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