Rolling US Economy Into The Shitbin Thread

the Obama administration has said it wants Detroit to break contracts with the unions and renegotiate them with as part of a requirement for continued government aid.

So how is that different from wanting AIG contracts broken?

yeah, i wondered the same thing

Have they given Detroit the money yet?

British anti-terror legislation was used to declare an Icelandic bank, Landsbanki, which held a British bank a terrorist organization and freeze its assets in the UK.

Nope. It used section 4 of the Anti-Terrorism, Crime and Security Act 2001. This includes a bunch of stuff that is nothing to do with terrorism, some of which was used in this case. It absolutely DID NOT declare Landsbanki a terrorist organisation!

The point was that the Icelandic govt were going to guarantee the first £16,000 of Icelandic savers' assets, but would not make the same to commitment to British ones, which is wrong and illegal whichever way you look at it.

So it's a completely different issue from contractual obligations to pay bonuses.

What confuses me is how the contracts were written that would allow for bonuses when such losses were being racked up - surely there must be SOME connection between performance and bonuses?

What confuses me is how the contracts were written that would allow for bonuses when such losses were being racked up - surely there must be SOME connection between performance and bonuses?

my guess -- at least this would seem to be the most palatable rationale -- is that the bonuses were for performance up to late 2007/early 2008 (which may be before all hell broke loose at AIG). the present AIG CEO has inherited these bonus agreements, he didn't initiate them.

(doesn't make them any more right -- i'm just thinking aloud right now.)

WSJ: Treasury Will 'Hold Up' 30 Billion to Pressure AIG To Rescind Bonuses.

Interesting comment from a (seemingly knowledgeable) TPM reader:

You're missing the point on AIGFP's bonuses. The reason the government has no bargaining power is that failure to pay the bonuses -- which, like it or not, AIG is contractually obligated to pay -- would constitute a "cross-default" under AIG's derivative contracts. Cross-default is considered an "event of default" under the standard ISDA Master Agreement (see sec. (5)(a)(vi)), which means that failure to pay the bonuses would allow AIG's counterparties to terminate the CDS contracts and demand a full payout from AIG. With a derivatives portfolio of over $1.5 trillion, this is no small deal. Venting over AIGFP's bonuses is fine, but urging the government to take an action which would result in hundreds of billions in losses to AIG (and thus the taxpayer) just because it would make you feel better is bad policy. Don't let cheap populism become expensive populism.

I have no idea if this is true. But if it is, I wonder why Ed Liddy's letter to Sect. Geithner -- which is posted on TPM -- didn't mention that all the credit-default swaps are wired to explode if AIG doesn't pay its executives their bonus money (he could have worded it delicately).

he should totally use "wired to explode" though

"Pop quiz, Geithner!"

lol

You're missing the point on AIGFP's bonuses. The reason the government has no bargaining power is that failure to pay the bonuses -- which, like it or not, AIG is contractually obligated to pay -- would constitute a "cross-default" under AIG's derivative contracts. Cross-default is considered an "event of default" under the standard ISDA Master Agreement (see sec. (5)(a)(vi)), which means that failure to pay the bonuses would allow AIG's counterparties to terminate the CDS contracts and demand a full payout from AIG.

that seems to be a rather odd contractual provision. why would the counterparties to AIG's derivatives contracts give a flying fuck whether or not AIG employees get bonuses?!? either something is being left out in this description or it's BS.

Sounds like BS, but it may not be.

The sense I get is that any kind of boilerplate involved (if it exists) would be there to provide an escape hatch for the contract holder in the event that AIG defaults on its contractual obligations to parties other than the contract holder. The idea would be that such a default would be proof of bad faith or bad acting on the part of AIG and the contract holder would want to bail out on favorable terms.

Exercising such a clause over employee bonuses would be a stretch, probably well outside the intention of the clause, but a good corporate lawyer might turn it to advantage.

If so, it provides yet another reason why the AIG bailout has tangled up the US government with a tar baby it should never have touched. Thank you, Secretary Paulson. AIG is the gift that keeps on givnig.

it is bs. there was a further response in that tpm story by numerous lawyers refuting that whole argument as ridiculous.

The case for paying out bonuses at AIG (and also, isn't this a "retention bonus pool" and not an incentive bonus program at AIG...does it matter, etc.)

http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp

A response: http://idlewords.com/2009/03/andrew_ross_sorkin_explains.htm

yeah that sorkin article is really something else, what a maroon

So did the government write AIG a check without putting anything in writing saying they could take the money back if they had reason? If not then they must have seen it coming and this whole greedy CEOs fool government scandal is some big time political posturing.

Take a look at this:

http://craphound.com/images/newwayforward.jpeg
http://www.anewwayforward.org/demonstrations/

An attempt to protest to nationalize the banking system. Do people really think this is a good idea, or is this the AIG street team?

You know, if we nationalize these banks, we'd essentially be cutting out the middle man for the power mongers. Rather than paying high priced lawyers to design virtually indestructible legal defenses for their culture of loot and plunder, they can simple rewrite the laws themselves. If you want any idea what that kind of money is worth in Washington, just take a look at all these bailouts passing irregardless of vocal opposition from both the left and the right. They already own Washington D.C. After nationalizing they won't need any more bailouts cos it will discreetly be tacked on to the yearly budget.

Things are going to suck, they already suck big time. The only real solution for most of the people in the world would be to let these banks fail. Which isn't going to happen because the elite bankers and the congressmen are addicted to the idea of passing shit back and forth forever. These bailouts are already evidence that the people voting for these bills are on the bankers payroll. You must be incredibly naive to think that giving these swindlers more power is good for anyone other than them.

Headline of the week?

Senator suggests AIG execs should kill themselves

http://news.yahoo.com/s/ap/20090317/ap_on_go_co/grassley_aig

sweet!

looks like the Admin belatedly realized they have a PR disaster on their hands. Usual craven sluck.

If Obama could have prevented this but didn't, that's a big f---g screw-up, I'll grant you that.

There is nothing fair about AIG paying out these bonuses, and I don't buy the economic reasoning either (SLIPPERY SLOPE! WAAAAHHH!). Nonetheless, the Constitution does have this little thing called the Contracts Clause.

rescind the bailout, pure and simple.

So we should make a bad decision for the entire world economy in order to avoid paying some embarrassing bonuses?

I wonder if this (^^^^) entirely correct thinking is what led to the bizzare kabuki theater we're now seeing (conciously let the money go to AIG, knowing bonuses will be paid; feign shock at the payment of bonuses; much sound and fury; ultimately allow bonuses to be paid with less political damage to the Administration).

(Correct thinking is that we can't let world economy crater because of indefensible bonuses being paid).

And I do say that with the caveat that we need to exercise some caution when the "world economy will collapse otherwise" card is being played -- definite risk of crying wolf.

"bad decision for the entire world economy"

fuck that Kool-Aid.

the bizzare kabuki theater

As good a summary as any. Whathisname who currently runs AIG goes before a Congressional panel tomorrow and I'd be willing to bet all sorts of contrition and face-saving announcements will be the order of the day.

I hope, for his sake, he doesn't fly to the Hr'g in a private jet.

No one's outlined yet what legal options the administration has, and whether, in effect, AIG committed anything ILLEGAL.

Nader:

As one solid small town banker in Indiana put it recently: "If these big companies are too big to fail, then they're too big."

http://www.counterpunch.org/nader03092009.html

Alfred -- not quite an answer but the second half of this WaPo story is of interest:

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.

Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company's collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts. Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.

Law professors agreed with the Fed's assessment but said AIG employees could still agree to reduce their own bonuses.

And the outrage expressed by the president and lawmakers was designed to put pressure on these officers to do just that, the legal experts said.

Jonathan Macey, a professor at Yale Law School, said it was unlikely that any AIG employees would end up suing the company for changing compensation contracts, mainly because their names would be revealed publicly in a lawsuit and they would then be excoriated.

Macey added that the government is caught in a difficult position, squeezed between public outrage over the bonuses and the need to keep AIG Financial Products going so the company can restructure and the government can recoup some of its money.

"What's good for AIG is definitely not good for the country," Macey said. "But now that the government is invested, it may have to do what's good for AIG."

That's a lot clearer than the NYT story this morning. Thanks.

It's also a lot more rational than "Oh no, this would mean that no one would ever trust contracts again!"

I can't believe AIG is doing this they took all the money we gave them to keep doing what they were doing and they're still doing it!

also, kabuki theater OTMFM

US Government is just trying to help the economy and these big bag rich CEOs are ruining everything. USgov = underdog to media. I wonder how long after they formally nationalize the banks you need a federal ID to enter one, get searched on the way in, have your body temperature/pupil dilation scanned while waiting in line, have to undergo background check before accessing your savings account, etc. etc.

probably only a couple hours!!!

it might even happen on the same day!!!

my bank already does that (the rectal probe is optional). but you do get a lollipop.

hahahahaha

http://dealbreaker.com/2009/03/aig-employee-i-have-a-horrible.php

also, how to get the AIG bonuses back

http://latimesblogs.latimes.com/money_co/2009/03/aig-bonuses-som.html

"bad decision for the entire world economy"

fuck that Kool-Aid.

― Dr Morbius, Tuesday, March 17, 2009 4:12 PM (1 hour ago) Bookmark

from the start, with aig in particular, there's been a fair amount of bluster to the effect that, "if we go down, we're takin' the whole world with us!" it's obviously a scare tactic, but it also obviously has some basis. nobody i think really knows how much risk is entailed, but that's the problem. and after the collapse of lehman came to be seen as a mistake, nobody wanted to let the next thing go under. but they also haven't straight-up nationalized anything (even though aig is functionally in receivership). so we're still stuck in this limbo, and nobody on the obama team seems to be in a hurry to get out of it -- for some understandable reasons, but still, this aig bonus thing is just one more sign of why they need to make some real moves.

or could be a part of a real move

(hopefully)

well it sure gives an opening for them to move in and say, "that's it, we're completely nationalizing aig." i just don't see any appetite for that from geithner.

i'm torn between worrying about banks turning into the DMV, or banks turning into ultra-efficient high-tech privacy invaders

worry about banks turning into the next Oprah

i just don't see any appetite for that from geithner.

It might be a long process of conditioning the public before he nationalizes big companies. Nationalization is, to many, a dirty word, but the option is now "on the table," largely because a row of experts -- from both sides of the political divide -- say it may be needed. Geithner/Obama may just be laying the groundwork before taking action.

Simon Johnson (former IMF chief) uses the DMV analogy, too! OTOH, he supports short-term nationalization.

Interesting to me: NPR's Planet Money asks, "Who do we blame?" James Kwak, of the Baseline Scenario blog, answers: Alan Greenspan.

From Dandy Don's link, the plan by Rep. Gary Peters (D-Mich.) seems perfectly workable.

Anyone who is familiar with how targeted tax loopholes are created for individuals and specific corporations will recognize the tactic. You pass a tax law that doesn't name the company or person, but describes the beneficiary in such a narrow way that only one company qualifies, only in this case the law is punitive rather than beneficial and taxes the AIG bonuses at 100%.

Congress does it all the time. Perfectly legal. They should do it.

But, again, it only points out how fucked the AIG bailout is that such a bill would be necessary.

basically i'm just worried that the quality of customer service and care i currently experience from my bank may somehow change

Are there any prominent economists questioning the bailout of AIG?