A.I.G, which has already received $170b in bonus money and is 80% controlled by the American people, just gave out $165m in bonuses. "The bonus plan covers 400 employees, and the bonuses range from as
little as $1,000 to as much as $6.5 million. Seven executives at the
financial products unit were entitled to receive more than $3 million
in bonuses."
A.I.G. says they were locked into giving these bonuses by contracts. Fine. Now the executives have to return that money. I want the names of those 400 employees. I want them publicly shamed.
Apt. 11d 
If you put my name of this list, I will happily accept the money.
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I wonder who is buying the argument that the bonuses were contractual. By any reasonable standard, AIG went bankrupt and the whole point of bankruptcy is that you can’t meet the obligations you’ve made.
This is the type of behavior that makes me doubt that the upper portion of the finance industry actually believes the bailout is necessary for the health of the overall economy (as opposed to their own particular company). They can’t expect to keep this up and have Congress support them. There just isn’t a plausible way to explain the bonuses to a constituent.
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The UK has an issue like this — the pension of the former boss of Royal Bank of Scotland. It is peanuts compared with this, it is genuinely contractual (unlike, as MH says, this one) and it looks very likely that he is not going to get it. (Harriet Harman, deputy prime minister, says “It isn’t going to happen”).
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I was thinking like you, Laura — let’s publish the names of the people getting these bonuses and see if they’re still insistent on receiving it.
This whole thing is totally going to end with a mass departure from finance anyway, as people who were focused on salary look for a more favorable environment. To worry about “losing the best and brightest” at AIG right now is really beside the point. Those with other options are leaving anyway. So we may as well save taxpayer money.
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Did this contracts we keep hearing about promise them bonuses if the company went bankrupt? Of course not!
The government should give them a choice: they can have their contracts, but we withdraw our money; our their contracts are null and void–just like their copmany was about to become!
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It might, I suppose, be a wage law issue: if the state law defines those bonuses as wages, then failure to pay might subject the corporation to triple damages (or some other fine).
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I also do think there’s a legal issue involved. But, exposure is a separate issue — there might be privacy laws preventing the outing of the individuals, but there might not. I’m always a bit wary of “outing.” I think it can be morally justified, and I think shunning (yes, I like that word, clearly) is completely acceptable. The problem is that outing can also result in physical threats and harassment. We may choose to cut the AIG people who accepted bonuses from polite society, but we don’t want them shot with high power rifles, or their houses or cars set on fire. Those things happen when names are released to the crazies.
According to the NYtimes, Obama has directed the treasury secretary to “explore all legal options” in trying to restrict the bonuses. I think, that at the very least, some of these folks should be considering whether they want the bonuses, or whether they want to continue working for the American taxpayer (of course, the guy getting the 6.5 m bonus might choose the bonus, but the guy getting 6K might choose otherwise).
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Sure, failure to pay wages might be a serious legal problem. But it would disappear if the company went bankrupt — and that’s what they were about to do!
Larry Summer can say “we can’t just void contarcts,” but the fact is that the entire company would be void if we had not stepped in. Maybe we should have been more clever when we stepped in — saying specifically, we will provide bailout money if, and only if, these contracrts are changed. Gee, if you are an AIG executive, which dio you want: your contract and a bankrupt company or your job under new terms?
Since AIG is obviously a money pit, I imagine we’ll still have the chance to condition future money on this kind of change. Hey, if they love their contracts so much, let’s let them fail!
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There’s a little link to this post on the bottom of this blog post on the NYT. So vent away. People are reading.
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The whole thing really pisses me off. Thousands of people are losing their jobs and some guy (why am I assuming it’s a guy? Interesting.) who helped create the mess in the first place is getting several million in bonus money. Ugh!
In the financial industry, are bonuses usually contractual? I used to work in sales and we only got bonuses when not just our sales but the overall company’s sales were good. It would seem like the financial industry should follow a similar policy. I mean does it make sense to pay bonuses when you’re about to go under?
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I feel the same way as Laura. I just want them publicly embarrassed so no one hires them ever again for being so greedy.
I totally don’t buy the “best and brightest”. Maybe we should hire some Bear Sterns people or some of the MBAs coming out now. There are so many people in finance out of work…surely some will work for a regular salary and have pride in turning a company around.
I totally think the government can get out of this and I’m starting to be angry with Geitner and Summers for being so clearly in the pocket of this company and its shareholders and the banks. They are way too close to this system and have benefitted from it. Its not enough to say you are angry. Look for fraud. do something.
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“Best and the brightest.” Ha. Obviously not! And what are these geniuses going to do, take their marbles and get a job elsewhere, like at one of the investment houses that went belly up?
They should thank their lucky stars that they are employed and that we, the taxpayers, bailed them out. If they are really so bright, they should also forego any “bonus,” given that they obviously do not deserve it.
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It was amusing to see Summers’ argue for the sanctity of contracts on the Sunday morning shows, seeing as he’s part of an administration that enthusiastically supports mortgage cramdowns.
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“And what are these geniuses going to do, take their marbles and get a job elsewhere, like at one of the investment houses that went belly up?”
If they are really bright, they have enough cash socked away already to retire at 45 or 50, leave NYC, and live happily ever after.
I’m puzzled why anyone is surprised that the bailouts are going as they are. This is what any sensible person would have expected–waste and fraud on an epic scale.
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The argument that AIG is bound by pre-existing contracts to pay bonuses is not cut and dried.
I’m a business and commercial transactions attorney, and I have worked with thousands of contracts, including executive compensation contracts. Every professionally drafted corporate contract has something called a “force majeure” clause (sometimes called an ‘Acts of God’ clause). It provides that in a number of exceptional situations, the parties to the contract won’t have to perform, because they can’t perform.
Here’s an example of force majeure language:
“Neither party shall be liable in damages or have the right to terminate this Agreement for any non-performance of this Agreement, if such delay or default is caused by conditions beyond control, including but not limited to acts of God, government actions or restrictions, strikes or labor difficulties, acts of war, insurrections, and/or any other cause beyond the reasonable control of the party whose performance is affected (including mechanical, electronic, or communications failure).”
Taking bailout money from the government in an economic crisis is certainly an exceptional situation which could qualify as an “act of God” to excuse AIG from paying its employees according to signed contracts. The government would have to impose the condition on AIG, and AIG would then have to comply with the government requirement.
But, from what I’m reading in the New York TImes, it looks like at this point the bonuses were already paid by AIG on Friday the 13th.
If so, the legal question then becomes, Can AIG get the bonuses back?
That type of language in a contract would be much less common, but it’s possible, and is frequently seen in executive compensation agreements. (These are sometimes called compensation “clawbacks” and they are typically only triggered by illegal activity or theft from the company itself).
The fact that neither Geithner nor Summers pushed this issue legally leads me to conclude that there was another reason for leaving these in place.
Carol Shepherd, Attorney
Arborlaw PLC
Ann Arbor, MI
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I’m waiting for someone to make the painful argument that by not paying the bonuses of these producers that the solvency of this corporation will go ass up.
AIG is a big company and the fact remains that a ton of people brought in some serious money for them even in crappy times need to be rewarded.
It sucks.
But should they not be rewarded they will walk, and walk with their client lists, and the company will really be done. And there goes the government investment. I think a more palatable idea would be to convert the cash to the preferred stock with 2 year vesting. But that is never going to happen.
Had they failed would the economy be any worse off, potentially, we’ll never know. I’m guessing they owed so much to so many counter parties on their insurance of sub prime aka crap mortgages that they will never get over this without renegotiating in bankruptcy court.
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It is fairly typical in bankruptcy for a company to have the bankruptcy court approve its “retention plan.” The retention plan sets out the compensation necessary to keep executives and key personnel working for the company during the bankruptcy process — otherwise they would just leave. It’s typical for rentention plans to not only pay compensation, but multiples on top of compensation (eg, 150%), as an incentive to stay. That being said, this is not bankruptcy, and I’m not sure that these employees would qualify under a bankruptcy retention plan, since they are most likely not management.
WIth regard to clients and client lists — I disagree with you, @kip — those can’t just walk out the door. In a standard “key employee” agreement, it is clear that legally the clients are the client of the firm, not the professional. There will be a noncompete in place that will keep the employee from soliciting former clients, as a condition of severance benefits. Even in the absence of such language, most states have case law about “misappropriation of confidential information” that provides the same thing.
Carol Shepherd, Attorney
Arborlaw PLC
Ann Arbor, MI
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Amy P, since you have apparently done a careful examination of the situation, I’d be most interested in a detailed and documented description of the “waste and fraud on an epic scale” that you found.
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RCinProv,
I thought that is what the original post was about: the abuse of bailout funds.
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My favorite argument for paying the bonuses is ‘triple damages’ mentioned by Kai Jones. I don’t think you can sue anonymously, so I’d be curious to see how many people would actually be willing to sue.
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No, Amy. The post is about an objectionable $165 milion, which happens to be a very small percentage of the bailout.
So again, what is your evidence for the “epic scale” fraud and abuse that you alleged?
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Where I’m from, $165 million would count as “epic” fraud and abuse. We’ve gotten so used to talking about trillions of dollars that we’re forgetting exactly how big a million dollars really is. For $165 million, you could send 10,000 urban children to very nice private schools for a year.
Plus, it doesn’t matter how small a percentage it is. These abuses are like cockroaches–if you see one, there are a hundred you’re not seeing.
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Time to break out the Voltaire again:
“Dans ce pay-ci, il est bon de tuer de temps en temps un financier pour encourager les autres.”
Encouragement required.
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Waste and fraud hasn’t happened everywhere. My husband’s firm didn’t hand out the bonuses. Most people saw their take home money cut by 1/2. There are gov’t people sitting on the trading floor watching everything. I think that the A.I.G. mentality hasn’t changed yet.
The culture of these operations is that they work 80 hours a week. In exchange for having no lives, they expect big money. They have houses with mortgages and cars that need paying. They aren’t crooks, but they are gamblers. The same guys who are the executives at these money places are the same guys who have the stomach for high stake poker. And that is basically what the stock market is; it’s gambling.
A.I.G. executives screwed up big time. They are slow to understand that their world changed in the past six months.
The bailout had to happen and it should have happened earlier to save Lehmann.
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As I thought Amy, you made a claim about “epic fraud and abuse” than it really is just an epic exaggeration. The bonuses are objectionable in many ways; but I have not heard a single argument that they are fruadulent. So if that’s all you’ve got, please explain how these contractual arrangements constitute fraud. And you might want to consult a dictionary first.
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RCinProv,
OK–have it your way. TARP is a raging success, as is the stimulus program. As per the Obama budget predictions Greg Mankiw quotes, GDP is going to shrink just by 1.9% in 2009, but growth in 2010 will be 3.2%, growth in 2011 will be 4%, and growth in 2012 will be a smoking 4.6%. With those kind of figures, unemployment is going to go down to 5% by election time in Nov. 10, and the housing crisis will barely be a historical footnote by Nov. 2012 and Obama will win by a landslide. Oh, and I am Marie of Romania.
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No Amy, Putting words in my mouth is not an answer. YOU said that there was “epic fraud.” I asked you to document that. You you have not, and you obviously cannot. End of story.
You are an epic exaggerator.
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“I think that the A.I.G. mentality hasn’t changed yet.”
Yeah, I think this, too. They’re also the one’s who went on with their lavish retreat shortly after receiving the bailout. I think there were a number of firms who thought that the events in Fall 2008 were a temporary blip and that we’d be going back to business as usual.
I’ve read the discussions about how a company operates in bankruptcy, and understand the concept that you can’t just force everyone at the company into penury, because, then, anyone with options can leave (assuming that you can’t also compel them to work — which might be vaguely possible, assuming you have ways of keeping them around other than paying them, but those options are limited, since we passed the 13th amendment). The problem I see, with AIG’s argument, and that of the other financial companies, is that I’m unconvinced that there are “best and brightest” traders, and fear that there are only “lucky” traders, in which case we don’t loose much by letting them go.
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RC, I’m fairly certain that nobody in office will make the argument you make. From what I’ve read, it looks like officials in two administrations knew of the bonuses and did nothing substantive until the WP got into the act. (Go dead tree media.) Even under the most charitable assumptions, this is either a sign of very lax management or of a very, very poor reading of the public mood.
As for how following a contract constitutes fraud, if someone goes bankrupt and then pays 100% of what is owed to one class of creditors when they can’t pay any of the others they are committing fraud.
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MH,
AIG did not go through bankruptcy! We bailed them out. So your hypothetical is just that.
The contractual bonuses are objectionable on many grounds. Lax management, sure. Bad idea, absolutely. But they are not–repeat, not– fraud by any stretch of the imagination, expect Amy P’s, which apparently knows no bounds and is unconstrained by reality.
Let’s not exaggerate in the name of sound criticism. There hasn’t been a single thing said that indicates FRAUD.
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The funny thing is, in this case RCinProv may be right.
Fox Business is reporting that Chris Dodd inserted an amendment in the stimulus bill, allowing for these bonuses:
“While the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” — which exempts the very AIG bonuses Dodd and others are now seeking to tax.
The amendment made it into the final version of the bill, and is law. Separately, Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org.”
http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig—time/
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AIG would have gone under but for the bailout and is, according to every media report I’ve read, unlikely to be able to pay back any substantial portion of the bailout they have gotten. Given this, whoever gave authorized the bailout without blocking this sort of nonsense is guilty of a very big oversight. (For those keeping score, ‘whoever authorized the bailout’ is Bush, his administration’s high officials, Obama, his administration’s high officials, and a majority of two Congresses — i.e. nearly everybody important who wasn’t actually bailed-out.) So, technically this might be waste, not fraud, but this is not a distinction that is relevant in any meaningful political sense.
These bonuses (and the fact that AIG’s counter-parties got paid back at 100%) have come very close to ending any chance of future bailouts. On the plus side, these bonuses might be enough to put Congressional turn-over back to respectable levels again.
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As my husband pointed out, this is a classic case of “let’s you and him fight.” The Congress is to blame: they voted for the package, and it included these bonuses. Blaming the companies is misdirection to move the attention away from the guilty parties: get the taxpayers mad at the people receiving the bonuses, or the companies who originally contracted for the bonuses, instead of being frustrated and angry at our elected representatives who voted for the bill either knowing it contained these bonuses or who voted for it in a state of inexcusable ignorance.
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