Rolling US Economy Into The Shitbin Thread

(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?

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.

It is not "perfectly legal" to enact a tax that is de facto designed to be punitive against a specific party.

lol Rep. Gary Peters is an alumnus of my fraternity...

Cuomo has some more fun:

Bailed-out insurance giant American International Group gave retention bonuses of $1 million or more to 73 employees in the latest round of payments, New York Atty. Gen. Andrew Cuomo said today.

And 11 of the people who received million-dollar bonuses no longer work for the company -- even though the payments were specifically aimed at retaining them, Cuomo said.

The new bombshells about AIG’s bonuses are in a letter Cuomo sent to House Financial Services Committee Chairman Barney Frank (D-Mass.).

"These payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near-failure of AIG," Cuomo said in the letter. "Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout.

"Something is deeply wrong with this outcome."

AIG, now 80%-owned by the government after a series of bailouts that began last September, nonetheless paid out more than $160 million in retention bonuses beginning late last week -- despite congressional and White House protests. The company said its hands were tied because the payments had been guaranteed in employment contracts predating the bailout.

Cuomo, who has subpoenaed AIG to provide names of all bonus recipients, said he had obtained copies of the contracts.

"The contracts shockingly contain a provision that required most individuals’ bonuses to be 100% of their 2007 bonuses," Cuomo told Frank. "Thus, in the spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My office has thus begun to closely examine the circumstances under which the plan was created."

http://www.thestencil.com/archives/images/nerd.jpg

(l-r): Gary Peters, Drugs A. Money

AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous

See that's what I call thinking ahead in business! And they say they don't deserve bonuses...

also should read

AIG employees who would be receiving bonuses chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous

Hurting2, you may wish it were not legal, but it is legal. This same formula has been used time and time again in federal tax law.

it seems to me that the REAL scandal here is that no-one @ Treasury or the Fed caught onto these bonuses until they'd already been paid out. my assumption is that no-one in either department even thought to ask at all: which would be perfectly in keeping with Bushco's explicit philosophy, but a little eye-raising after Obama took over (esp. after all of the noise concerning the bonuses paid by other TARP recipients earlier this year). if this is indeed true, then perhaps something could have been done HAD either Treasury or the Fed known about these bonuses from the get-go.

Hurting2, you may wish it were not legal, but it is legal. This same formula has been used time and time again in federal tax law.

― Aimless, Tuesday, March 17, 2009 4:07 PM (5 hours ago) Bookmark

Um, examples? Fudging a loophole to benefit a specific party (while dubious) is NOT the same thing as fudging tax law to create a penalty, and a 100% tax would never hold.

Since this idea is taking firm hold in Congress, we may have a chance to test our differing assertions irl. The exact tax rate percentage will, of course, be subject to the discretion of the lawmakers.

Since a rate as high as 95% has been levied in the past, I can't see that such a rate would be liable to argument as unconstitutional. A rate of 100%, while amounting to confiscation, might well be upheld, provided it was narrowly targeted to only a part of a taxpayer's income. I don't imagine a final bill would include a rate that high.

“We’re the owner of that company,” House Financial Services Committee Chairman Barney Frank told reporters yesterday about the government’s stake in AIG. “I think the time has come to exercise our ownership rights.”

The Tipping Point?

I have been wondering about this. Certainly the whole question of pre-set bonuses is enough.

Well, some things never change:

http://www.latimes.com/media/alternatethumbnails/photo/2009-03/45645334-18105943.jpg

Edward M. Liddy told a House committee that he had asked employees who received bonuses of more than $100,000 to return half the money.

As Eddie Murphy used to bellow, "HALF?"

Because taking $500,000 you in no way earned or deserved is so much less objectionable than getting $1,000,000 you in no way earned or deserved.

Democrats’ Tacit Approval of AIG Bonuses May Undercut Outrage

outrage mongering is flush with awesomeness

yeah but there's some flim-flammery going on with the framing of that story. actual sequence of events:

a.) aig writes contracts including retention bonuses
b.) aig collapses, bush administration takes part ownership, installs liddy
c.) in discussions with treasury department in november, aig limits some pay and bonuses, but says some others will be contractually required
d.) in december, a democratic legislator challenges that assertion, to little avail
e.) in february, in putting together the stimulus bill, democrats write in new limits on executive pay for companies receiving bailout money -- limits not imposed during the first round of TARP by the bush administration
f.) some democratic lawmakers even suggest going so far as to make the limits retroactive to bonuses promised in existing contracts; after legal concerns from the white house, the existing contracts are instead exempted from the new limits

the stimulus bill did not create any new protections for existing bonuses. all it did was leave in place what was already there, following the policy established by the bush treasury department in setting up TARP. you can argue they could have and should have gone further, which is fine (and which some democratic lawmakers wanted to -- if any republicans advocated that, i don't know who); but you can't say the stimulus bill in any way caused the bonus payments. at most, it missed an opportunity to stop them, by leaving the bush bailout approach in place.

you can't say the stimulus bill in any way caused the bonus payments. at most, it missed an opportunity to stop them, by leaving the bush bailout approach in place.

I think this is the criticism, tho (admittedly, I haven't heard all of it). Most of what we're seeing, as I said upthread, is just a bizzare dance of feigned umbrage and outrage.

Actually, it could be a pretty shrewd move by the Obama Admin., on two fronts: (a) if they really believe AIG is too big to fail, then they couldn't stop the bonuses, but they then ride a populist outrage to some after-the-fact solution (e.g., public pressure to return the bonuses; these tax plans) and (b) the public outcry against the bonuses might open support for more decisive action by the Administration (e.g., "We tried solving the problem your way -- by leaving these companies alone as much as possible -- and look where it got us; Now, we'll attack the root problems," followed by some brief nationalization or other plan). To do this, tho, Obama has to avoid absorbing too much political damage from this bonus fiasco. Not sure if any of this makes sense. It might not. I'm overtired again.

at most, it missed an opportunity to stop them, by leaving the bush bailout approach in place.

This is more or less the headline of the article, a framing device if there ever was one.

well the dishonest thing is making it like this was some special protection for these bonuses. what was new about the law was the limits it did place, not the limits it didn't, or the exemptions it offered to the new limits. you can make up a hypothetically infinite list of all the things it didn't limit. the way this is being spun is, the democrats wrote a law just to protect these bonuses. when actually the democrats wrote a law to put new limits executive pay. you can fault them for not going far enough, but that's a lot different than pretending they wrote some special giveaway package into the stimulus.

The way it is being spun is that Democrats gave tacit approval to the AIG bonus system. That system was already available to anyone voting or wanting to change the stimulus plan. As the article notes, Schumer says he "supported a provision on the Senate floor that would have prevented these types of bonuses, but he was not on the conference committee that negotiated the final language.” Grassley's charge is that there was no transparency and that in the end, it's Democrats who control everything.

I have no idea what Dodd's spokesman is referring to in the article I linked--maybe that's the spin you are referring to. Are there other articles out there that reflect that? I have no idea, I only read papers in the early morning.

there's a right-wing spin going on that more less makes it sound -- without quite coming out and saying it -- like the bonuses were specially inserted into the stimulus bill.

there was something of a battle between dodd and treasury over this & it picked up again when an anonymous administration official told the new york times a day or two ago that it was dodd's amendment that required that the bonuses be paid. here's from february -

Obama, Dodd clash on executive pay

it seems dodd added the provision to the bill which passed & then the administration objected, so dodd had it changed in conference? i think? dodd was on cnn today explaining that he did this & pointing out that he wouldn't have changed his own amendment if it were up to him, obviously. all complicated by the fact that the day before he'd told cnn he had nothing to do with it. kind of a mess.