Sunday, March 15, 2009

A.I.G. Planning Huge Bonuses After $170 Billion Bailout

This simply defies belief:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.
If the lawyers are correct, and there is a contractual obligation for these bonuses to be paid, then one has to wonder what success these bonuses are being given to reward, especially as AIG was so badly mismanaged that it required more than $170 billion in bailout money.

In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.

I wonder how many of these people could walk out the door in a huff and hope to walk into a similarly high paying job in the middle of the present financial crisis? That argument makes simply no sense to me at all.

Lets be clear about what's happening here, they are taking $165 million of everyone's money and giving it directly to some of the richest people in the country. And they are doing so in the middle of one of the worst financial crisis the world had ever seen.

I'm sorry, but that's just moronic. Even if they are legally entitled to the money one would hope that a modicum of, if not decency, then simple common sense would tell them that it would be wiser to let it be known that they were not going to accept a bonus at this time.
The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street.
And if they come back for further funding will they see any correlation between them taking bonuses and the public reticence to bail them out more?

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5 comments:

Steel Phoenix said...

Don't expect the whole system and human nature to just change out of good will. The answers were simple:
Let them fall.
Nationalize them.

Either one of those would be far superior than just throwing money at them and watching it vanish.

Pro said...

This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the "average joes" taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:

http://www.butasforme.com/2009/02/25/alert-enterprise-rent-a-car-may-have-fired-employees-as-fake-evidence-when-lobbing-for-bailout-money/

Kel said...

SP, I am with you on this, we should simply nationalise them, as this present halfway house - where they reward themselves as private enterprises with public funding - is simply obscene.

Pro, It is sick. And thanks for the link to the Enterprise story, I was unaware of that.

Life Insurance Canada said...

The problem is, management had great power and created legal tools for such bonuses. If you blockade these bonuses, they can sue the company and get even more. But I (want to) believe these time will start revolution in management-owners relationship structure. It worked in good times, but in time of crisis managers are trying just to take as much as possible and run. And it's not only about the money - these people are systematically destroying reputation of AIG, which is (ehm, was...) worth billions and can't be restored sooner than in some decades.
Luckily, as a Toronto life insurance broker I don't have to explain it to my clients, because Canadian branch of AIG was sold. But I think my US colleagues have bad times...
Take care
Lorne

Kel said...

It worked in good times, but in time of crisis managers are trying just to take as much as possible and run.

That's true, Lorne. And it says something about the confidence they have in the long term future of the business if that is their attitude.