Tuesday, March 17, 2009

Speaking of Economics and AIG Bonuses

Dear Attorney General Andrew Cuomo,

I hear you are mad as a wet hen. Me too.

AIG has been playing, Who Wants to Be a Millionaire again. And this time 73 of the folks who helped create the worst financial crisis in modern economic history, won the big prize.

Thank you for revealing the following information about the AIG bonuses.
  • The top recipient received more than $6.4 million;
  • The top seven bonus recipients received more than $4 million each;
  • The top ten bonus recipients received a combined $42 million;
  • 22 individuals received bonuses of $2 million or more, and combined they
    received more than $72 million;
  • 73 individuals received bonuses of $1 million or more; and
  • Eleven of the individuals who received "retention" bonuses of $1 million
    or more are no longer working at AIG, including one who received $4.6
These payments were all made to individuals in the subsidiary whose performance led to losses causing the near failure of AIG. Therefore, what we are seeing is that the individuals who lost so much money that it brought the firm to the edge of bankruptcy, forcing a taxpayer bailout, are the very people who are receiving bonuses. Something smells fishy, doesn't it.

The contracts under which AIG decided to make these payments contain a provision that required most individuals' bonuses to be 100% of their 2007 bonuses. That means that last Spring when AIG identified the coming crash, they locked in bonuses for 2008 at 2007 levels knowing that their real performance would be disastrous in comparison to the year before.

I've heard that you are taking a hard look at all this. Does that mean that you, like me, think that all of this sounds, well, criminal?

Some writers from the Huffington Post suggest this solution.
The trustees need to split off the derivatives unit from the rest of the firm and separately incorporate it. This step leaves AIG's other businesses free to operate as usual. If the recipients of the bonuses refuse to waive them, then the derivatives unit should at once be thrown into bankruptcy, terminating all obligations to pay them. Right now, press reports suggest that the firm's top management waited until the last minute to inform the government of what was happening. AIG CEO Edward Liddy, accordingly, should be asked to resign at once, for the sake of public confidence and to send a clear signal that gaming the system is unacceptable.
Barney Frank seems to think some strong tactics should be used to call a halt to this too.

Well, thanks for working on this problem. I hear that President Obama has your back.



TheUkieVillain said...

Sound and fury...

I'll be surprised if they actually manage to recoup these bonuses. They've already been paid out, and people have likely already spent some of the money.

I just wonder about the people who TOOK the bonuses. Who, in this economy, with the news as it is on a daily basis, could say, "Yeah, I work for a company that drove the economy into the toilet, but I feel I still honestly deserve a large bonus for my efforts." Who could say that? Are people that ethically/morally bankrupt?

brd said...

Sounds like these folks are feeling the pressure and are wanting to get the public to look the other way. Sounds like they want to change game shows. Now it's Let's Make a Deal.

brd said...

Breaking News via NY Times:
Cuomo Says Most Huge A.I.G. Bonuses Were Returned

Attorney General Andrew M. Cuomo of New York announced late
Monday afternoon that 9 of the top 10 bonus recipients at the
American International Group had given back their bonuses.

He also said 15 of the top 20 bonus recipients in A.I.G.'s
financial products division had given the money back, for a
total that he estimated at about $30 million. "Those bonuses
will be returned in full," Mr. Cuomo said during a conference
call with reporters.

TheUkieVillain said...

Finally, we have a response from someone taking the bonus from AIG. And it makes sense that he would do so.


brd said...

This is an interesting article and does shed a little light on these bonuses. Though it does sound like this person deserved some compensation, it also sounds like the $1.00 compensation plan was a gimmick that backfired--"Let's make the world believe that we are working for $1.00 when we are really working for $700,000."

The misinformation and outright lying is part of what the American taxpayers are incensed by.