Obama 'outraged' at AIG bonuses

[Tassidar]

Obama is showing himself to be an absolute inebriate for this. AIG have already agreed to comply with fed demands regarding bonuses for 09, however they were contractually obliged to payout these bonuses for 08. It would have cost AIG a helluva lot more in lawsuits had they not paid out the bonuses and that would have been even more tax payers' money down the tubes. AIG chairman and many other senior executives forfeited their bonuses as well as a token of good will. The bonus structure was also explicitly included in their application to the fed, which was accepted due it being contractual - what an ass he is proving to be - he's merely telling the people what they want to hear.

Some of you need to think about this logically as opposed to emotionally...

As I recall, Sarbanes-Oxley holds directors of company directly accountable for the goings on in the company. I would bet most of the directors had no clue as to how the financial instruments were working, therefore, by my reckoning they could be held legally liable, and could (and should) go to jail for their actions. For them to talk about paying bonuses to themselves and possibly pursuing a legal option, could have much longer and more far reaching negative consequences for themselves.

If they had but a tiny scrap of honour and pride, they would willingly give up those bonuses. However, I don't think you become a director of one of the biggest companies in the world by the use of honour, @ss licking and politicking is much more productive.

 

[DJ...]

As I recall, Sarbanes-Oxley holds directors of company directly accountable for the goings on in the company. I would bet most of the directors had no clue as to how the financial instruments were working

Nice assumption but you're wrong. I've worked closely with AIG and AIGFP in New York and London and the directors most certainly know the inner workings of financial instruments.

Regarding Sarbanes Oxley - please provide some actual legislation which you believe the directors to have contravened. If they had they would have been taken to task already. They were fully investigated by the SEC btw...

by my reckoning they could be held legally liable, and could (and should) go to jail for their actions. For them to talk about paying bonuses to themselves and possibly pursuing a legal option, could have much longer and more far reaching negative consequences for themselves

Sorry but you're highlighting that you don't quite understand this crisis at all. AIG were not responsible for any of the actual dodgy lending, nor any of the subsequent securitisation. Why should they (as investors with exposure) be held accountable? They did originate CDSs which insured against the downside of the ABS market, however this was done within globally accepted risk models - AIG were not the cause of this crap - certain business units of the banks were. Again, stop thinking so emotionally.

If they had but a tiny scrap of honour and pride, they would willingly give up those bonuses. However, I don't think you become a director of one of the biggest companies in the world by the use of honour, @ss licking and politicking is much more productive.

Er, many have forfeited their bonuses, including the chairman of the board...

 

[Alan]

Obama is showing himself to be an absolute inebriate for this. AIG have already agreed to comply with fed demands regarding bonuses for 09, however they were contractually obliged to payout these bonuses for 08. It would have cost AIG a helluva lot more in lawsuits had they not paid out the bonuses and that would have been even more tax payers' money down the tubes. AIG chairman and many other senior executives forfeited their bonuses as well as a token of good will. The bonus structure was also explicitly included in their application to the fed, which was accepted due it being contractual - what an ass he is proving to be - he's merely telling the people what they want to hear.

Some of you need to think about this logically as opposed to emotionally...

*sniff*

That was beautiful. There is hope for you still. Unlike snotkoppie

 

[chiskop]

The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses between $1 million and $2 million, Mr. Cuomo said. Eleven of those who received “retention” bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.

I'm sure in the current economic climate it must be really difficult for financial companies to attract and retain good talent.

 

[metalcore]

Let the company die. Capitalist companies need to play by capitalist rules. You cannot compete? You die.

Good point. Most capitalist companies have been enjoying themselves milking all us through the capitalist system. Now when they have to suffer under the system they must get "bailed out". It defies the system since us consumers don't get bailed out when we cant pay our debt.

 

[d0b33]

...however they were contractually obliged to payout these bonuses for 08. It would have cost AIG a helluva lot more in lawsuits had they not paid out the bonuses and that would have been even more tax payers' money down the tubes...
Some of you need to think about this logically as opposed to emotionally...

What about the other Americans who had there contractually obliged bonuses, pensions etc. taken away from them due to the economic climate?

This is fc uking criminal, and this is the reason why I was against the bail out. They should have let the bloody system collapse

Why do you hate their freedom?

 

[Alan]

This is too funny

Here we see the current head of AIG Financial Products and former vice chairman of Morgan Stanley, Gerry Pasciucco, at an event called “Fiesta Cuba,” wearing a Che Guevara T-shirt.

http://www.talkingpointsmemo.com/archives/2009/03/che.php

 

[Moederloos]

What kind of lame-ass company guarantees bonuses anyways.

Wait - I know the answer!

A lame-ass company that manages to lose $100bn in one year.

 

[PeterCH]

Let the company die. Capitalist companies need to play by capitalist rules. You cannot compete? You die.

Sure, then what about the workers of those companies AND the companies these companies support, eg AIG insured banks and people's loans and so in the long run customers' money. If AIG falls, their labour force will be retrenched while the banks AIG insured may also fall and people will loose money.

I think they chose the lesser evil, support some fat-cats to save more people in the long run.

CEO bonuses are a joke in many cases but the system is so hyped up, the boards feel they need 'talent' to head the company - but it's mostly hype and a lot of backhanders going all around. We hire a 'talented CEO' and he'll raise our own salaries and give us bonuses too, meanwhile stock holders will be happy with a Stanford/Harvard guy who headed company X before which made a profit or was projected to make a profit at the time the guy offered to leave them. HYPE all the way. Our stock will also go up because of this new 'talented' maverick. It's all just BS.

However, that's the way the system works.

 

[Hansolo]

When did these crazy, insane bonuses start? I'm sure it wasn't around in the 80's?

So 1 guy will earn more than most of us put together in our whole life in one year and his company is failing, it's total crap, I'm sure rich jerks came up with this on the golf course, plotting to squeeze every last cent out of us.

 

[DJ...]

What about the other Americans who had there contractually obliged bonuses, pensions etc. taken away from them due to the economic climate?

Other contractually obliged bonuses - such as? Besides, the law is on their side.

Pensions - the market tumbled and their pensions devalued. If they left their pensions in the fund they will recover in due course. Their pensions cannot be taken away - they can be devalued though...

 

[icyrus]

Surely whatever contracts AIG have to pay bonuses hinge on AIG actually having money to pay them.

If AIG went under how would these guys get their contractually obliged bonuses?

Also, does anyone actually know who is getting the bonuses?

 

[mercurial]

AIG Will Repay Taxpayers for Bonuses

Treasury Department will order embattled insurance giant American International Group Inc. to repay U.S. taxpayers up to $165 million that the company is giving employees as bonuses.

The Treasury Department will order embattled insurance giant American International Group Inc. to repay U.S. taxpayers up to $165 million that the company is giving employees as bonuses, Treasury Secretary Timothy Geithner said late Tuesday.

Full article here

 

[DJ...]

Surely whatever contracts AIG have to pay bonuses hinge on AIG actually having money to pay them.

If AIG went under how would these guys get their contractually obliged bonuses?

Also, does anyone actually know who is getting the bonuses?

Sure, but they didn't go under - that's the point. They are therefore still contractually obliged to pay out bonuses. Even if they had gone under, contractual obligations would have meant that the employees would have had some legal recourse in claiming their bonuses.

Full article here

Now that's fair. I have no issue with that. They will still provide them with the capital to pay out bonuses but it will be repaid using operations income flows - nothing wrong with that and it's a decent compromise...

 

[Turtle]

This was predictable ... what did they think was going to happen when they gave taxpayer money to people who had already demonstrated themselves to be either too crooked or irresponsible to be able to manage money? Anyone who accepts a taxpayer bailout already demonstrably has no morals.

 

[DJ...]

This was predictable ... what did they think was going to happen when they gave taxpayer money to people who had already demonstrated themselves to be either too crooked or irresponsible to be able to manage money? Anyone who accepts a taxpayer bailout already demonstrably has no morals.

If you were running a company about to go tits up and the government volunteered cash to keep you afloat, would you turn it down?

 

[Moederloos]

Full article here

except the only money they have is from the taxpayers. so they going to use tax payer money topay back taxpayers?

 

[Tassidar]

Nice assumption but you're wrong. I've worked closely with AIG and AIGFP in New York and London and the directors most certainly know the inner workings of financial instruments.

This is a bit of a fool's dilemma. If they knew the inner workings of the financial derivatives, they would have known the risks faced, and therefore should have been able to avoid them. Therefore they acted irresponsibly.

If they didn't know, then they weren't in control of their company, and were not fully exercising their duties as directors.

Either way, they were in the wrong.

Regarding Sarbanes Oxley - please provide some actual legislation which you believe the directors to have contravened. If they had they would have been taken to task already. They were fully investigated by the SEC btw...

The Sarbanes Oxley Act of 2002 (specifically Section 404) requires management to assess the effectiveness of internal financial controls and instructs auditors to report on whether the controls are adequate or have material weaknesses.

Clearly the internal financial controls were not sufficient. I might remind you that until recently Madoff was cleared by both his auditors and the SEC. It was only when his pyramid scheme collapsed that the SEC did anything.

Sorry but you're highlighting that you don't quite understand this crisis at all. AIG were not responsible for any of the actual dodgy lending, nor any of the subsequent securitisation. Why should they (as investors with exposure) be held accountable? They did originate CDSs which insured against the downside of the ABS market, however this was done within globally accepted risk models - AIG were not the cause of this crap - certain business units of the banks were. Again, stop thinking so emotionally.

Yes, they acted within the bounds of global models and reaped the rewards for it, but the fact of the matter is that they clearly didn't research the downside risk well enough.

And to say that the information wasn't available simply isn't true. I've been predicting the crash of the American economy since 2005, based on unsustainable lending. Surely the directors of AIG if they had looked would have seen the same, and would have been able to factor in the effects of systematic risk?

Again, my problem with exec remuneration, is that it gives massive bonuses when the markets are up, but has no downside risk when the markets are down.

Er, many have forfeited their bonuses, including the chairman of the board...

As is indeed right and proper. Any less would be highly dishonourable, and would in effect be nothing less than theft of taxpayers money.

I don't think that I am being overly emotional when I complain about companies that offer financial instruments that add dubious value at best, and detract massive value at worst, and then pay out massive salaries to their execs and employees. CDSs clearly seem to be a case in point.

 

[DJ...]

This is a bit of a fool's dilemma. If they knew the inner workings of the financial derivatives, they would have known the risks faced, and therefore should have been able to avoid them. Therefore they acted irresponsibly.

If they didn't know, then they weren't in control of their company, and were not fully exercising their duties as directors.

Either way, they were in the wrong.

That's like saying that any investor who lost money in this fiasco was irresponsible and should be taken to task by the law - it's just not logical. If general market sentiment was that a massive housing crash was on the cards then I could understand your point of view regarding AIG, however it wasn't and AIG were not responsible for lending on an irresponsible basis. I agree that the banks were though and there should have been stronger repercussions for them.

Clearly the internal financial controls were not sufficient. I might remind you that until recently Madoff was cleared by both his auditors and the SEC. It was only when his pyramid scheme collapsed that the SEC did anything.

Of course the odd one slips through the cracks but Madoff is an exception, not the rule.

Yes, they acted within the bounds of global models and reaped the rewards for it, but the fact of the matter is that they clearly didn't research the downside risk well enough.

Well that's exactly what I know they were doing. When I stated that I worked closely with the executives of AIGFP for example, one was the global head of research and their risk models most certainly included downside risk as well. However as I stated before, the market is reactive and will in future include these risks now knowing that there is a possibility. I used the Long Term Capital Management example earlier - they too ran riot with quant trading models in the 90s but unfortunately for them they didn't have sufficient data for the financial models to predict or at least incorporate the collapse of the Soviet Union which in turn wreaked havoc with their options business. It's the same as in this case and with any other recession - they went belly up and couldn't afford to deliver on most of their option contracts which were exercised. Who's fault is that - LTCM or the investors? LTCM of course - there was no way for the investors to know how they were pricing their options and whether or not they were able to incorporate such risks as well - it just isn't feasible. Much the same as in this case, the bonds were securitised by the banks, not the investors; and the data available in the prospectus isn't sufficient to drill down into each and every constituent of the pooled assets.

And to say that the information wasn't available simply isn't true. I've been predicting the crash of the American economy since 2005, based on unsustainable lending. Surely the directors of AIG if they had looked would have seen the same, and would have been able to factor in the effects of systematic risk?

As have many conspiracy websites, for absolutely bizarre reasoning. My favourite being that the US treasury had to call in all of its debt because of some strange law that nobody has ever heard of requiring them to do so if their debt mark hits a certain figure ($13trillion iirc). That's also based on lending but is absolute crap. Do you not think that if the bankers and investors (who spend their days doing this) had an inkling that this was on the cards, they would have done something about it beforehand? Of course they would have. The market just thought it impossible for a housing crash on such a scale to take place however if there had been more disclosure required on the banks' part regarding their lending, or if they had been regulated better, this wouldn't have happened. Again, the banks' fault, not the investors or insurers such as AIG.

Again, my problem with exec remuneration, is that it gives massive bonuses when the markets are up, but has no downside risk when the markets are down.

You'll find that many of the heads of trading didn't receive bonuses, or they were minimal in accordance with their contract. Goldman Sachs in 2006 handed a GBP50m bonus to their head of FX trading in London - that kinda puts it into perspective how much smaller the quoted bonus figure is in relation to previous years. Of course they're paying less in the way of bonuses now.

I don't think that I am being overly emotional when I complain about companies that offer financial instruments that add dubious value at best, and detract massive value at worst, and then pay out massive salaries to their execs and employees. CDSs clearly seem to be a case in point.

I agree with you here. If you read my blog I also take a dim view of derivatives trading, even though I partake in it

However of late I have been pondering that with better regulation we wouldn't have found ourselves in such a position. Playing the blame game now is old and not constructive at all. Ripping away at AIG doesn't help the matter, especially when they're merely abiding by contractual obligations. I do think that derivatives have now borne the brunt of the negative publicity though, and maybe a little unwarrantably as well. They do serve a purpose in creating value in the market and spreading risk, however regulations, disclosure and transparency need to improve before they will become trusted investments again...

 

[killadoob]

Sure, but they didn't go under - that's the point. They are therefore still contractually obliged to pay out bonuses. Even if they had gone under, contractual obligations would have meant that the employees would have had some legal recourse in claiming their bonuses.



Now that's fair. I have no issue with that. They will still provide them with the capital to pay out bonuses but it will be repaid using operations income flows - nothing wrong with that and it's a decent compromise...

I dunno dj i think your wrong, they would have gone under had the tax payers not bailed them out, so why should they be allowed to blow the tax payers money? without the bail-out they would be out of business and they should stop acting like they survived and start acting like they got bailed out.