AIG uses bailout money to pay employees.
 

....and they work in the same division that got them in this mess



Jan. 27 (Bloomberg) -- American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. The New York- based insurer in September took a federal bailout to avoid bankruptcy and is selling subsidiaries to repay the government. AIG said the program was disclosed before the government rescue, which is now valued at $150 billion.

“I was extremely disappointed -- but not surprised -- to learn that AIG will be awarding bonuses to the very division that drove the company into the ground,” said Representative Elijah Cummings, a member of the House Committee on Oversight and Government Reform, in an e-mail. AIG shouldn’t be awarding “millions of unmerited dollars to employees while at the same time begging the U.S. government for financial life support.”

http://www.bloomberg.com/apps/news?p...d=avGnUgGMu1q4

More bonuses for AIG execs
 

Insurance giant AIG to pay $165 million in bonuses

More at http://seattletimes.nwsource.com/htm...igbonuses.html

Nothing about this could ever surprise me at this point, so I'm not even going to feign outrage.

I mean . . . let's bottle our outrage a touch, because that's kind of what the money was for. It's our own damn fault.

This drives that home: http://news.yahoo.com/s/politico/200...politico/30833

Dodd is in real trouble in CT the next election cycle; this will only add to that potential issue.

I think the Freddie and Fannie bonuses are even funnier, in a hysterical sign of total incompetence in governance kind of way.

http://finance.yahoo.com/news/Fannie...-14679491.html

I think the idea of bonuses being paid with taxpayer dollars is completely wrong! However, I am wary of the bills being proposed to simply "tax" individuals who get the bonuses so it all goes back to the government....If you don't hand them out in the first place you wouldn't have to worry about all this!!

I just have to ask for general knowledge, are folks angry because these executives took $100K in retention bonuses, or rather are we made because we ourselves did not get a $100K retention bonus for doing nothing?

I could write some crap and says it works for as much money these fools are paying out.

I'm stunned that no one tried to safeguard against paying bonuses with tax dollars for pretty spectacular business failure.

One some level, I guess I can understand why: the idea that they needed to be paid retention bonuses never crossed my mind, so I wouldn't have thought to prohibit it.

Really AIG and Fannie and Freddie? You're worried that the people associated with catastrophic failure on the scale of bringing down the entire US economy are going to leave for better paying jobs elsewhere? I guess the US Treasury department IS hiring.

yea I totally agree. It seems like the gov't just sent them a check and said 'here you go! try not to screw up too much anymore and pay us back when you can!"


Idiots.

I understand what you are saying, but I come from the school of thought that running the government does not equate exactly with running a business. We are coming out of that thought pattern that has gone on for so long.

I do agree with Larson out of California is the time is winding down for Geithner... He's had one too many "issues" that should not be all clusterf*cked as they appear to be...

The thing is, these "bonuses" are usually a guaranteed part of compensation in firms like these - usually with a "bonus minimum" with the ability to go above that due to earnings.

This isn't a "reward" - even if the guys sucked, this is how it works in that field.

Just wondering, how does one negotiate a contract like that? I mean seriously, I could use a bonus like that right now.

Wait....there are people bitching about 165 million dollars paid in bonuses when somewhere in the range of 65 billion dollars of AIG's bailout money when overseas?

Yeah, that makes sense. Who signed off on the bailout with these clauses included? BO's current Sec. of Treasury, the guy that can't remember to pay his taxes.

Yep.

And as far as Congress trying to require these guys to give their bonuses back, they can't do that because they can't impair the obligations of contract.

As far as trying to tax it at 90%, it's arguable they can't do that either. IMHO, that sort of confiscatory, punitive taxing policy amounts to nothing more than a taking. Heck... in places like NY where the state income tax is >10%, many executives would actually have to pay more in taxes than they were obligated to receive!

This is utterly ridiculous. It's grandstanding at its worst.

Yep, especially when you look at the names of the congressmen that received contributions from AIG...

It's sickening.

You mean Obama?

Exactly. Obama has said that he will look into the legal ramifications behind distributing these bonuses. But there are none. As long as these employees were under a contract that deemed these bonuses as a required form of payment/salary, they are entitled to them. Whether or not the company was run into the ground doesn't matter. The government, out of desperation, handed them a check without stipulations. They can't now say, "Oh, wait a minute.. we didn't say you could spend the money on THAT.."

Don't get me wrong... it's frastrating as hell. But such is life.

I apologize for not knowing how the bonus structure worked.

It still doesn't seem unreasonable that someone with knowledge of how things worked in the field couldn't have attached stipulations to their receiving the money.

Maybe the companies could have renegotiated contracts with their employees. Surely the employees couldn't have expected the contracts to be honored in bankruptcy, and we're we lead to believe that was what was looming for them if they didn't get the money, right?

Maybe you are right and the employees could have sued for breach of contract, but it seems kind of unlikely under the circumstances.

ETA: who expects to keep drawing the same salary when the company is on the verge of going under?

The problem isn't with the COMPANY installing stipulations. The problem is with the GOVERNMENT implementing them. If they were to say, "We will bail you out, but none of this money may be used for paying bonuses or outrageous expenditures," then they would be limited in where the money could be spent.

You said, "Sure the employees couldn't have expected the contracts to be honored in bankruptcy..." But AIG never filed for bankruptcy. And you can't preemptively dismiss someone's contract because you MIGHT file for bankruptcy.

It's too late now. I agree. My point in my most recent post was that it might have been possible for someone in the government to make the company agree to these terms before they authorized the bailout money. In turn, the company could have renegotiated with the employees.

I think you could probably compel people to accept a renegotiation of their contracts if they honestly believed that the company wouldn't get funding if the bonuses were still in the contracts and that without the funding, they'd go under. Sure, a couple of people might have insisted on the original contracts, but I'd feel better about the whole thing has it been attempted. (ETA: I'm laughing at my standard here. Guys, it's not about the national economy or government assistance to private incompetent industry. It's about my feelings. I think what I intend to imply is that I'd have greater faith in the government's ability to do a damn thing about the economy generally had they indicated more foresight about how the money would be spent, have they done a better job explaining standard payroll in this industry like you have, or had they just not given the companies the money.)

As someone who makes less than 100,000 dollars, I have a hard time understanding why anyone would get 600,000+ in additional pay called a "bonus" in a year when the company's performance sucked this bad.

I watched Obama on Leno tonight, and he indicated that if these AIG employees were not paid immediately, they would be able to sue for three times the amount established in their contracts.

I understand that AIG has been involved with some shady business practices, but assuming this is true, it might have been in their best interest to simply pay these employees now, rather than potentially get caught up in several complicated legal battles.

You've got to be kidding me.

Someone is under contract to pay you $1 million and they decide not to pay you... Maybe you're some sort of saint or something, but I'm betting you hire the best lawyer you know and tell her to sic 'em.

a 90% tax on anything is bs. Actually, its beyond BS. I'm pretty sure it was one of the reasons that lead to us declaring our independence.

I hate congress. AIG bonuses are the new baseball steroids.

Not if you honestly believe that you'll bankrupt the company if you try to take the money. Would you rather get your bonus this year or a have a job next year in this economy?

I think there's a measure of self-interest in renegotiating the contracts.

But as I said, I agree it's probably too late now.

I think there are a lot of industries where you see people taking pay cuts to keep companies solvent. It doesn't seem that unreasonable.

In the grand scheme of things, a bunch of people collecting bonuses that they initially negotiated for as part of their contract isn't going to bankrupt the economy.

I doubt an AIG exec is going to have a very lucrative 2010, so I think I'd still sue. The company's troubles are none of my concern. I'd figure there's a good chance AIG is going under anyhow and if that occurs, I'll never see a penny of that money they owe me.

As you've seen, the bonuses are hardly a blip on the radar screen in the grand scheme of things. We're only talking about like $170 million when there are many billions at issue.

So no, taking a bonus is not going to mean an individual is choosing between AIG not existing anymore or him getting paid. Your example has no foundation in reality.

I foresee lawsuits. Not many, since in some cases the legal fees may end up being more than the bonus, but enough.

The tax and the apologies, in my opinion, are more of a response to the populist rage than to a real administrative objection to the bonuses. The term "bonus" is misleading anyway--it's not always performance-based, especially in law or finance.

Hank Greenberg the former AIG CEO, was on the Early Show this morning. He said AIG did not have retention bonuses when he was CEO. He said bonuses were a reward for performance.

If things have changed the that shows what idiots are running AIG.
Who gives bonuses to someone that sucked at their job? Their arguement is, they have to give retention bonuses or the execs will leave. If they sucked then who cares if they leave? Where are they going to go, Bear Stearns, Lehman, Merril Lynch or maybe Enron?

I found it interesting that Leno also talked to Obama about this. He basically asked, "If the Congress can decide to tax 90% on these bonuses, what's stopping them from thinking 'Hey, I don't like that group, let's tax them this much..'" Naturally, Obama kind of danced around the question, and then started talking about changes in tax policy, steady progress and long-term economic growth.

I know I wouldn't want to be stuck answering that question on a late night talk show.

You're kind of missing my point. I'm not talking about where we are now; I was suggesting how this could have been handled differently to prevent this issue.

We were told that AIG going under would be catastrophic for the entire financial sector. We were told that they would go under without government funds. The company turned to the government for funds. Those funds could have been tied to AIG changing the terms for bonuses, had the same people in congress who claim to be outraged today actually been concerned with what AIG would do with the money.

Under those circumstances, since you'd have had zero guarantee of getting your bonus anyway since the company was, we were to believe, on the brink of bankruptcy, you probably wouldn't sue. What would it get you? The hastening of the company going under? I seriously doubt the AIG contracts stipulate that employees would be paid bonuses even if the company is entirely insolvent, and if they do, it makes you wonder how they stayed in business as long as they did.

I agree with you that if you are looking for examples of potential government economic screw ups, we've got some doozies right now that eclipse the bonuses. I also agree with you that I don't think punitive taxes on the bonuses are the way to handle it.

ETA: Is no one else facing changes in employment terms because of the state of the economy? I know I am.

And delusional as Kevin finds my idea, I'm apparently not alone:
http://www.cnn.com/2009/POLITICS/03/19/aig.contracts/

And, AIG's trouble would have been none of my concern had they not gotten a big influx of cash from the government. I suppose I'm culpable because I did vote for Bush in 2004. I'm not sure it makes any sense at all to give money to private companies with no expectations about how the money will be used, especially considering the conditions under which they approached the government.

I wasn't sure which of these threads to put this, so I chose this one. I know I've talked about my neighbor who lost her house to foreclosure. It was auctioned off by a company, for the bank, last week. It sold for $30,000. It was mortgaged for about $180K. So, my friend and former neighbor, who tried to work with her mortgage company to get her payments down after her hours were cut due to her medical leave from breast cancer and her husband's death and they wouldn't work with her at all. It seems to me that if they had worked with her, she would have ended up paying at least $100K of her original mortgage, plus interest. Since they didn't work with her, they got $30K minus the auction companies fees. Does this make any sense? It sure seems like it would have been in the bank's best interest to work with her on her payments rather than lose that much money in the long run. It doesn't make sense to me. I am glad that someone bought it. I'm hoping it was a real person and not an investment company that is going to fix it up and rent it out. I wasn't able to catch them to introduce myself when they were at the house last weekend. Hopefully I'll be able to this weekend.

Fair enough, but it seems like you're directing your outrage at AIG and the people who accepted the bonuses. I think it's more reasonable to think about it in the manner that Professors Warren and Baird did; instead of asking why the AIG execs took the bonuses, you should be asking why the President's economic team didn't take a closer look at the contracts, or why it didn't put up more of a fight on the issue.

But you changed the facts to create a hypothetical situation which doesn't exist which seemingly justifies your point of view. That's just not the case. In the real world, AIG has a contractual duty to pay the money, Congress didn't require them to undo the contracts prior to receiving bailout money, ergo, the money should be paid or the execs should sue and get whatever extra damages New York allows for bad faith breaches of contract or failure to pay wages or whatever remedies exist there.

I may be misremembering my posts, but I think if you read back through, even as stupidly long as they are, you'll see my outrage is pretty well spread out.

I think I spent the longest time on the point that "yeah, things could have been done differently" simply because there seemed to be an attitude of "oh, the money had to be spent on that." Nope. It didn't. It could have been restricted in advance, probably multiple ways. There are people quoted in the article I linked that think it could have been limited after the fact as well.

I kind of wonder if she might not simply have been chronologically ahead of the curve before the banks realized home many foreclosures there would be and how little they could expect to recover. I wonder if someone starting the same negotiation today might have the negotiation go differently.

That really wouldn't have mattered though. The company still would have been on the hook for the money and I'm sure it has revenue apart from bailout money which could be used for the purpose of paying those contracts. Yes, it sucks and yes, I hope there's some way to get the responsible parties some sort of justice. It just looks unlikely right now.

Maybe the people will 'clean house' and vote out every single elected official who supported the bailout? That's what really needs to happen here.

We can all dream.

I disagree about how absolutely you accept the company was on the hook for the money. Have you seen one of the contracts? I haven't, but I have a hard time imagining that the bonuses are completely divorced from every other corporate factor. Why would a company write a contract that way? We'll pay you the bonus, no matter what?

Doesn't that seem odd to you? What would be the benefit of having bonuses rather than a pay structure that simply contractual guaranteed the money as base salary? I understand that the bonuses may not have been individually performance based, but completely guaranteed just seems weird.

ETA: about cleaning house. I don't know if that would help, but cleaning up the leadership who should have known better, sure, absolutely. Didn't we somewhat recently have a house cleaning to install the most ethical congress ever? How is that working out?

How do you know AIG has a contractual obligagtion to pay the bonuses? If so they why are they called bonuses?


Former AIG CEO, Hank Greenberg said last week that AIG did not have rentention bonuses when he was running the company.

Because these bonuses are part of the overall compensation packages and not tied to performance.

And I haven't seen the actual contracts. As the late, great Will Rogers said "All I know is what I read in the newspapers."