Congress is rushing to respond to the widespread public outrage over the $160 million in bonuses paid to American International Group (AIG) executives with taxpayer money. The most popular idea is to tax the bonuses, but such a retroactive tax would raise very serious legal questions. I discussed this issue on Countdown in this segment.
New York Attorney General Andrew Cuomo has revealed that AIG paid bonuses of $1 million or more to 73 employees, including 11 who no longer work for the company. President Obama and members of Congress have expressed outrage even though they crafted the legislation that allowed for this money to be given in bonuses.
The AIG contracts were written in March 2008, so the obligations were known to AIG when it was negotiating with Congress and it does not seem that, at the time that the contracts were signed, AIG could make good on these obligations. Under the contracts, these executives were guaranteed 100 percent of their 2007 pay for 2008, regardless of their performance. It seems precisely the type of policy that led to this company imploding — performance of the executive is irrelevant to their compensation.
Yet, Congress was dealing with a group of executives that had shown little business judgment and considerable greed in their destruction of their own company. Yet, Congress saw fit to give these same people hundreds of billions of dollars and then express shock that they acted precisely in the same way with the public funds. It is akin to giving money to the Pirates of the Caribbean and then express surprise that they blew the money on women and grog. After these are men who toast ” “Take whatever you can and give nothing back” (To avoid any understandable confusion, there was the Pirates not the AIG executives).
The bonuses made be defended on a provision expressly put into the $787 billion stimulus last month by Sen. Christopher Dodd who provided for “exception for contractually obligated bonuses agreed on before Feb. 11, 2009.” Dodd has been attacked because he is reportedly to have been the largest recipient of donations from AIG executives. I do not believe that Dodd’s contributions from AIG officials influenced him, though once again I have serious problems with members receiving contributions from regulated parties and firms. However, the more intriguing issue is the question of who is to blame for the inclusion of this language. Glenn Greenwald, who is a well-respected and insightful columnist, has come to Dodd’s defense. He writes:
That is simply not what happened. What actually happened is the opposite. It was Dodd who did everything possible — including writing and advocating for an amendment — which would have applied the limitations on executive compensation to all bailout-receiving firms, including AIG, and applied it to all future bonus payments without regard to when those payments were promised. But it was Tim Geithner and Larry Summers who openly criticized Dodd’s proposal at the time and insisted that those limitations should apply only to future compensation contracts, not ones that already existed. The exemption for already existing compensation agreements — the exact provision that is now protecting the AIG bonus payments — was inserted at the White House’s insistence and over Dodd’s objections. But now that a political scandal has erupted over these payments, the White House is trying to deflect blame from itself and heap it all on Chris Dodd by claiming that it was Dodd who was responsible for that exemption.
For the full column, click here. Glenn bases his research on Jane Hamsher’s column at Firedoglake, another highly trusted source. I trust both views on such matters and I certainly accept their account that Dodd did not suggest this change. There remains the question of why Dodd and his colleagues allowed the language to be included. They are, after all, the people who pushed through and passed the legislation. Nevertheless, the blame cannot be placed entirely at the feet of Dodd who appeared to pushed back against the change by the Administration. If there is blame, it is the decision not to fight more aggressively in opposing the bill without sufficient limitations. The story does demand answers from the Obama Administration.
The amendment made it into the final version of the bill, and is law.
I, however, do not see how Congress can make this cat walk backwards with a simple tax bill. This smacks of a bill of attainder if directly at one or two companies. There may be a question of fraud in the drafting of these contracts. Moreover, there is considerable questions raised by bonuses paid by Merrill Lynch. In a letter to Rep. Barney Frank, Cuomo writes:
I was taken to task for saying on Countdown that Dodd was responsible for the amendment. However, Dodd has now admitted responsibility for the amendment.
On October 29,2008, we asked Merrill Lynch to detail, among other things, their plans
for executive bonuses for 2008, including the size ofthe bonus pool and the criteria they planned
to use in detennining what, if any, bonuses were appropriate for their top executives. On
November 5, 2008, the Board responded and stated that any bonuses would be based upon a
combination of perfonnance and retention needs. However, Merrill did not provide my Office
with any details as to the bonus pool, claiming that such details had not been detennined.
Rather, in a surprising fit of corporate irresponsibility, it appears that, instead of
disclosing their bonus plans in a transparent way as requested by my Office, Merrill Lynch
secretly moved up the planned date to allocate bonuses and then richly rewarded their failed
executives. Merrill Lynch had never before awarded bonuses at such an early date and this
timetable allowed Merrill to dole out huge bonuses ahead of their awful fourth quarter earnings
announcement and before the planned takeover of Merrill by Bank of America.
Merrill Lynch’s decision to secretly and prematurely award approximately $3.6 billion in
bonuses, and Bank of America’s apparent complicity in it, raise serious and disturbing questions.
The AIG bonuses are equally staggering. The top individual bonus was more than $6.4 million, and the top seven received more than $4 million each.
For the full story, click here
Thank you for standing for the rule of law. I’m quite certain there is a legal way to stop or retrieve these bonuses. I think Congress may be picking the way that leads to the most stalling so their BFFs will get the money in the end. Neither Congress nor the president has gotten the memo on “we’re a country of laws”. It’s significant that each branch would like to keep violating our laws to accomplish their aims. This should be called out in no uncertain terms.
GOP leads on Rasmussen’s generic ballot for first time in years
The latest Rasmussen Reports national telephone survey found that 41% said they would vote for their district’s Republican candidate while 39% would choose the Democrat.
Investors (Gary is that you?) now favor Republicans by a 46% to 36% margin, while non-investors would vote Democratic by a 45% to 33% margin.
http://washingtonindependent.com/30539/rasmussen-the-only-poll-that-matters
Mr. Turley, please do us the favor of explaining how 1) Chris Dodd put the bonus exemption for AIG in the Stimulus Bill and 2) Barack Obama signed the Stimulus Bill yet 3) each of them goes on TV and expresses phony shock about them.
Also, could you tell me if it was Constitutional for AIG to get 170 billion in bailout and then for them to turn around and use 60 BILLION of it to pay off their obligations to FOREIGN BANKS?
How about them using bailout money to turn around and then pay off Goldman Sachs, etc at 100% on the dollar?
We have 535 thieves in Washington DC…and not even Jonathan Turley will call them out…since the DEMOCRATS are in charge of the thievery.
I am looking forward to Prof. Turley’s comments this evening, but I believe that the legislation would be an unconstitutional taking. It is also bad policy. Despite the populist furor over the bonuses, a quick and dirty law to satisfy the outraged masses smacks a bit of festivities in the Roman Coliseum. It is also a rather cynical way for Congress to try to cover its a** after the fact.
Wow….
An executive who helps run a company into the ground is a “talent” worth a few million??
Why didn’t I recieve an “A” in my home economics class back in high school when I burned my cake? After all, I did make the cake. So what if it burned? I think I should have gotten an “A” instead of a “B”. Where were those people when I needed them to justify why I deserved an “A”?
I say tax them 110%. The extra 10% is for being greedy little bastards
I too am looking forward to JT on KO tonight; but heads up Media Matters has a different take on that amendment by Senator Dodd.
http://mediamatters.org/items/200903170026?=h_top
FDL has another view:
Treasury Attempts to “Blame Dodd” for AIG Bonuses
I listened to the BBC World on this issue tonight. Their commentator pointed out that this is, in many ways, a distraction from the very large economic problems which are not being addressed. I see this as the Roman circus as well. While these bonuses should be taken back, legally, this can’t become a smoke screen to hide the inadequate response of our govt. to the economic crisis we face. (Paul Krugman, among others has stong words on this point.)
gary:
Quit screaming. It’s making us think you actually have something constructive or interesting to say.
Just to add another link in Dodd’s defense: http://www.salon.com/opinion/greenwald/2009/03/17/dodd/index.html
It seems like the Obama administration intended to let this fly and now that there’s a controversy, they need a scapegoat to take the fall to divert criticism away from themselves and are cooping the conservative noise machine to achieve just that. Dodd appears to be the unfortunate fall man.
gary,
You are truly swine before pearls. That’s some of the most pitiful trolling here yet. I’m betting you spell your last name “Filistine”.
Wouldn’t the “70 BILLION of American taxpayer money AIG floated to them” have come from the TARP funds given to AIG by the Bush administration?
Use of Direct Support to AIG from 9/16/08-12/31/08 (.pdf)
You know if you rearrange the letters in gary’s name you come up with ray-g. Seems fitting.
Gary, settle down. I can assure you that many of us that thought we were doing the right think by supporting Barack Obama last November are now admitting we made a huge mistake.
Do not take our slowness to come to publicly decry what this new administration has been pulling for the last 40 days as being unpatriotic. I can assure you that in millions of homes across America good solid citizens are coming to a realization that a mistake was made last November.
It is very hard for those of us that felt punished with 8 years of President Bush to come to the realization that there is a possibility a far worse President was just elected. One who was not truthful about who he was when he campaigned and one who continues the daily campaign when he is suppose to be leading.
We now have nations laughing at us. Our soldiers are in a war in Afganistan that this President has no intentions of winning, which makes him an immmoral man to send soldiers out to risk their lives in a war he has no intent on winning.
Gary, please calm down. We are rational. We realize a mistake was made in November. We will survive Barack Obama.
Nice trolling tactic that. Still won’t work.
It looks like the Troll family has gone on steroids and the result is Gary. Jennifer, don’t take Gary seriously. By the way, the crisis that you are lamenting was started under Republican control and your suggestion that we will “survive Barack Obama” ignores the facts of who he ran against and what changes have already been made and the improvements that have been made. I would prefer if AIG was in receivership, but until that happens we need to do what is necessary to save as much money as possible. If torture is legal, a little retroactive tax must be ok.(only kidding, Professor)
Jennifer Grant:
Your loyalty and perseverance are extraordinary but about in keeping with the typical semi-Republican, semi-Democrat mentality. You just want it right, and you want it right now — and not too hot, and not too cold. My, how juvenile. Anyone who can’t see we’re weaning ourselves from the Big Bush DeBacle isn’t looking, and if you expect perfection you’d best look in your Church–oh sorry, that won’t work either. Tsking gary won’t make you feel any better either, because after all you want what you want and you want it now. Please quit stamping your feet and holding your breath it makes you look purplish red! The adults are trying to hear what our first adult President in quite some time has to say. We may indeed “survive” Obama, but our immature and cowardly fellow citizens racing about like Chicken Little, or George Bush & the neocons post 9-11, well I’m not so sure. Grow up and quit whining.
It’s a common troll tactic to come on very strong, almost insane (like our dearly deleted gary) and then have someone clothed with the “appearance” of reasonableness – usually themselves – come along and express agreement in sentiment but moderate the tone. When the second is called out (usually for weak logics or blatant untruths), they’ll escalate to traditional trolling again such as ad hominem nonsense and unattributed Newspeak, er, GOP talking points, um, “information”. It’s a propaganda technique I like to call “generating false consensus”. Tactically it gives the illusion of numbers. It can have the secondary effect of appealing to the lunatic fringe the Right is so dependent upon. Fortunately most paid trolls – and it’s usually the pros who adopt this tactic – aren’t smart enough to make it work very well. I’d tell you how you went wrong in execution, but I don’t help the enemy during wartime unlike your boys Bush and Cheney.
But selecting mespo as a target? tsk tsk tsk
How very out of your league you are. Enjoy your pending smack down, oh trollish one. I know I will. I now return you to your regularly scheduled trolling, which will likely contain some kind of personal attack, begging to prove a negative or some other equally weak crap.
Jennifer:
“I may make a point of nightly “From the Obama SCHMARTS Department” updates just for you.”
*****************
It is the wise man who accepts adulation from even the most foolish of devotees. Proving my point with your words is incredibly thoughtful of you. Update away!
Buddha:
Are these trolls all this easy to unmask as you have simply and completely done?
mespo,
More often than not. Occasionally they’ll mount an actual challenge tactically speaking, but that’s few and far between. Most of them really are amateurs with the tool set they are attempting to use. They are typists, not true propagandists. Often they lack the psychological understanding and/or the writing skills required to make an effective psy-op.
Buddha:
“They are typists, not true propagandists.”
***********
I like that line– reminiscent of Tom Cruise in “All the Right Moves,” on another right-wing maniac, his coach,”He’s just a typing teacher!”
Jennifer, Jennifer. My cat is smarter than George Bush, despite the fact that my cat is recently deceased.
There is absolutely something very wrong going on here (and I don’t just mean the bonus issue). First of all, the actions of our govt. under both bush and obama do makes sense, in the same way that the no-bid contracts for Iraq made “sense”. They don’t make any sense in achieveing financial stability but that’s not what they are about. What the no-bid contracts and this bailout have in common is crony capitalism. The favored few reap the benefits. Soldiers in the battlefield can go without food, clothing or safe drinking water. They may be electrocuted. So? The safety and wellbeing of our soldiers was never the point of those contracts. The contracts were to enrich the favored friends of Washington’s highest ranking elites. Just so, the bailout money and I will add, the nearly completely hidden 2 trillion (that we know of) being shoveled at favored companies by the Fed, isn’t about insuring the health of our banking system. It’s not about freeing up credit to small business and staving off financial ruin for the vast majority of our population. Again, the point is windfall profits to the favored friends of Washington and Wall Street elites. It’s called constituient service. So it all does makes “sense” in a very bad way.
Secondly, we have to watch out. Every person not included in the crony capitalist group has a real right to be enraged at these bonuses and all the other financial malfesance going on. What we need to look out for is having our attention focused only on one thing–the ill-gotten bonuses. In the meantime, we are drawn away from looking at the big picture of just what our govt. has been and is up to.
Glenn Greenwald has an excellent anaylsis of the blaming of Chris Dodd for this mess, when in fact, it was Mr. geithner and the administration who knew exactly what was going on and failed to stop it/encouraged it. It makes great theater to direct attention from the guilty by pretending one didn’t know, what one did know, and palming it off on Chris Dodd. Remember geithner and summers are linked with the companies who are getting the most money from taxpayers. They are linked to them at the highest level.
To me, it is vital that we step back and access the situation as a big picture. I think the money may be gotten back under the fraud that JT mentioned. B. Frank is pursuing this avenue. But we need to keep our eyes open to the rest of what is happening, or we risk being manipulated by our govt. into seeing just what they’d like us to see and not a thing more.
202-456-1111,
That is the White house phone number. I called yesterday and registered my displeasure with both Mr. Summers and Geithner on their bonus positions and comments. I also called for Mr. Obama to get rid of both of them. did it civilly and supplied reasons.
Also identified myself as a supporter of the President, which I am. If the AIG bonuses piss you off, do something.
However, didn’t mention it in my phone call but a different idea has been percolating in my head about these “retention” bonuses. This has been reinforced by Keith’s mention last night that 7 or 8 of the bonus receivers have left the company. My belief is that these bonuses were paid as “hush money,” rather than for the poor services rendered. There might well have been unlawful dealings going on at AIG, with these traders ordered by those at the top to carry them out. Foreknowledge of the fact that the securities/derivatives in question were dubious and overvalued, yet potentially profitable in the short term, led to decisions by greedy top executives to maximize profit while receiving assurance from certain Bush officials, on a sub rosa basis, that they would be bailed out if things collapsed.
It’s like the old question of whether you would go to jail for two years for $500 million as did Michael Milken, who is now hailed as a philanthropist. I suspect, with no proof but my instinct, that the whole point of these payouts is being missed, as we all feel outrage for their existence.
Mike:
interesting thought (about the hush money) and unfortunately probably some truth in it. Paulson sure was in a hot sweat to give that money away at least initialy.
The whole thing is messed up, I think you are going to have your wish on Turbo Tax Timmy G. sooner rather than later.
Last night, I posted on the ‘Ultimate Bailout’ thread,
(even before JT on KO) re the possibility of citing poor prior performance and fraud as invalidation of the contracts.
The idea that this was THE way to control and recover from some
of the hemorrhaging at AIG, was discussed at length during hearings on Capitol Hill last October. Since then, further investigation has uncovered new allegations of fraud.
To me, Larry Summers sounded ridiculous, but then it’s not the first time
http://newsgroups.derkeiler.com/Archive/Misc/misc.invest.stocks/2008-10/msg01416.html
WSJ: Documents Show AIG Knew Of Problems With Valuations
Documents Show AIG Knew Of Problems With Valuations
By LIAM PLEVEN and AMIR EFRATI
Top officials at American International Group Inc. knew of potential
problems in valuing derivative contracts long before these risky
transactions caused the insurer’s shareholders severe pain, according
to documents released by congressional investigators.
The disclosures come as prospects dimmed this past week for AIG’s
efforts to quickly sell assets to repay its bulging debt to the
government. The derivative-contract problems would have driven AIG
into bankruptcy; in the past month, the government has made available
to AIG nearly $123 billion in a rescue plan.
A federal criminal probe under way since earlier this year is also
looking at how candid company executives were with investors at a
December 2007 investor conference and whether executives at AIG’s
financial-products unit, which sold derivatives contracts, misled
AIG’s outside auditor last fall.
[AIG former CEOs photo] UPI Photo/Landov
***
Remember this one, from LAST Fall…????
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3225213/AIG-trail-leads-to-London-casino.html
…” On April 1 Cassano was nudged into retirement. In keeping with the bubble-time executive compensation practises established in the City and on Wall Street, however, the blow was softened. Cassano was allowed to continue using the company flat behind Harrods. He was given a consultancy and, according to former AIG chief executive Martin Sullivan, testifying to the US Congress, helped AIG unwind the rapidly devaluing CDSs held by AIG Financial Products. Cassano’s pay for this work was $1m a month for nine months.
“The question,” said Henry Waxman, the US Congressman chairing an October 7 Washington hearing into AIG, “was whether AIG’s executive compensation practices were fair and appropriate.”
None of this would seem to be of particular concern to the British public beyond AIG’s role generally in the world financial meltdown. ..”
Jill:
“There is absolutely something very wrong going on here (and I don’t just mean the bonus issue). First of all, the actions of our govt. under both bush and Obama do makes sense, in the same way that the no-bid contracts for Iraq made “sense”. They don’t make any sense in achieving financial stability but that’s not what they are about. What the no-bid contracts and this bailout have in common is crony capitalism.”
************
About as big a revelation as the swallows returning to that Spanish-style mission in Capistrano. A little basic political science may help here: There are no perfect forms of government, much less perfect democracies which are particularly susceptible to financial pressure given the need of its leaders to be re-elected, which takes what else–money. Those with money wield enormous power over the elected officials. The best we without said funds can hope for is a government which honors the law, and practices some form of ethics, bearing in mind that the rule of political survival always trumps ethics. That said, Obama has made significant strides in restoring the rule of law, appointing competent people, and returning this Country back to the value system we grew up with. About the worst criticism many can muster is that he needs a personal shopper for gift-giving, and he made a few gaffs at the microphone. Oh, horror or horrors…
That his restoration does not meet your expectations or your time line is really not the point. The point is that he is reversing the totalitarian bent and government paralysis and atrophy caused by the previous Administration,and is doing so effectively given the myriad of problems greeting him when he hit the door. That he has done so and maintained an approval rating in the high 60′s should tell you something about the man and the American people who understand that you cannot rebuild Washington in a day, nor reverse the course of a cancer on the body politic by fiat.
I suggest you consult Theodore Roosevelt’s famous speech at the Sorbonne concerning the value of critics as compared to the value of the man in the arena attempting to the slay the dragons that will come next for you shoudl he fail. In essence he says, don’t insult his efforts by complaining that you or yours could do it better, faster, or more ethically.
Mike S.,
I heard a report that AIG was looking financially suspicious since at least 2007 (shades of Madoff). I’ll try to find that and post it. I think there is very likely a good deal of truth to your hush money idea.
Bravissimo, mespo. Well said, Counselor!
p.s. a leprechaun left you some Hash recipes under a lucky clover!
“The point is that he is reversing the totalitarian bent…”
—————————————————————–
mespo,
There’s way too much factual evidence that you would have to ignore to make that statement. Right now that reversal remains in the realm of propaganda, not reality. I don’t know, if for example, you got to hear JT on the Gitmo detainees. He talked about how they aren’t called enemy combatants, but they still don’t have legal rights (to name one).
Don’t shoot the messeger. There is no reversal of presidential power, spying on our citizens, lack of rights for detainees etc.. It would be fair to argue all this would take time, if and only if, obama had not made affirmative actions on these issues. It takes as much time to take the stance that agrees with bush as it does to reject bush’s rulings. He spent the time. He made the specific choices to uphold the bush positions. There is no reason to not hold him accountable for his own decisions.
Patty C:
As weird as it sounds I was going to ask you yesterday if you had any goof St. Paddy’s Day recipes. I was at a total loss for something and ended up with a bland Irish Stew with lamb. Not so good. I will find the gift of the leprechaun!
I just posted the ultimate New England Boiled Dinner recipe under a lucky Irish toadstool. As any one who’s ever had to wear pink underwear can attest, cook the beets separately…
In Re: Bills of Attainder.
Let’s say the Court finds that the AIG legislation (1) is non-punitive, (2) focused on a legitimate class, (3) furthers non-punitive legislative purposes and (4) furthers a legitimate policy;
Then that would pass muster with the Bill of Attainder Clause; yes?
This just in…
http://www.latimes.com/news/nationworld/nation/la-na-aig-legal20-2009mar20,1,1306210.story
One more thing,
Hearing the words “ex post facto” within the context of a civil matter is quickly becoming like nails on a blackboard.