AIG: That Ain't Right!

Perhaps it was merely a coincidence that the news about AIG’s determination to give bonuses to the very employees who drove the company into the dirt came on the same weekend that cable movie channel TBS was replaying the 2003 Chris Rock comedy "Head of State." Rock played a city councilman who improbably gets tapped to run for president. His campaign is going nowhere, until he holds a rally and lists the injustices in society: the woman who cleans a hotel she will never be able to afford to stay in; the man who works in a restaurant he will never be able to afford to eat in, etc. After each listed injustice, he shouts, "That Ain’t Right." Soon the campaign crowd is chanting the slogan. I hope that Democrats who are purportedly organizing a "message war" for the President’s agenda watched the rerun. 

In the past week, the Republicans have cast themselves as the defenders of the taxpayer. They railed against the earmarks in the budget left over from last year, even while they issued press releases for the home newspapers touting the money they were bringing back to their own districts. The earmark debate is a sideshow fiscally, because they account for such a relatively small percentage of spending, but it resonates with many voters because it evidences a truth they already believe: No one is careful with other people’s money.

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The bailout of large financial firms with taxpayer dollars is another instance where many voters can get angry because they see their tax dollars going to the very people who got us into this mess. To see those same firms, in turn, distribute bonuses throws fuel on that anger, turning it into a burning rage. Larry Summers is usually decisively well spoken on complicated economic matters, but he reverted to technical legalese – "The government cannot just abrogate contracts" - on George Stephanopoulos’s show yesterday and he did not persuade. In the event, if AIG had sought bankruptcy protection, the abrogation of contracts is precisely what the court would do. Summers never said, clearly, "That Ain’t Right" still less what the Administration intends to do to make it right.

AIG had a fiduciary obligation to shareholders and perhaps a call from the Attorney General about plans to investigate whether those obligations were met would help concentrate the mind of AIG’s managers. The Obama administration must insist that they not be paid or announce that it is letting AIG fail. AIG claims to be worried it might lose key talent if it does not pay the bonuses. I question the value of the talent (all we know for sure is that their credit swaps helped wreck the nation’s economy) but even if you stipulate that they are talented, in this economy, where would they go? Last time I checked, the job market for Wall Street investors was worse than the Dow Jones.

I do not for one minute believe that the GOP cares about fiscal restraint: The evidence of the past eight years proves as much. Nor do I think GOP Whip Rep. Eric Cantor stays up at night worrying about Wall Street investors getting large bonuses. But, I do know that he can smell a winner and the AIG bonuses are a winner. Compare the news about the bonuses to the news about how AIG spent the bailout money, also released this weekend. Transparency is a good thing, and it is better that we know where the money is going than not. But, people have a hard time following a complicated economic storyline. The bonuses are not complicated. The people who wrecked their company, and wrecked their country’s economy in the process, should not be rewarded, especially not with taxpayer dollars.

The Obama administration is now the Establishment, with the power to affect a wide variety of issues. But they have to be very, very worried about what comes with that power. Underlying the national mood, as given exquisite voice by Jon Stewart in his smack down of Jim Cramer last week, is the sense that the system has been gamed against the average investor, and that insiders (the "Establishment") are finding ways to escape the economic fallout the rest of us are feeling. The American people expect a Republican Administration to be in bed with the bankers but they voted for a change precisely because they want political leadership that will defend the little guy. Lamely invoking the sanctity of contracts is not the change for which we voted.

The President and the other spokespeople for the Administration should TiVo "Head of State" and then practice in front of the mirror: "That Ain’t Right." Populism is a powerful force in America, and the conflation of political power and economic power at the heart of this economic crisis is rife with possibilities for political exploitation. If President Obama and his team do not get into their pulpit first, the GOP will steal their thunder. Woe betide the politician who must defend the AIG bonuses.

 

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8 years 8 months ago
AIG is contractually obligated to pay some bonuses and others are just the right thing to do. America needs to understand if a company in the financial industry expects to retain talent, they must pay for it. The stigma on bonuses has gone way too far. For the most part, the people receiving these bonuses are hard working salaried employees who receive their bonuses in compensation because they are not paid for the long hours and weekends they work. Salaried employees do not get paid overtime, and most are not given comp time, because a 10 hour day is expected. Just to be clear, I am not talking about the crazy executive packages. They can, and have gone too far. I am talking about bonuses that go to the admin assistants, accountants, IT staff and others who support the company.
8 years 8 months ago
From my 20 years of experience in the insurance industry, there is no doubt in my mind that AIG was (and still is) one of the most rapacious and amoral corporations in America (and that's saying something!). That said, AIG is also a HUGE amalgamation of many insurance and investment operations, many of which had no connection to credit swaps or similarly dirty dealings (for example, the ''boring'' life insurance and annuity businesses or their auto/property-casualty insurance division). There are probably many individuals at AIG who did NOT run their divisions into the ground, who run or work for profitable lines of business and who *do* need incentives to stay aboard the sinking ship. And the trope ''no one's going to quit because they won't be able to find a new job'' is naive. The very best people--the same people who both AIG and the taxpayer NEED to retain at AIG--can always find jobs anywhere, anytime. I suggest a compromise. Someone (the NYS Attorney General? whoever...) should review the bonuses. Bonuses should be paid only to those who work for/run profitable businesses in order to retain those individuals--the ones who will be instrumental in rebuilding AIG (and ultimately returning the taxpayers' money). But bonuses should not be paid in crash-and-burn divisions and should never approach pre-recession levels.
8 years 8 months ago
Maybe the solution is to reinstate the 70% or 90% tax bracket on personal income over $1 million. Then the excessive bonuses for highly compensated exces would just recirculate into the treasury. It might solve lot of other social and economic problems as well -- like the chronic underfunding of infrastructure, education, and healthcare. Consider the following made-up example -- if 1000 executives only from the bailed-out companies made an average of $40 million per year for the last 10 years, and all their income over $1 million were taxed retroactively at 90%, then we would generate $351 BILLION dollars. This sounds a lot like the bailout money to me.
8 years 8 months ago
The AIG bonuses have been said by their lawyers to be due and payable. Mr. Obama is a lawyer. QED,
8 years 8 months ago
The comment by Carolyn makes sense to me, The Gov.apparently now ownes 80% of AIG so if true could exercise its ownership function
8 years 8 months ago
Since the government basically ownes AIG now, ALL AIG EXECUTIVES and everyone accepting a bonus, should be fired immediately. I don't believe in government control of companies, but AIG obviously doesn't know how to run their company. This should NOT be accepted by the government or the US taxpayers!!!! There needs to be immediate action.
8 years 8 months ago
Since the checks were delivered before the issue came out, this issue is likely water under the bridge - as possession is nine - tenths of the law. The separate issues are whether some of these individuals should be fired and whether some of them operated illegally. This should be reviewed by the regulators. If illegal action did occur, the perpetrators should be fined and those fines should be used to repay the taxpayers - or better yet to lower the balances of those who took out mortgages under pressure from mortgage brokers who did not serve the interests of their clients. The brokers and the banks should also be fined, returning their fees. If there was a conspiracy to commit fraud on a large scale sponsored by an organization, then triple damages should be awarded to the borrowers. In particularly grievous situations, loans should be forgiven.
8 years 8 months ago
Should not have been a surprize. As understood,Senator Dodd added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” -- which exempts the very AIG bonuses Dodd and others are now seeking to tax. Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org. Even more than the $101,000 given to Obama.
8 years 8 months ago
“I'm shocked, shocked to find that gambling is going on in here!” Captain Renault, “Casablanca” I suppose Senator Dodd and President Obama receiving the highest contributions from AIG means nothing. How about AIG having given political contributions to democrats at rate of three to one over republicans? How about the TARP specifically allowing this payment provision?
8 years 8 months ago
Sen Dodd now admits he put the executive compensation loophole in the TARP Bill. I wonder why? Where's the moral indignation Mr Winters?

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