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AIG Executive Bonus Scandal

 
 
Reply Wed 18 Mar, 2009 08:57 am
The American people are operating under the concept of "shared sacrifice" in our efforts to mend the economy. Yet, persons who are the most blameworthy for breaking the economy want to be rewarded with millions of dollars in bonuses. It's an outrage to the American people when AIG executives remain in charge and continue to stuff their own pockets with millions of dollars. Why doesn't the concept of "shared sacrifice" apply to them?

It has been suggested, for corporations that are surviving due to taxpayer bailouts, executive bonuses should be taxed at a rate of 100 percent. What do you think about this suggestion? What else would you suggest?
 
engineer
 
  2  
Reply Wed 18 Mar, 2009 11:17 am
@Debra Law,
What I find most concerning about this situation is how politicians are jumping on a bandwagon they know nothing about. Are these "bonuses" just part of a pay package? I just got a "bonus" at work (not millions), but it is really just part of my annual salary. Approximately 10% of my pay is "variable" meaning if the company has a good year and if I hit my goals, I get more, if not I get less. Is this what is going on at AIG? I don't know because the contracts in question are not public.

IMO, if the contracts in question were signed in good faith, then they should stand. If they were written in anticipation of AIG's downfall to protect those who would otherwise be accountable, they might be open to review.
Lightwizard
 
  2  
Reply Wed 18 Mar, 2009 11:45 am
AIG: DESPITE SUPER-BONUSES 11 MANAGERS RESIGN


(AGI) - New York, 17 Mar. - 11 AIG executives have left the companies despite millions in bonuses given to them so they would remain working with the company, said the chief prosecutor of New York, Andrew Cuomo. The payment of 165 million dollars in bonuses to satisfy managers in the financial services departments of AIG, the people who were responsible for the subprime transactions that brought the company to the brink of collapsing, provoked indignation in the political world and in public opinion in the United States. In the past hours the insurance company is meeting with the Banking Commission of the Senate, where the AIG case is, as predicted, the center of the debate. Some senators have proposed taxing almost the entire bonus to recover the money for the government.
Debra Law
 
  1  
Reply Wed 18 Mar, 2009 12:26 pm
@engineer,
engineer wrote:
. . . IMO, if the contracts in question were signed in good faith, then they should stand. If they were written in anticipation of AIG's downfall to protect those who would otherwise be accountable, they might be open to review.


It is my understanding, based on reports and live coverage of the congressional hearing that is now occurring, that AIG was aware of its precarious financial situation and ultimate downfall at the time the contracts were entered, and the contracts explicitly provided that the bonuses would be paid regardless of company losses. (If I remember correctly, Barney Frank read that provision out loud at the beginning of the hearing.) The CEO calls these bonuses "retention payments" even though the executive who obtains the money is not required to stay. Many executives who received these alleged retention payments left AIG before the retention payment become due.

AIG executives obviously foresaw that huge losses were on the horizon. They obviously foresaw that that AIG was "too big" to fail without taking the entire economy down with it. AIG obviously foresaw that the American taxpayers would be on the hook for these bonuses.

During the hearing thus far, it was pointed out to the AIG CEO that it is a routine practice for the industry, even if they owe money on contracts, to require the contract claim to be litigated. After all, AIG could defend against paying the bonuses by alleging that but for the government bail out, the company would have gone bankrupt and the bankruptcy court would have voided the contracts. Accordingly, AIG was under no contractual obligation to use taxpayer money to pay bonuses to the very executives whose lousy performance made the bail-out necessary.

The AIG CEO's testimony thus far is infuriating. He claimed that AIG honors the principle, to paraphrase, "when you owe people money, you pay it." That's an eyeroller given the industry history. He claimed that every action he asks the question, will this action help or hurt AIG's ability to pay back the taxpayer. In his opinion, paying the bonuses (or retention payments) would help AIG to pay back the taxpayer. The CEO, however, reneged on his promise to discuss this matter with the committee chairman BEFORE he made the decision. The CEO was aware that the taxpayers would be extremely angry, but claimed that is decision to pay the money on Saturday evening without prior discussions with Congress was not designed to be "under the cover of darkness."

The CEO was informed that his decision to make these outrageous bonus payments makes it extremely difficult for AIG to come back to the taxpayer and ask for more money. The CEO basically said, so what? He explained, if the taxpayer lets AIG go under, the taxpayer places the 170 Billion already invested in AIG at risk and the entire welfare of the global economy will go down with AIG. In other words, the CEO determined that congressional and taxpayer anger over outrageous executive bonus payments had no consequences as far as AIG is concerned because AIG is too big to fail. That is arrogance. The executives will stuff their pockets with millions of taxpayer dollars just because they can--so what? It doesn't even matter that anonymous AIG executives are getting death threats from angry Americans--because they can use those threats to keep their names confidential. The greedy bastards believe they are in a win-win situation.

Based on what I have heard thus far, I am strongly in favor of taxing these bonuses at a 100 percent rate.

0 Replies
 
Debra Law
 
  1  
Reply Wed 18 Mar, 2009 12:28 pm
@Lightwizard,
Lightwizard wrote:

AIG: DESPITE SUPER-BONUSES 11 MANAGERS RESIGN


(AGI) - New York, 17 Mar. - 11 AIG executives have left the companies despite millions in bonuses given to them so they would remain working with the company, said the chief prosecutor of New York, Andrew Cuomo. The payment of 165 million dollars in bonuses to satisfy managers in the financial services departments of AIG, the people who were responsible for the subprime transactions that brought the company to the brink of collapsing, provoked indignation in the political world and in public opinion in the United States. In the past hours the insurance company is meeting with the Banking Commission of the Senate, where the AIG case is, as predicted, the center of the debate. Some senators have proposed taxing almost the entire bonus to recover the money for the government.


I've been watching the live coverage of the hearing, and it just gets more and more infuriating.
0 Replies
 
Robert Gentel
 
  1  
Reply Wed 18 Mar, 2009 12:29 pm
@Debra Law,
Debra Law wrote:
It has been suggested, for corporations that are surviving due to taxpayer bailouts, executive bonuses should be taxed at a rate of 100 percent. What do you think about this suggestion? What else would you suggest?


I've read a couple of articles that suggest separately incorporating the division in question, and then negotiating to eliminate the bonuses or immediately put the newly incorporated company into bankruptcy.

I don't want to see the sanctity of contracts compromised, and I don't really like the idea of this kind of retributive taxation, but I really don't think those are the only options. With nearly an 80% stake in AIG, the public should have a lot more legal options than that.
0 Replies
 
Thomas
 
  3  
Reply Wed 18 Mar, 2009 12:59 pm
@Debra Law,
Debra Law wrote:
It has been suggested, for corporations that are surviving due to taxpayer bailouts, executive bonuses should be taxed at a rate of 100 percent. What do you think about this suggestion? What else would you suggest?

I believe that bailing out corporations and confiscating their executives' bonuses is a half-measure, and discourages these executives from accepting federal money even if it's in the public interest that their companies take it.

The alternative I would suggest is that the Federal government buy up the corporations' stocks instead. That way, it can deny the executives as many bonus payments as it wants. And what's more, it can fire the executives and bring in new, hopefully better management.

I don't understand why the Obama administration is so timid about temporarily nationalizing the failing banks; the Swedes did it with great success in the nineties.
dyslexia
 
  1  
Reply Wed 18 Mar, 2009 01:06 pm
@Thomas,
Quote:
I don't understand why the Obama administration is so timid about temporarily nationalizing the failing banks; the Swedes did it with great success in the nineties.

because the Rush dittoheads would cry Socialism even louder.
Thomas
 
  3  
Reply Wed 18 Mar, 2009 01:16 pm
@dyslexia,
Let them! The dittoheads aren't running the country anymore. Their candidate campaigned on the dittohead platform, and lost. Obama campaigned for change, and won. Doesn't that justify some, uh, change of economic policy?

[rant]

I like Obama. He's intelligent, his heart is in the right place, and he cares. But he seems to have this fixed idea that the most important thing this country needs to heal is a centrist in the White House. And his idea of centrism apparently is that his policies always split the difference between what the Rush dittoheads want and what actually makes sense. Stop it with the centrism already. It's infuriating!

[/rant]
mysteryman
 
  1  
Reply Wed 18 Mar, 2009 04:52 pm
As I understand it, the Senate knew about these contracts and the bonuses in question BEFORE they gave AIG the money.

It was Chris Dodd, the dem Senator from CT, that put a provision in the bill to allow AIG to pay the bonuses.
So for the senate to cry "foul" now is a little silly, since they knew and approved of the bonuses beforehand.
Debra Law
 
  1  
Reply Wed 18 Mar, 2009 05:29 pm
@mysteryman,
mysteryman wrote:

As I understand it, the Senate knew about these contracts and the bonuses in question BEFORE they gave AIG the money.

It was Chris Dodd, the dem Senator from CT, that put a provision in the bill to allow AIG to pay the bonuses.
So for the senate to cry "foul" now is a little silly, since they knew and approved of the bonuses beforehand.


Dodd is being unfairly blamed. When the bail out was being structured, Dodd advocated limitations on executive compensation including future bonus payments regardless of when those payments were promised. During the debate, many others -- including the Obama administration -- opposed Dodd's proposed limitation because it might harm the recovery efforts. Because there wasn't enough support, Dodd was forced to remove his proposed limitations from the bail-out legislation.

As Thomas noted, I believe the Obama administration took a centrist position with respect to executive compensation. In doing so, the administration caved to the crowd of people who were screaming that the caps on executive salary were too tough. These are the free market capitalists who did not believe that the government had a right to interfere with compensation contracts--unless the it was a UNION contract (then it was okay). Obama noted today that those same people who didn't want limitations on executive compensation are now claiming outrage over the AIG bonuses. (The administration should not be shocked by the hypocrisy of the right wingers, it should have been anticipated!)

Like Thomas, I wish Obama would stop trying to pacify those on the right and simply roll up his sleeves and get the work done regardless of their partisan objections. In my opinion, his desire to lead from the middle allows the obstructionists to circumvent our economic recovery.
0 Replies
 
Debra Law
 
  1  
Reply Wed 18 Mar, 2009 05:35 pm
@Thomas,
Thomas wrote:

Let them! The dittoheads aren't running the country anymore. Their candidate campaigned on the dittohead platform, and lost. Obama campaigned for change, and won. Doesn't that justify some, uh, change of economic policy?

[rant]

I like Obama. He's intelligent, his heart is in the right place, and he cares. But he seems to have this fixed idea that the most important thing this country needs to heal is a centrist in the White House. And his idea of centrism apparently is that his policies always split the difference between what the Rush dittoheads want and what actually makes sense. Stop it with the centrism already. It's infuriating!

[/rant]


I also like Obama. But I am also frustrated by his desire to lead from the middle. Everytime he tries to accommodate the obstructionists, it's going to come back to bite him in the butt. He won the election and he doesn't have to kowtow to their demands.
0 Replies
 
 

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