Obama 'outraged' at AIG bonuses

[DJ...]

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.

Try using that excuse when you're sued by your own employees for contractual earnings and then punitive damages as well. It would have cost them more - a lot more. The company cannot go back and adjust contracts because they were bailed out. The fact of the matter remains, they were bailed out, they are still in business and they still have contractual obligations which the bailout cannot in any way negate. Again, you're one of those thinking emotionally and not logically about this. Have you ever held a senior executive position? If so, how would you go about cancelling contracts with employees in this situation, legally? They have one of two options, either file for Chapter 11 or continue business as usual, using different capital flows.

In fact that's a question directed at all of those who lambaste the fact that AIG are following through with contractual obligations - for you to justifiably lambaste them, you must surely know of a solution to avoid having to pay out these contractual bonuses? Otherwise, you're just being emotional about this all without thinking for a second about the repercussions of not paying them out. If they get sued, they do not stand a hope in hell of winning and it merely cost them more in legal fees, will have to pay out the bonuses in the end and then get sued for punitive damages by those employees unable to continue working for AIG because of whatever emotional scarring this has left them with, or those who forecast financially for the bonuses and were then left in financial pain etc etc. It's America, they'll sue for anything, however in this case they have every right to sue - much the same as you would if your company didn't pay you your salary or bonus which they agreed to contractually...

 

[killadoob]

No i am thinking logically and logically the only reason AIG are in business is because they got bailed out. When companies are in trouble they do not pay bonus's do they? When a company is in trouble they do not even think about bonus's regardless of the circumstances.

This is a corrupt company, enron comes to mind when i heard this story. Corporate America are as bad as our government and now they are taking the people's money and dishing it out like the company has no problems. I would also dish out money if i knew i could get billions for messing up a business.

How do you know all these bonus's were on a contract basis, maybe it was like eskom handing out performance bonus's which i could believe. Well done you got us billions here have a couple million for the help.

 

[DJ...]

No i am thinking logically and logically the only reason AIG are in business is because they got bailed out. When companies are in trouble they do not pay bonus's do they? When a company is in trouble they do not even think about bonus's regardless of the circumstances.

This is corrupt company, enron comes to mind when i heard this story. Corporate America are as bad as our government and now they are taking the people's money and dishing it out like the company has no problems. I would also dish out money if i knew i could get billions for messing up a business.

Again, I refer you to my previous post.

How do they cancel existing contracts on the basis that they were bailed out? I can assure you that is not provisioned for in their contracts - I'm 100% sure of this. Does your contract provision for a change of capital flows or explicitly state that the contract is voided should the state provide capital or funding in any way? If so, then their lawyers and HR representatives should be fired as state funding might constitute a rebate, tax relief or actual capital for many reasons, not just a bail out. They could provision for financial circumstances though which was probably done considering how much lower the bonus figure is in comparison to previous years.

I don't think you understand this at all from a business perspective. You just see state funding and think it changes everything - it doesn't and you'd be hard pressed to find a business person who agrees with you that they should just tear up the contracts and pretend they never existed...

 

[Tassidar]

Ok, DJK we're close to agreeing here.

I do feel that the data was available to predict the downturn of America, and the rest of the world. This was to me clearly reflected in the growth of American debt and the size of their (and our) trade deficits. Simply put, America's economy (like ours) was based on consumer spending funded by debt. It doesn't take a genius to work this out, however, as you point out, the banks were intent on lending out more and more money, not caring about the risk, and very wrongly not factoring in the possibility of everyone defaulting at the same time.

Perhaps it was less AIG's responsibility, but as an insurer to the banks through CDSs and other instruments they could clearly have seen their exposure. I don't think it would take too much of a genius to work this out, particularly considering how much brain power goes into constructing those derivates in the first place.

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.

The fact that GS handed a GBP50m bonus, is more tantamount to how unacceptable the system was in the first place, than to the fact that bonuses are acceptable now.

As to the blame game. Perhaps it is a necessary process. The process that lead to the crash was one that was driven by pure greed. The size of the execs remuneration put them among the most greedy of the lot. For them to be able to escape the mess that they were partly responsible for causing with millions still in their bank account would surely be wrong, as it encourages the very greed that got us into this mess in the first place.

 

[DJ...]

How do you know all these bonus's were on a contract basis

Er, because they explicitly state so, as does the treasury who authorised payment for the contractual bonuses which were explicitly stated in their application for bail out money. If the treasury could have objected, they would have back then. All this is is Obama showing that he's merely pandering to the masses of people who do not understand this fiasco at all - like yourself - no offence but you're exactly the type of person he is vying for support from with idiotic statements like he has made - one would expect the president to at least attempt to show an inkling of how business works. But then again, he's the people's man - a true democrat who hasn't got a clue how the state itself is funded...TWIT!

 

[Tassidar]

Again, I refer you to my previous post.

How do they cancel existing contracts on the basis that they were bailed out? I can assure you that is not provisioned for in their contracts - I'm 100% sure of this. Does your contract provision for a change of capital flows or explicitly state that the contract is voided should the state provide capital or funding in any way? If so, then their lawyers and HR representatives should be fired as state funding might constitute a rebate, tax relief or actual capital for many reasons, not just a bail out. They could provision for financial circumstances though which was probably done considering how much lower the bonus figure is in comparison to previous years.

I don't think you understand this at all from a business perspective. You just see state funding and think it changes everything - it doesn't and you'd be hard pressed to find a business person who agrees with you that they should just tear up the contracts and pretend they never existed...

DJK, I'm happy to agree with you on the subject of the contracts. However, will you agree with me that while the company may be contractually bound to pay the bonuses, it would be highly unethical for the recipients to accept the bonus?

 

[killadoob]

Again, I refer you to my previous post.

How do they cancel existing contracts on the basis that they were bailed out? I can assure you that is not provisioned for in their contracts - I'm 100% sure of this. Does your contract provision for a change of capital flows or explicitly state that the contract is voided should the state provide capital or funding in any way? If so, then their lawyers and HR representatives should be fired as state funding might constitute a rebate, tax relief or actual capital for many reasons, not just a bail out. They could provision for financial circumstances though which was probably done considering how much lower the bonus figure is in comparison to previous years.

I don't think you understand this at all from a business perspective. You just see state funding and think it changes everything - it doesn't and you'd be hard pressed to find a business person who agrees with you that they should just tear up the contracts and pretend they never existed...

You still cannot be sure that they had to pay these bonus's now can you though? For all we know they paid out the guys massive amounts of money and they did not have to do it, can you confirm that the entire 180m had to be paid out due to contracts?

 

[DJ...]

Killa - if you want to know the crap that takes place when a company cannot afford to pay its own workers, then take a look at a local company called Pamodzi Gold and the **** they're in. They're off trying to find funding from international investors. Now ordinarily you and I wouldn't know about where the company secures its capital from and therefore never question what is done with it. So how is it any different if a company secures financing from a private source such as Pamodzi is doing, or if they received financing from government to ensure that they do not have to lay off thousands of workers? Also, if Pamodzi received financing from the state, should they pay their salaries as they are contractually obliged to do? Or should they cancel those employment contracts because their capital came form the state and not a private source? Of course not - much the same as the bonuses in AIG's case which were contractual...

 

[DJ...]

DJK, I'm happy to agree with you on the subject of the contracts. However, will you agree with me that while the company may be contractually bound to pay the bonuses, it would be highly unethical for the recipients to accept the bonus?

Yes, to an extent. In the financial markets most senior positions involve contractual bonuses as a part of the remuneration package. The financial world is built on bonuses actually and I read an article about the inflationary affects of bonus season in the square mile which is quite an interesting read. Bonuses in many other sectors are exactly that, a bonus. In the financial markets they form a part of someone's remuneration package and more often than not, determine whether one accepts a position at Goldman Sachs or Merril Lynch for example. They're a different kettle of fish in the financial markets which is difficult to comprehend for many people who have never been actively involved in the market.

You still cannot be sure that they had to pay these bonus's now can you though? For all we know they paid out the guys massive amounts of money and they did not have to do it, can you confirm that the entire 180m had to be paid out due to contracts?

Yes, I have no reason to doubt it. How's the glare with that tin-foil hat on? Careful you don't cause retina damage.

The bonuses were investigated by the US Treasury and there was no getting out of it. Again, I've asked how you would have gone about voiding the contracts but you've avoided that now by attempting to move on to conspiracies that they're lying and paying out non-contractual bonuses for the sake of it. They wouldn't be doing so if they didn't have to - hence the lower bonus amount this year. Think logically man!!! Damn...

 

[Hoof-Hearted]

Somehow I don't see investors (state or private) being too happy with Pamodzi execs collecting bonuses as soon as the company is bailed out.
I think you have to draw a distinction between salaries and bonuses.
Would the AIG execs still have got their bonuses if there was no bail-out (state or otherwise) ? I think not ... probably wouldn't even be getting salaries right now.

 

[killadoob]

Well if all the bonuses were in contracts then fine but i still do not believe that the entire 167m were contracted bonuses. Nothing to do with a tin foil hat. All the fat cats take huge sums of money just like the whole enron saga.

I am thinking and my thinking is the fat cats just got huge sums of money and the company got bailed out. Wow so nice to take home fat bonuses have the company you work bailed out to the tune of billions. Good life. Fats cats are sitting pretty while the tax payers are out of pocket 180m , not to mention i am sure there is more to come of this whole aig saga. The government has set a bad precedent by bailing them out, going to be a snowball effect i can it.

 

[ASG]

The big problem I have with this is that it was the greedy exec's that got us in this mess.... Not specifically the ones at AIG, but all those execs that created those CDO's and authorised the stupid home loans and all the badly thought out things that got us in this mess. Now they want to take tax payers money, money from those feeling the consequences of this the most and reward those greedy assclowns because of "contractual obligations". Like the one senator said, it's like paying someone to screw you, then getting slapped in the face with your own money. (paraphrased)

Fair enough in this specific case not paying them might be punishing them for others mistakes. Well tough, I feel 100% confident that any of those 100 or so people receiving these bonuses would have happily done the same thing as those others. Sure that might be an emotional way of looking at it, but try explaining to those who lost jobs because of this crisis that it's ok to reward this execs because it's the logical not emotional way to look at it.

In my opinion half these exec's (not specifically the AIG ones again) should be prosecuted for all this rather then getting bonuses. If these execs had half a shred of moral fibre they should not have accepted a cent in bonuses or at the every least agreed to some suspension of payments of bonus till after the crisis is over or some share deal or something that does not involve using the tax payers money.

Emotional? yes and I make no apology for that.

 

[Hoof-Hearted]

The bonuses were investigated by the US Treasury and there was no getting out of it. Again, I've asked how you would have gone about voiding the contracts but you've avoided that now by attempting to move on to conspiracies that they're lying and paying out non-contractual bonuses for the sake of it. They wouldn't be doing so if they didn't have to - hence the lower bonus amount this year. Think logically man!!! Damn...

Agreed that bonuses are "deal-breakers" in the financial industry.

I reckon US Gov fskd up though with the way in which they dished out the bail-outs. One would think they'd have expected some sort of rehabilitation plan in place before dishing out a couple billion. One look look at plans to pay bonuses to execs would have had me running for the hills ... sack of money intact.

 

[DJ...]

Ok, DJK we're close to agreeing here.

Orsm!!!

I do feel that the data was available to predict the downturn of America, and the rest of the world. This was to me clearly reflected in the growth of American debt and the size of their (and our) trade deficits. Simply put, America's economy (like ours) was based on consumer spending funded by debt. It doesn't take a genius to work this out, however, as you point out, the banks were intent on lending out more and more money, not caring about the risk, and very wrongly not factoring in the possibility of everyone defaulting at the same time.

Perhaps it was less AIG's responsibility, but as an insurer to the banks through CDSs and other instruments they could clearly have seen their exposure. I don't think it would take too much of a genius to work this out, particularly considering how much brain power goes into constructing those derivates in the first place.

Well that would involve them completely hedging their exposure to the downside of CDOs which is near impossible. Ordinarily that hedge would be via a CDS but they were the CDS issuer, so there were no direct hedges short of buying up their own CDSs which is just plain stupid. There are some interesting financial hedges against the downside however they involve further fixed income investments and that in itself is flawed, for obvious reasons. I don't believe the data was there to predict a housing crash - there was not sufficient transparency from the banks. Ever read through a CDO prospectus? 300 pages of legal drivel but when they break down the tranches, it doesn't drill down enough into each and every pooled asset sufficiently imo. OK, so it doesn't take a rocket scientist to figure out that the cash flows of BBB- tranch might be a little risky, however there was no data indicating that the banks had lent on an unsecured basis or had done so completely irresponsibly.

The fact that GS handed a GBP50m bonus, is more tantamount to how unacceptable the system was in the first place, than to the fact that bonuses are acceptable now.

Agreed to an extent - but see my post above regarding bonuses in the financial markets. I've had this argument before with some people. I agree, they are excessive, but that's just a symptom of a highly competitive market, and is the very ethos of a remuneration package in that market.

As to the blame game. Perhaps it is a necessary process. The process that lead to the crash was one that was driven by pure greed. The size of the execs remuneration put them among the most greedy of the lot. For them to be able to escape the mess that they were partly responsible for causing with millions still in their bank account would surely be wrong, as it encourages the very greed that got us into this mess in the first place.

Agreed to an extent again. The investors weren't to blame though - that's more my point. It was the mortgage lenders who were ultimately to blame. Bailing out the banks is still a contentious issue for me. Let the market play out, there will be companies to pick up the mess - that was my initial reaction as well - we had a lengthy and interesting thread about this a while back related to my blog - however the cons outweigh the pros in this instance imo, in hindsight...

 

[DJ...]

Somehow I don't see investors (state or private) being too happy with Pamodzi execs collecting bonuses as soon as the company is bailed out.
I think you have to draw a distinction between salaries and bonuses.
Would the AIG execs still have got their bonuses if there was no bail-out (state or otherwise) ? I think not ... probably wouldn't even be getting salaries right now.

Yes, that is true. However many AIG senior execs have forfeited their bonuses as a token of good will. If this were a small company where one could merely sit down at a board room together and discuss a plan to make up for the bonuses then I could understand (Pamodzi could probably do that). However it's just not plausible in AIG's case. And in Pamodzi's case, if they are contractually obliged to pay out bonuses then I can assure you that it is in their financials that they're putting forward to potential investors.

Agreed that bonuses are "deal-breakers" in the financial industry.

I reckon US Gov fskd up though with the way in which they dished out the bail-outs. One would think they'd have expected some sort of rehabilitation plan in place before dishing out a couple billion. One look look at plans to pay bonuses to execs would have had me running for the hills ... sack of money intact.

Agreed 100%. It was very poorly handled...

 

[DJ...]

Well if all the bonuses were in contracts then fine but i still do not believe that the entire 167m were contracted bonuses. Nothing to do with a tin foil hat. All the fat cats take huge sums of money just like the whole enron saga.

Any reason why you don't believe both AIG and The US Treasury? Or is it merely an unfounded hunch - which is exactly what a tin-foil-hat donning person would be doing.

And again, many of those supposed "fat cats" already forfeited their bonuses pro actively, before the articles about this even hit the news stands.

The government has set a bad precedent by bailing them out, going to be a snowball effect i can it.

What is this bad precedent? Are you aware of the economic implications of a company like AIG going under? Do you have any idea how many thousands of employees they hire? Are you aware that AIG were not responsible for this financial crisis?

 

[Tassidar]

Yes, to an extent. In the financial markets most senior positions involve contractual bonuses as a part of the remuneration package. The financial world is built on bonuses actually and I read an article about the inflationary affects of bonus season in the square mile which is quite an interesting read. Bonuses in many other sectors are exactly that, a bonus. In the financial markets they form a part of someone's remuneration package and more often than not, determine whether one accepts a position at Goldman Sachs or Merril Lynch for example. They're a different kettle of fish in the financial markets which is difficult to comprehend for many people who have never been actively involved in the market.

Sure, bonuses a reward for taking a risk, and are therefore different to a salary, which generally involve little to no risk. They also create incentives. Hence the fact that a bonus is more appropriate as a pay structure than a salary.

If you agree with this, then you'll surely agree that in retrospect that reward was ill-founded. This then promotes the idea that it is unethical for the execs to accept the bonuses on the basis that they would be accepting a reward when clearly they had lost the company vast amounts of money, based on the risks that they had taken.

If they had earned a salary, I would agree that there is no responsibility to pay the money back. The nature of the bonus (involving risk) means that I feel it would be unethical of the execs in this case not to accept the downside risk, when they had for so long reaped the benefits of the upside risk.

 

[DJ...]

OK, there is one point that I will concede and it's actually quite a big point. AIG were insuring against the downside of CDOs through CDSs, yet they also did so irresponsibly as they didn't have the assets to back up such insurance. That is irresponsible to an extent however it is the way that business operates. It's much the same as criminals going on a rampage and breaking into everyone's homes on the exact same day and at the exact same time, then the insurance company stating that they do not have the capital to pay out claims by everyone and sundry. However this is to an extent understandable as there is no way that the insurance company can logically forecast such a risk taking place, and therefore do not require capital of such a magnitude. It's just not plausible for them to hold such vast amounts of capital in the first place. So there's two sides to that angle...

 

[killadoob]

Do you have any idea how giving a failing company billions does not make to much sense, does the company have the capability of sustaining itself or will they need to give in another few billion now and then to sustain the company? it would be easy to keep bailing companies out and now how many companies will seek a bail out or not care about going to the wall thinking they will get a huge bail out?

Why would AIG be responsible for the financial crysis or why would someone think that?

 

[DJ...]

Sure, bonuses a reward for taking a risk, and are therefore different to a salary, which generally involve little to no risk. They also create incentives. Hence the fact that a bonus is more appropriate as a pay structure than a salary.

If you agree with this, then you'll surely agree that in retrospect that reward was ill-founded. This then promotes the idea that it is unethical for the execs to accept the bonuses on the basis that they would be accepting a reward when clearly they had lost the company vast amounts of money, based on the risks that they had taken.

If they had earned a salary, I would agree that there is no responsibility to pay the money back. The nature of the bonus (involving risk) means that I feel it would be unethical of the execs in this case not to accept the downside risk, when they had for so long reaped the benefits of the upside risk.

Agreed, but again only to an extent. As I posted earlier, it was AIGFP (just one business unit of AIG) which caused most of this mess for them. I'd fathom a guess that they have up to a hundred if not more than a hundred Magaging Directors across various business units. I agree that those responsible for the loss making business units deserve nothing, and that seems to be reflected by the rather minimal amount being paid in the way of bonuses in relation to the size of the company. I reckon this was provisioned for in their remuneration package already. Those not responsible at all though most certainly deserve their contractual bonuses/incentives - don't you think that's only fair? Especially if they expect to retain those employees...