AIG has to pay it back

Tonight, the Treasury said it will make AIG repay the government the $165 million in bonuses handed out last week. In a letter to Congressional leaders, Treasury Secretary Tim Geithner said the money will be deducted from AIG's fourth bailout, which totals $30 billion. That's nice, but it better not stop there.

Giving AIG $179,835,000,000 instead of $180 billion doesn't make a whit of difference, except politically. If the government insists on getting the bonus money back, then get it back from the people who were rewarded for failing on a colossal scale. In his letter, Geithner said the government can't legally block the payments, but back to our earlier discussion about this, if there's a will, there's a way when you own 80% of the company and you saved it from ruin.

This feels like restitution without justice. If there's enough moral certainty among the people that the bonuses were wrong, and the government wants put a stop to this unethical plundering and truly influence Wall Street's culture, then take it to the courts. I don't like the distraction, but I also know how much people want fairness. Maybe I'm wrong, but I just can't imagine that AIG repaying the taxpayers with money the taxpayers were about to give AIG is good enough.

New York Attorney General Andrew Cuomo seems to want to take it further. I'll cite a couple key paragraphs from his letter to Congressman Barney Frank:

If AIG were confident in its claim that those who received these large bonuses were so vital to the orderly unwinding of the unit, one would expect them to freely provide the names and positions of those who got these bonuses. My Office will continue to seek an explanation for why each one of these individuals was so crucial to keep aboard that they were paid handsomely despite the unit's disastrous performance...

We have also now obtained the contracts under which AIG decided to make these payments. The contracts shockingly contain a provision that required most individuals' bonuses to be 100% of their 2007 bonuses. Thus, in the Spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My Office has thus begun to closely examine the circumstances under which the plan was created.

Tomorrow, AIG CEO Edward Liddy testifies before the House capital markets subcommittee.

I like my grilling well-done.

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As a small business owner who gets to "go down with my business" should it fail, I cannot find enough words to express my outrage and profound disappointment at the Obama Administration for the way they have handled this bonus situation so far. The only way they could redeem themselves is to be fast, forceful, and direct. Start with firing Gienthner on the spot. I don't care about contract law, I know what is right and wrong, Let the S.O.B's sue!!!!!!!

No one has explained why, if the AIG and other such "bonuses" at places like Merrill Lynch, are "contractual" and therefore actually salaries, why they are called bonuses. I suspect, because they are in essence hidden or something of the sort. A bonus means something extra a reward for performance of an individual or the company as a whole. They could be used to retain high talent or for some other legitimate purpose, but then they would still be optional. What gives?!!!

Mary, the answer is "hidden" in the contracts themselves. AIG does use the word bonus to describe the pool of money but each "bonus" is in fact called a "Guaranteed Retention Award."
I just went through the AIG contract and posted a new entry about it.

It's more like a pro athlete's signing bonus. They get the money no matter what, even though the word bonus is used. Other parts of their compensation may depend upon performance.

In fact, the only way for the AIG employees to lose their retention awards is if they quit without "good reason," or were terminated because they committed a crime, were dishonest or practiced gross negligence.

Under this contract, even people let go for "underperforming" still got their 2008 bonus.

There were also caps on how much the bonus pool could be reduced because of losses on CDO's - a 67.5 million limit.

AIG lost $99 billion last year.

What remains confusing about the government give-away is why Congress and Paulsen and crew never conducted more in-depth "due diligence", a process which should have revealed financials and many of the contractual requirements. Yes, interviewing is part of that process, and clearly, some of that occurred. However, there are many standard questions which auditors, lawyers, human resources directors (specialists often in the field of acquisitions)would put forth before acquiring a company. Despite the large size and complexity of the company, some better form of due diligence (even in shortened form) would make the obvious just that: obvious.
Though giving away billions of other people's money is not the same as acquiring a company, the sheer magnitude of the investment requires a more serious due diligence.
Instead, we the public are left with the bad taste that Congress acts in haste and desperation, grandstanding for the media with words of outrage and reprimand. There is political value to the outrage, of course: it deflects blame away from Congress on to others.

Yes, Sona, the gov't should've read the contracts, understood the situation and taken action way before the payments were mailed out. Not only that, but also told the public about it.
If Geithner had come out with this even a month ago and had announced plan to deal with it, there would not be this outrage.

Perhaps we need a few dozen executives swinging on the end of a rope to clarify what executive compensation means to the average Joe. Nah, it will never happen.

AIG is the victim here. Victimized by poor people making poor decisions. It is better to blame the government for forcing those nice mortgage companies to make loans to those bad poor people. It must have been really scary to have the Men In Black show up at a closing and force everyone to sign those loan papers and take those commission checks. The horror! Why didn't the media report on this outrage when it was happening?

When is someone going to wake up and realize the bailout is not working? When are we going to breakup AIG and sell it off? When are we going to let banks fail so examples can be made? When are we going to stop wasting time and taxpayer dollars? When are the citzens of the United States going to realize a two party system is not working?

So far I have seen any change from the new administration and I had high hopes. The new administration can't even fill cabinet positions let alone resolve the issues with AIG or the economy.

There doesn't seem to be a single person on the planet who actually wrote these contracts, who reviewed the contracts, or who is in fact personally responsible for this regretable but legally binding state of affairs.

I want accountability! Who tied this knot? Who wrote these contracts? Who reviewed payroll and personnel contracts when the government took over? And by an answer, I should clarify that I don't mean an answer along the lines of 'appropriate Justice Department officials'. Who are these guys (or gals)? What are their names?

There seems to always be a different set of rules for these guys. They seem to manage to get what we would be looked at like lunatics if we tried to negotiate a deal like this.

If you want your outrage stoked while being entertained I would recommend the following video for sponsoring a CEO


Fire Tim Geithner? Naw, it's not his fault. These contracts were signed last year, under a different Treasury Sec'y, and under a different AIG CEO. It's like Enron all over again, the head hoodlums have already jumped ship.

(former Treasury Sec'y) Henry Paulson needs to come back to Congress, namely Elizabeth Warren's Congressional Oversight committee, to explain why bailouts didn't stipulate "no staff compensation," and why our "stock injections" bought $0.66 worth of stock for every $1.00 paid.

And since we may have had to pay these AIG Financial Services Unit employees bonuses even if they are terminated ... simply hold a proverbial gun to their head, demand that they sign a new contract to remain employed, at their previous salary LESS the bonus they received. If they decline, take them to court for fraud. One of Marketplace's interviewees asserted that the bonuses were based on faulty, possibly fraudulent, accounting, so a court fight to reclaim the bonuses might exhaust the executive's bonus, so my Plan A could be more attractive to those desperadoes.


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