fact that I had thousan dollars to do with the meltdown, I had 2 phone interviews cancelled just last week. These were follow ups with companies who previously had expressed interest. Time to tough up on the job search.

Edited by crunchtastic
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FWIW I can tell you that in the headhunting world there is already a perceivable anti-AIG bias for non-executives. Mid- and mid-high level professional and management is getting the skeevy eye. Despite the fact that I had thousan dollars to do with the meltdown, I had 2 phone interviews cancelled just last week. These were follow ups with companies who previously had expressed interest. Time to tough up on the job search.

Hmmm, is that a roundabout way of saying that you were one of the 400 folks with a politicized bonus coming to them?

I'm sure you'll find something. At least AIG's story isn't as bad as Enron...and that eventually shook out.

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Really? I think that at that instant, the priority should've been figuring out how to fix AIG and divest it from the public accounts. Unless there's malicious intent or criminal negligence, I don't really believe that there's ever a good time for blame, especially when that process distracts from a forward-looking vision--which it is.

My jaw literally dropped. I can't believe these words are coming out of your mouth. You're saying that no matter how much they screw up, executives deserve their bonuses? You're saying that we can never blame anyone for anything?? Isn't that some kind of freakish parody of socialism?

Forward looking vision??? "Captain, we've hit an iceberg!" "No time for the blame game, full speed ahead! And where's my bonus?"

But it's always a good time to make the future a better one. Sometimes making the future better involves replacing some key executives; nothing personal, it's just good business. People make mistakes, and even though Red seems to think that I think that corporate executives don't, he's wrong. They do and I know that they do. I make mistakes too. That in and of itself is not a crime and I refuse to get pissed off over it. I just want to fix it! Don't you agree?

Sure, I want to fix it. But I also want to not waste tax money on bonuses for anyone involved in a company that lost money. Bonuses are supposed to be paid out of profit, and there is no profit, there's the opposite of profit. There's loss! No profits, no bonuses. If you're eligible for a bonus when there's extra money, you ought to be liable for a fine when there's not enough. Put some skin in the game, bootstraps, self determination, hard work, and all that capitalist noise.

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Hmmm, is that a roundabout way of saying that you were one of the 400 folks with a politicized bonus coming to them?

I'm sure you'll find something. At least AIG's story isn't as bad as Enron...and that eventually shook out.

ha, what I typed was "I had thousand dollarsall to do with" .............damn I thought I confused the censor!

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My jaw literally dropped. I can't believe these words are coming out of your mouth. You're saying that no matter how much they screw up, executives deserve their bonuses? You're saying that we can never blame anyone for anything?? Isn't that some kind of freakish parody of socialism?

Forward looking vision??? "Captain, we've hit an iceberg!" "No time for the blame game, full speed ahead! And where's my bonus?"

Sure, I want to fix it. But I also want to not waste tax money on bonuses for anyone involved in a company that lost money. Bonuses are supposed to be paid out of profit, and there is no profit, there's the opposite of profit. There's loss! No profits, no bonuses. If you're eligible for a bonus when there's extra money, you ought to be liable for a fine when there's not enough. Put some skin in the game, bootstraps, self determination, hard work, and all that capitalist noise.

I did not say that. You've completely missed the point. Put down the bong, turn off Nickelodeon, and try again.

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You said:

"Unless there's malicious intent or criminal negligence, I don't really believe that there's ever a good time for blame..."

So if someone didn't intend to screw it up, then we shouldn't blame them for screwing it up.

I don't really care about intentions. Someone broke a big company and jeopardized a bunch of jobs. I have no trouble blaming them.

Put down the bong, turn off Nickelodeon, and try again.

Oh, and please, no personal attacks.

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You said:

"Unless there's malicious intent or criminal negligence, I don't really believe that there's ever a good time for blame..."

So if someone didn't intend to screw it up, then we shouldn't blame them for screwing it up.

I don't really care about intentions. Someone broke a big company and jeopardized a bunch of jobs. I have no trouble blaming them.

The problem with trying to affix blame to every little error is threefold:

1) Randomness of error. Even well-meaning very intelligent people make errors from time to time, and that doesn't mean that they're in the wrong job. They know they messed up, and everybody accountable for that person knows they messed up. They probably feel really bad about it.

2) Function. If some third party makes it their business to rub a person's nose in their error, it's just overkill and it doesn't help anything. It distracts from them trying to continue on with their job, functioning effectively as an employee. As an aside, if anybody has a boss who does this, I've always found a resolution easily arrived at by taking immediate responsibility and apologizing, then snapping at them that they're wasting time that you need to spend fixing it when they come around for the second pass.

3) Accountability. Is the person who made the error responsible for it, or is it the person who is their direct line manager for not providing adequate oversight? Maybe it was two managerial levels up, where they made the hiring decision for that person; and if so, who hired the person that hired the person responsible for the error? And who hired them? Maybe there's a systematic problem with corporate culture that influenced hiring policy or even the individual's decision directly. Perhaps it is a subordinate that should've spoken up. One way or the other, I could argue that it all comes back to the shareholders voting for the board of directors...but that's not entirely reasonable, either. Usually people like you and I don't have enough information to figure out how errors occurred, and even if we did, blame gets spread around so easily that it's hard to pin down any one person that really is responsible for the event.

In light of all this, my take on the blame game is that it simply isn't in the public interest to bother with, the exceptions being when there is malicious intent or criminal negligence. Enron was a criminal matter. AIG was poor judgment; it doesn't really inherently matter how AIG got there--what matters is how they're going to proceed. Maybe their leadership needs to be tweaked. Maybe they need to be dramatically restructured. There are a lot of possibilities. You aren't qualified to comment, one way or the other. Neither am I (and I don't need to be reminded of it, crunch, because when you do, you're demonstrating that you've missed my point).

Oh, and please, no personal attacks.

EDIT: Oops. I remembered it being you that was discussing that with crunchtastic. It was Trae. My mistake. I assure you that the intent was a humorous effect coupled with a strong rhetorical message to emphasize just how greatly you'd missed my point. Instead, I inadvertently put myself in a compromising position analogous to those that are the subject of this post. Do you care, now, to spend time bugging me about it further, or can we stay on point and further our discussion?

Edited by TheNiche
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EDIT: Oops. I remembered it being you that was discussing that with crunchtastic. It was Trae. My mistake. I assure you that the intent was a humorous effect coupled with a strong rhetorical message to emphasize just how greatly you'd missed my point. Instead, I inadvertently put myself in a compromising position analogous to those that are the subject of this post. Do you care, now, to spend time bugging me about it further, or can we stay on point and further our discussion?

I was only saying that because Editor said the same thing when I asked if someone else was high. Personally, I had no trouble with your post. Well, the part about bongs and Nickelodeon. The rest of it is so wacked I won't ever bother responding to it.

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Put it together people.

Who connects 1)Enron, 2)to Investment Banks, 3)to Wall Street, 4)to Congress, 5)to the SEC, 6)to Foreclosures, 7)to UBS, 8)to AIG???

PHIL GRAMM!!! :angry:

1) Wendy Gramm took down Enron via her commodity rule changes as chairperson of the CFTC.

2) The Gramm-Leach-Bliley Act (GLBA) allowed heavily regulated commercial banks to merge with lightly regulated investment banks.

3) Gramm's 'Commodity Futures Modernization Act' turned Wall Street into Vegas with derivatives & credit default swaps.

4) Gramm served in the Senate from 1985-2002.

5) Gramm served as chairman of the Senate Banking Committee - he underfunded the SEC so that they were unable to properly police Wall Street. Just ask Senator Carl Levine.

6) Read Mother Jones article entitled 'Foreclosure Phil'.

7) Served as vice chairman of UBS starting in October of 2002...the exact time period the IRS is currently investigating for 20 billion of hidden assets.

8) Today it was announced that UBS of Switzerland was owed $5.5 billion from AIG, thus benefitting from the AIG bailouts.

TIME magazine is probably shocked that Phil Gramm is #1 on their '25 People To Blame For The Financial Crisis' online poll...since the media is still ignorant of Gramm's dirty deeds.

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It is really creepy quiet at the office today. We're betting on when the protesters show up again outside the building-- our version of March Madness brackets.

Apologies to my HAIF friends if I have been rude on the boards lately. Bad case of bailout fatigue. I notice that the top 2 headlines on the NYTimes homepage are both about AIG. I wonder if that's a record?

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Yes, but winding down their financial products division is a little more complicated than someone coming over the PA system exclaiming "lights out", followed by a flick of a switch. AIG has not declared bankruptcy and agreements that were made previously are still in effect. Those individual employees that were involved with originating these deals are going to be valuable when renegotiating or divesting the CDS's. That is a critical function, and even (or perhaps especially) if it is a temporary function, AIG is going to need competent, experienced people in order to do this. And if you don't give them some kind of a meaningful incentive to stick around until the job is done, they're going to do just like crunchtastic is and preemptively look for employment elsewhere; nobody wants to be the last guy on a sinking ship. And if you have to replace them on this kind of a job, that's even worse. Not only would AIG end up paying a premium on highly-skilled temp labor, but they'd be bringing in people that aren't familiar with the business; that doesn't help anybody.

Guilty until proven innocent, eh? How do you know what sort of pay is adequate? How do you know that this is excessive? Besides which, I thought that the core of this issue was that AIG was honoring contracts that stipulated the payout of bonuses. If AIG doesn't pay out according to the contracts, they get sued. This should be a no-brainer. They have pre-existing liabilities; those liabilities have to be paid or else those liabilities just get transferred from one account to another on their balance sheet, then start incurring legal expenses. Why is this issue perceived as debatable?

Do you think that the back office employees manage themselves, whether strategically, as a matter of setting business policy, or from day-to-day? Is there no hierarchy? Are there no critical paths? Is there not a single person whose compensation should be at least in part based upon performance?

The bonuses at issue are as small as $1,000. Are you also telling me that for some reason bonuses in the amount of $1,000 are being contested in the court of public opinion because the employees set to receive it are big shots that are already excessively paid? Well if that's the case, then I must be a big shot. Hate me. Send a press team to interview and deride me. Send protesters to wave around signs in front of my one-bedroom domicile. Then try and convict me; send me to jail--I made incredibly too much bonus money last year. I must be scum.

I would agree that certain executives should be held accountable (probably just a handful of people in total), but is there anybody more qualified to fix AIG than the people that followed the wrong orders competently? Serious question.

Good grief. I suspect you're not actually reading before responding, so I'll just repeat myself.

1. I agreed that contracts should not be abrogated arbitrarily. That doesn't mean they're a good idea however.

2. AIG paid out a good bit in retention bonuses, I believe in two different tranches, to keep the right people to wind the business down. The bonuses at issue are different, and weren't intended as retention bonuses.

As for guilty until proven innocent, hey, this isn't a court of law. More to the point, don't put words in my mouth. I didn't claim that I knew what pay was adequate or excessive, only that there was no particular evidence on the matter other than the claims of management, who don't impress one as the most trustworthy bunch.

Apologies to my HAIF friends if I have been rude on the boards lately. Bad case of bailout fatigue.

Well that's certainly understandable. I'm sure nobody blames you personally. :)

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Iowa Senator Charles Grassley has an interesting idea for AIG execs:

"I suggest, you know, obviously, maybe they ought to be removed," Grassley said. "But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
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Are you also telling me that for some reason bonuses in the amount of $1,000 are being contested in the court of public opinion because the employees set to receive it are big shots that are already excessively paid? Well if that's the case, then I must be a big shot. Hate me. Send a press team to interview and deride me. Send protesters to wave around signs in front of my one-bedroom domicile. Then try and convict me; send me to jail--I made incredibly too much bonus money last year.

While I do think that pay contracts should be honored barring bankruptcy, I also believe that the trial "in the court of public opinion" is absolutely the right thing to do, and I am glad to see that Geithner et al. are out there kicking these guys around. Usually I wouldn't count myself a fan of fits of populist indignation, but in this case I think the public is well-deserving of some cathartic naming and shaming in exchange for our tax dollars.

Second, and more important, is the point I made above: pour encourager les autres. It's setting an example, pure and simple. The consequences of remuneration packages that appear excessive must be so painful and shameful that any executive in a bailed-out institution will think long and hard before proceeding.

This isn't just about fixing a financial problem. It's also going to require fixing a culture in banking and finance that led us to where we are now. Taking excessive risks and paying oneself excessive rewards is fine in a private business, but once that business has to be propped up by the state the rules have to change. Yes, I'm sure the bankers and executives at AIG think it's all horribly unfair, but frankly, they're on the public dime now and they need to get that through their head, and this is what it is going to take.

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Iowa Senator Charles Grassley has an interesting idea for AIG execs:

Honestly, if I were Libby, I'd resign at this point, and for three good reasons: 1) I'd want to make more than $1 per year, 2) I wouldn't want to micromanage or be micromanaged by public opinion, and 3) to force the government to pay somebody lots and lots of money to do a really crappy job, just out of spite. I'd try to take the whole executive team with me so that there's no heir apparent.

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As for guilty until proven innocent, hey, this isn't a court of law. More to the point, don't put words in my mouth. I didn't claim that I knew what pay was adequate or excessive, only that there was no particular evidence on the matter other than the claims of management, who don't impress one as the most trustworthy bunch.

If it comes down to trust, well frankly I don't trust AIG, I don't trust the government, I don't trust in the competence of the constituents of the government, and I know that there are missing details that the media hasn't shared (because those details eat up page space and aren't something that most constituents are in any way interested in). As far as I'm concerned, there's not a very compelling reason to back one side or the other, and if a case can plausibly be made that AIG has to pay out these bonuses either because they're committed to them contractually or because they need to attract or retain labor, well that's fine. It passes the sniff test. Obviously there needs to be aggressive federal oversight (by accountants, not politicians), but until they report that there's fraud going on, I don't see any reason for getting worked up over it. There are more important issues worthy of discussion.

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This isn't just about fixing a financial problem. It's also going to require fixing a culture in banking and finance that led us to where we are now. Taking excessive risks and paying oneself excessive rewards is fine in a private business, but once that business has to be propped up by the state the rules have to change. Yes, I'm sure the bankers and executives at AIG think it's all horribly unfair, but frankly, they're on the public dime now and they need to get that through their head, and this is what it is going to take.

The definition of what is "excessive" is debatable, and under no circumstances do I believe that the general public should be the entity providing debate. I'd doubt very much if 1% of them understand the basic principles of how labor markets work.

As for excessive business risks that became so commonplace throughout the culture of financial institutions, yes that does have to change. More accurately, it already has. I suggest you go out and try to get a loan on a speculative deal. One isn't available.

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Well, if you're going to get called out as being totally, indisputably wrong, who could deny that the best strategy is to get out ahead of the thing, admit the error, make the mea culpas, perhaps hang the ol' bean or giggle apologetically, and then move on?

Well, apparently I'm not much of one to learn from experience, for once again I have been caught out by the news. I'm beginning to think I should just bail out from this thread and stick to the "safe" topics. Obviously I have no head for the mysterious workings of high finance. Read up a few posts, and I was mouthing off to the Niche about how the AIG bonuses couldn't be justified on grounds of retaining employees, since they had already paid out a couple rounds of healthy retention bonuses.

But once again I was wrong. You see, they did pay out retention bonuses, but it turns out that they paid them to some employees who subsequently left anyway. I just assumed that retention bonuses were paid to retain people. That's where I made my mistake. So of course AIG must continue to pay out multi-million dollar bonuses. What was I thinking?

Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.
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This brings up the equally sticky problem of giving a bonus large enough that the employee can afford to quit anyway. But I'm quite sure that there is an economic theory that applies here, one that mered salaried employees would never understand. I must admit I completely understand the theory behind quitting immediately after receiving a multi-million dollar bonus.

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You see, they did pay out retention bonuses, but it turns out that they paid them to some employees who subsequently left anyway. I just assumed that retention bonuses were paid to retain people. That's where I made my mistake. So of course AIG must continue to pay out multi-million dollar bonuses. What was I thinking?

The article states that 11 out of 73 employees who were in the retention bonus pool and that received bonuses of at least $1 million are no longer at AIG. So within one week of payout, there was 15% turnover. Yeah, clearly what Red describes is what happened; people stuck around just long enough to get the big lump of cash that was contractually promised to them and then they left. I hardly blame the folks that left, but then again, those people probably would've left a lot sooner if there were no bonus. Perhaps that was AIG's definition of success. I wouldn't know, and neither would you or Red.

New York's Attorney General has said that the bonuses might be able to be recaptured from AIG, but only if the State can prove that 1) A.I.G. was undercapitalized when it paid the bonuses and 2) that the people who received the bonuses did not earn them. Part one can probably be justified by one means or the other. Part two depends on each individual's contract. If an individual's contract very simply stated that the person still be an employee of AIG as of last week, then the bonus was legitimate. If an individual's contract simply stated the aforementioned and also that AIG be considered a going concern, then that contract is legitimate. The government may have had to bail out AIG to preserve that status, but government does stuff that has unintended consequences or that creates perverse incentives all the time, and this is only one more example, barely a footnote in the annals of the subject. If an individual's contract required both of the aforementioned clauses and also that the individual's department met a sales quota, and they did, then the contract is legitimate (and perhaps it should be in principle, too, if their efforts are counteracting the damage done in other departments). Honestly, I wish the New York AG luck in finding something that slips through the cracks. This is definitely an investigation that needs to happen--though I think it probably should be independently spearheaded by the federal government, since they're actually the owners and need to provide the oversight. And frankly, the federal oversight should've been conducted before bonuses were issued. If the New York AG can find a way to rescind a significant amount of money, it seems to me that not only should certain individuals in AIG be terminated or even prosecuted, but the federal government deserves some criticism for not catching it in the first place.

I'm quite sure that there is an economic theory that applies here, one that mered salaried employees would never understand. I must admit I completely understand the theory behind quitting immediately after receiving a multi-million dollar bonus.

You're absolutely, positively correct (except where you were being sarcastic, where you are so very ironically wrong)! Here's a personal anecdote. I was salaried, but mine was only a five-figure bonus which for all intents and purposes acted like a retention bonus. I knew that my job wasn't long for this world so I stuck it out as long as I could. They gave me the bonus, then laid me off and thusly qualified me for unemployment benefits; if they hadn't laid me off, I probably would've found a new job and quit anyways, soon thereafter. It worked out for me well enough, eventually and with a lot of luck, but that series of events had been determined over a year and a half ago when the salary by itself wouldn't have been even remotely acceptable to attract decent talent, and that was when that industry was still able to do business. At the time, I was concerned that I might not be getting a good enough deal, and at various junctures during my employment, I was much more exposed to the financial repercussions of a layoff than was ultimately the case.

It just happened to work out for me--not unlike it just happened to work out for AIG folks who I'm sure at certain points were questioning whether either their jobs or AIG itself would still exist by this time.

There are just so many factors that go into a compensation plan, and nobody on HAIF knows enough to be able to prove that it has been mismanaged in any way, shape, or form. My own experiences (as a salaried employee who is not a millionaire) only add to my conviction on this matter.

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Well good ole Chris Dodd had a provision stuck into to the recent stimulus bill that had an exemption for bonus (like AIG's) agreements, basically saying any bonuses made before Feb 09, get a pass and have to be paid. Way to go Chris, you prick.......

remember that he is AIG's top money recipient in congress ($103,100)

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Edward Liddy served on the Goldman Sachs Board of Directors from June 2003 to September 26, 2008. He resigned from the Goldman board to join AIG just DAYS before the first bailout!!!!

Yet, none of the first 16 congressmen(CNN telecast) asked or mentioned his Goldman connection at his AIG hearing! Goldman Sachs received 13 billion from AIG.

Former Goldman Sachs employees head/headed:

1)The New York Stock Exchange(Niederauer)Wants to keep derivatives.

2)The World Bank(Zoellick)Ever wonder where that 'green' talk started?

3)The U.S. Treasury Department(Paulson/Bush)The first Bailout put the Banksters firmly in charge.

4)The White House Chief of Staff(Bolten)Under Bush

5)Citigroup(Rubin)Left 01/09/09....where will he go?

6)Merrill Lynch(Thain)Ousted for his million dollar office bathroom.

7)Under Secretary for Economic, Energy and Agricultural Affairs(Reuben Jeffery)WAS head of CFTC

8)Commodity Futures Trading Commission head/Obama(Gary Gensler)Needed to keep rigging oil commodity price.

9)Interim Assistant Secretary of the Treasury for Financial Stability-(Kashari)Controls the TARP handouts.

10)Governor of New Jersey(Corzine)

11)Chairman of the President's Foreign Intelligence Advisory Board(Friedman)

12)Treasury Chief of Staff (Mark Patterson)So much for Obama's 'no lobbyists' talk

13)President of the New York Fed(William Dudley)Recently appointed.

14)Edward Liddy AIG (Resigned from the Goldman Sachs Board of Directors on September 26, 2008!!!)

The head of Goldman Sachs, Lloyd Blankfein, received a $67.9 million dollar bonus in 2007, a $26.9 million dollar bonus in 2008(largest in America).

Who was the 2nd largest political contributer to Obama's campaign? Goldman Sachs

Who controlled oil commodity prices (along with Morgan Stanley) all summer? Goldman Sachs

Goldman Sachs runs our government. :(

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  • 2 weeks later...

Obama on 16 MAR 09:

"I've asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."

Now the Obama adminstration is seeking to subvert it's own rhetoric!

http://www.washingtonpost.com/wp-dyn/conte...9040303910.html

Administration Seeks an Out On Bailout Rules for Firms

Officials Worry Constraints Set by Congress Deter Participation

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

...

"They are basically trying to launder the money to avoid complying with the plain language of the law," said David Zaring, a former Justice Department attorney who defended the government from lawsuits involving related legal issues. "They are trying to create a loophole to ignore Congress, and I think the courts will think that it's ridiculous."

...snip...

Obama himself has called for these limits. "We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," he said earlier this year.

I'm confused...

Edited by Gooch
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I'm confused...

Say you managed a business and had a dozen or so underlings (to keep it simple). You have an ownership stake but not an especially large one. Your compensation agreement is renegotiated every year or so with the other owners. Now that the stage is set, let's say that business isn't going well. It is partly your fault, but is in a lot of ways well beyond your control, reflecting macroeconomic factors. It is 30/70 whether your business is going to survive the recession. The odds aren't in your favor.

The government subsequently offers to bail out the firm, but it wants you to agree to work for a miniscule fraction of your previous salary and to destroy the value of the stock. You, the manager, have personal financial obligations in excess of what the government would allow you to draw as salary, and this isn't exactly the moment that you'd want to sell your home or other durable assets. You'd lose a fortune if you had to do that. Accepting the package may save your firm and the employees' jobs, being in society's interests, but only you can choose to accept or reject the deal...and neither you or those who oversee you would benefit from the bailout. So you opt against it, gambling on the unlikely chance that you can pull your firm up by the bootstraps. Later on, you probably will find yourself with only a few dollars left in the company's coffers. If all you've got left to work with is $20 in cash, your bills are three months past due, and payroll is in two days...you do something else that would be irrational and against society's interests under normal circumstances: you go out to the corner store and buy lottery tickets. In this case, that's the only thing that'll save your neck. Nobody will lend to you. Nobody wants to invest in you. However unlikely, the only method to prevent bankruptcy (probably an out-and-out Chapter 7) would be a winning ticket.

These are examples of the strangely rational decisions businesses make under financially distressed conditions. If government wants to further society's interests by propping up financial or automotive companies, they need to make the package attractive to the person who is charged with making the decisions. And if that person thinks that he's going to stop getting paid in spite of working much hard, and even then be subject to the retroactive whims of populist anger, why should he expose himself to that?

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Niche, I understand all of that. What I don't understand is how the Obama adminstration says "We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street", then helps them avoid the restrictions designed to limit excessive compensation packages... Why would they do that?

Edited by Gooch
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These are examples of the strangely rational decisions businesses make under financially distressed conditions. If government wants to further society's interests by propping up financial or automotive companies, they need to make the package attractive to the person who is charged with making the decisions. And if that person thinks that he's going to stop getting paid in spite of working much hard, and even then be subject to the retroactive whims of populist anger, why should he expose himself to that?

While, Niche's example may be too over-simplified to be an accurate description of both the TARP or its effect on bank executives, his last paragraph, quoted above, does contain a nod toward the government's quandry. The fact is, the TARP's goal is to loan money to the banks to allow them to loan money. If the restrictions are too severe, the banks will not take the loans, or will pay them back early, not because the TARP money helped, but because the executives did not like the restrictions. The executives are not in danger of not getting paid. Rather, they may not get paid the unreasonable sums to which they have become accustomed. The bonuses and other compensation have garnered the headlines and infuriated the public. However, the problem for the government is the fact that it created the TARP to unfreeze lending. If the banks refuse the loans and guarantees FOR WHATEVER REASON, good or bad, TARP does not work, and bank lending remains frozen, deepening the recession. The government is caught in the unenviable position of attempting to respond to the outraged citizens while still making the TARP money work for its intended purpose. If the bank executives 'greediness' or 'demands for fair compensation' (however you want to look at it) cause them to disavow TARP money, the program is a failure.

The government is trying to please 2 masters with wildly disparate interests...and frankly, unreasonable demands. There are the banks and corporations demanding help to weather the recession, many of whom are not interested in adjusting their compensation packages to reflect the recessionary times that we are in. On the other side are the citizens who demand that the government not hand out money to private industry, especially if the executives are not willing to endure the shared sacrifice by taking pay cuts. The government is essentially in a no-win situation, at least in the near-term. If TARP succeeds, we won't know for a few years. If TARP fails, the recession gets worse. Neither side will be happy. Both will blame the government.

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The government is trying to please 2 masters with wildly disparate interests...and frankly, unreasonable demands.

That is very true. It is certainly a difficult position to be in. But instead of working to craft a workable framework, the Adminstration is pursuing two separate policies. A rhetorical one displayed in front of the cameras... then acting to implement a policy that is completely opposite. It amounts to misleading the public (at best). It's Bush-esque.

Edited by Gooch
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While, Niche's example may be too over-simplified to be an accurate description of both the TARP or its effect on bank executives, his last paragraph, quoted above, does contain a nod toward the government's quandry. The fact is, the TARP's goal is to loan money to the banks to allow them to loan money. If the restrictions are too severe, the banks will not take the loans, or will pay them back early, not because the TARP money helped, but because the executives did not like the restrictions. The executives are not in danger of not getting paid. Rather, they may not get paid the unreasonable sums to which they have become accustomed. The bonuses and other compensation have garnered the headlines and infuriated the public. However, the problem for the government is the fact that it created the TARP to unfreeze lending. If the banks refuse the loans and guarantees FOR WHATEVER REASON, good or bad, TARP does not work, and bank lending remains frozen, deepening the recession. The government is caught in the unenviable position of attempting to respond to the outraged citizens while still making the TARP money work for its intended purpose. If the bank executives 'greediness' or 'demands for fair compensation' (however you want to look at it) cause them to disavow TARP money, the program is a failure.

The government is trying to please 2 masters with wildly disparate interests...and frankly, unreasonable demands. There are the banks and corporations demanding help to weather the recession, many of whom are not interested in adjusting their compensation packages to reflect the recessionary times that we are in. On the other side are the citizens who demand that the government not hand out money to private industry, especially if the executives are not willing to endure the shared sacrifice by taking pay cuts. The government is essentially in a no-win situation, at least in the near-term. If TARP succeeds, we won't know for a few years. If TARP fails, the recession gets worse. Neither side will be happy. Both will blame the government.

Well said. And the desire to please both sides probably goes a long way explaining why the bank bailout programs have been ineffective.

It sounds though that Geithner may be coming around to the idea of being as tough on banks as with the car companies:

U.S. May Oust CEOs at Banks Needing
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  • 3 weeks later...

Freddie Mac's CFO david Kellerman was found dead of an apparent suicide today:

The Fairfax County police responded to a 911-call at 4:48 a.m. at the suburban Virginia home Kellermann shared with his wife Donna and five-year-old daughter Grace. The police would not release the exact cause of death, but spokesman Eddy Azcarate said Kellermann's body was found in the basement.

Kellermann, 41, lived in Hunter Mill Estates, a well-off neighborhood of large single-family homes with manicured lawns. County records show Kellermann's home is worth about $900,000.

Paul Unger, who lives across the street from the Kellermanns, called the family a "solid, salt-of-the-earth kind of family" that hosted the neighborhood's Halloween party. "He was just a nice guy ... You cannot imagine what kind of pressures he must have been under," Unger said.

Some neighbors said Kellermann had lost a noticeable amount of weight under the strain of the job, and some said they suggested to him he should quit to avoid the stress. The neighbors did not want to be quoted by name because they didn't want to upset the family.

http://news.yahoo.com/s/ap/20090422/ap_on_...c_official_dead

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