AIG Contracts a Brain Freeze
By Larry Doyle on March 18, 2009 at 7:35 AM in AIG, Insurance Policies & Industry, Sense on Cents (Larry Doyle blog), Wall Street
***Cross-posted from my blog, Sense on Cents. Come by and visit!
Given the public outrage over the millions in bonus payments at AIG, is there any doubt that there has been a massive failure to perform by all involved?
When AIG was on the verge of bankruptcy last September, I am willing to bet the topic of employment contracts was not the lead item on the agenda. In fairly short order, though, as AIG was moving ahead with its attempt to sell divisions and repay the government loan, I have to believe outstanding liabilities, such as employment contracts, became a topic of discussion.
Let’s bring the main players at that point in the process back to the table. What does Hank Paulson have to say? How about Robert Willumstad, former AIG CEO? How about current AIG CEO, Edward Liddy?
Make no mistake, both the government and AIG executives could have imposed their will to renegotiate – if not outright dismiss – any outstanding contracts. How?
When an entity such as the government takes over a company, a change of control occurs. That change of control does not unilaterally extinguish outstanding liabilities, but it certainly opens them for renegotiation. The fact that these contracts were not seriously renegotiated is a massive failure to perform on behalf of the government officials and AIG executives.
I have personal experience with renegotiating contracts. When I was at JP Morgan, the firm took massive hits to income from exposure to Enron and Worldcom. The business I managed had no involvement whatsoever in those exposures. That said, when it came time to pay our people at year end, the firm “strongly encouraged” everybody (whether on contract or not) to share in the firm’s underperformance. As a result, every single individual on contract took a haircut.
Many people maintain that all contracts must be honored and paid in full in order to maintain continuity at AIG Financial Products, the division which took the risks and incurred billions in losses. If it even exists a year from now, AIG FP can very easily restaff given the enormous number of layoffs on Wall Street. Every single new hire could easily occur without a contractual obligation. The current work situation on Wall Street is a buyers’ market.
Back to the matter at hand. Are we to believe that the same scenario that occurred at JP Morgan in 2002 could not, or more importantly should not, have already occurred at AIG? It seems to me that everybody involved in managing AIG and the government’s ownership of this entity has had a massive brain freeze.
Congressman Steny Hoyer (D-MD) commented this morning regarding individuals at AIG who received bonuses, “these people have no shame.” I would make the very same statement about the government officials and AIG executives who have failed to perform.
Why am I not surprised?
LD
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There are no mistakes in legislation only machinations that result in a payoff in the form of campaign contributions or some other pro quid.
Where do these bonus babies think they’re going to find other jobs? MAKE THEM PAY IT BACK.
Wouldn’t you consider Geitner a main player? Wasn’t he working with Paulson on the original deal? what about calling one of their own–Chris Dodd. I’d like to know more about that little amendment he tucked in the stimulus package protecting the bonuses. Do you believe we’ll get the whole truth; nothing but the truth? NOT.
Yes, Paulson and Geithner knew about the bonus comp last Sept. and so did we if you paid attention. It was reported as early as Septemenber ‘08 and again in January ‘09. I don’t know why everyone wasn’t outraged then, oh wait, that was before Obama went on his $11 trillion spending spree (wheeee!!).
We own AIG. AIG’s Credit Default Swap book holds at least 70% of the existing swaps still out there. So what? Here’s the what…
The market can’t shed the uncertainty until those swaps are extinguished or fully revealed. How will we know when there extinguished? We won’t until the book is fully disclosed. Full disclosure of the CDS book WILL cause horrendous destruction to some who gambled but will clear all those who actually acted responsibly. Uncertainty extinguished. Market clears. Recovery finally at least possible.
The torches and pitchforks, if it really gets underway will trigger marshall law and is utterly unnecessary. If your hankering for the jackboot of tyranny on your neck, hire a dominatrix. If you want economic recovery in reality, start pushing loud and clear for AIG’s CDS book to be FULLY disclosed. If there’s another way, I don’t see it.
As you say on your blog–Geitner says he didn’t know about the bonuses. Well, if he can’t pay his taxes and can’t read or understand the deal he’s making with AIG–HE SHOULD BE FIRED!! Ditto, if he’s just lying.
Why did BO insist on his hiring? There aren’t any other smart guys (or gals) who could have done the same job? Was it Geitner’s father’s affiliation with Bambis mother? Were they covering something about the Sept TARP up?
I just can’t figure out WHY they hired this lightweight at such a critical time.
Yes to that. Seriously, with the G20 coming up and a possible Bretton Woods II coming out of it all… With the variables of reserve currency and exchange rates “on the table”… shouldn’t we be sending brighter people to negotiate for on our behalf? Seriously…. This is the biggest problem nobody seems to be noticing at all right now.
1) TARP was thrown together by Paulson, Geithner, Bernanke, and the inner circle in DC.
2) Obama stayed on the campaign trail to avoid getting his hands dirty and maintain plausible deniability. McCain knew it was serious and returned to DC in an effort to keep the Repubs in on the loop.
3) Geithner was chosen for the Treasury as a CYA for Obama and the Dems, and as a sacrificial lamb should the #$?%! hit the fan.
The Congressional outrage over the AIG bonuses is a smokescreen to mask the scope of the financial crisis and the many DC players who are guilty of deliberate malfeasance. AIG is just the tip of a very big iceberg.
http://www.ritholtz.com/blog/2009/03/aig-retention-bonuses-paid-to-former-employees/
AIG Retention Bonuses Paid to Employees who had been Dismissed.
Well, geepers guys, I would think there was at least one good negotiating point RIGHT THERE!
Ha!
This is all such gross buffoonery….
http://www.slate.com/id/2213942/
The Real AIG Scandal
It’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.By Eliot Spitzer
“Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.”
Steny Hoyer has no shame … he should bloody well know that Sen. Chris Dodd (D-Countrywide) helped preserve the AIG bonuses.
AIG CEO Edward Liddy, in his November 2008 letter to New York Attorney General Andrew Cuomo.
You can see a copy of the original letter in it’s entirety (PDF format) here:
http://thinkprogress.org/wp-content/uploads/2009/03/11-25-08liddyletter.pdf
Frickin’ astonishing, isn’t it? The bottom line is that these guys will lie to anybody, and already have.
The bonuses are peanuts compared to the cost of deregulating the derivatives market, which allowed AIG to sell “insurance” against defaults without maintaining any reserves. Since lenders could buy “insurance” on sub-prime mortgages, there was not need for them to monitor the credit worthiness of the borrowers. And thusly, the house of cards was built.
That really the crux of the matter, isn’t it?
Untold billions were made in an under-regulated market by knowingly setting up unsound insurance schemes that enabled others to make money by extending credit to unsound borrowers. Then everything was bundled into bogus packages that were given falsely reassuring risk ratings and passed on to unsuspecting investors to generate additional profits. Once the scam was discovered the government was called on to prevent total collapse of the looted system, but some of the same people who did the initial looting are still part of that system.
Under the pretext that they are the only ones who could understand it… when maybe nobody fully understands it to begin with. The whole derivatives mess should had been allowed to die it’s own miserable death and come back from bankruptcy if it was worthy of it. The whole concept that the government can operate this sham any better than AIG is inane to begin with.
Update: Sen. Chris Dodd (D-Countrywide): “I was responsible for bonus loophole.”
Please listen and sent it out. The people of America MUST KNOW THIS!!
This just in -
http://www.worldviewradio.com/play.php?EpisodeID=11125
OBAMA’S DOCUMENTED TIES
TO COERCIONIST
ORGANIZATIONS & INDIVIDUALS
From New Zealand -
Mr. Trevor Loudon, a gentleman in New Zealand, has extensively referenced and documented Obama’s ties to coercionist organizations. As Mr. Loudon explains in a recent radio interview (see link below), he is concerned about America because ultimately New Zealand’s freedom depends upon America’s freedom.
The original message describing Mr. Loudon’s sixty-nine documents regarding Obama was sent by Mr. Richard O’Leary in the following message:
A dear friend of mine in Austrailia sent me this link to a radio broadcast
about Barack Obama’s past. We need to distribute this material to every
person we know. As you will soon learn, Obama is A VERY DANGEROUS
MAN! More dangerous than anyone knows, except a few select individuals.
http://www.worldviewradio.com:80/play.php?EpisodeID=11125
It is unbelievable that Obama was able to supress this information, but he
did, with the assistance of the American press. I’ve known Obama was a
hard core coercionist, but I had no idea that he was this evil. I take almost
everything I hear about anyone with a grain of salt, but the evidence in this
matter is irrefutable.
Please listen and sent it out. The people of America MUST KNOW THIS!!
OBAMA’S DOCUMENTED TIES
TO COERCIONIST
ORGANIZATIONS & INDIVIDUALS
From New Zealand -
Mr. Trevor Loudon, a gentleman in New Zealand, has extensively referenced and documented Obama’s ties to coercionist organizations. As Mr. Loudon explains in a recent radio interview (see link below), he is concerned about America because ultimately New Zealand’s freedom depends upon America’s freedom.
The original message describing Mr. Loudon’s sixty-nine documents regarding Obama was sent by Mr. Richard O’Leary in the following message:
A dear friend of mine in Austrailia sent me this link to a radio broadcast
about Barack Obama’s past. We need to distribute this material to every
person we know. As you will soon learn, Obama is A VERY DANGEROUS
MAN! More dangerous than anyone knows, except a few select individuals.
http://www.worldviewradio.com:80/play.php?EpisodeID=11125
It is unbelievable that Obama was able to supress this information, but he
did, with the assistance of the American press. I’ve known Obama was a
hard core coercionist, but I had no idea that he was this evil. I take almost
everything I hear about anyone with a grain of salt, but the evidence in this
matter is irrefutable.
Please listen and sent it out. The people of America MUST KNOW THIS!!
Maybe even send it to senator-congress- anyone-
-
[...] on the recent AIG/Dodd stuff, “Listen To Your Aunt Susan.” There is also Larry Doyle’s, “AIG Contracts A Brain Freeze,” are just a couple of other articles at No Quarter on the AIG [...]