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
One more thing,
Hearing the words “ex post facto” within the context of a civil matter is quickly becoming like nails on a blackboard.
This just in…
http://www.latimes.com/news/nationworld/nation/la-na-aig-legal20-2009mar20,1,1306210.story
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?
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… 😉
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!
“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.
Bravissimo, mespo. Well said, Counselor!
p.s. a leprechaun left you some Hash recipes under a lucky clover!
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.
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.
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. ..”
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.
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.
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.
Jennifer, Jennifer. My cat is smarter than George Bush, despite the fact that my cat is recently deceased.
Buddha:
“They are typists, not true propagandists.”
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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!”
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:
Are these trolls all this easy to unmask as you have simply and completely done?