Rolling US Economy Into The Shitbin Thread

Daniel OTM.

Ohio court can't afford paper to process citations, won't accept new case filings

Coincidence! I just got a case that's very likely going to be litigated in Ohio.

Maybe I'll submit motions via smoke signal. Or carrier pigeon.

it is amazing that the Justice Department could find the most tenuous of legal interpretations to justify torture and rendition, but cannot find anything to justify rescission of any contractual obligations on AIG's part to pay bonuses. it's been a while since law school (daniel or any current-day law school students here?), but i seem to remember a concept called "disgorgement." i really don't have time to crack open a contracts treatise, though.

Not being in the remotest sense a lawyer or having studied law, my guess would be that disgorgement would apply only to ill-gotten gains. Sad to say, what AIG did with CDOs was in a wholly unregulated market, and while it was reckless in the extreme and wrote obligations FAR beyond what it could ever redeem, the fees from the insurance it wrote was not in any sense ill-gotten, but only suicidal. Now the USA taxpayer has, like the proverbial Bible deflecting a bullet to the heart, interposed between AIG and its legal obligation to commit seppuku.

are the names public at least?

with the internet + the fact that 95% of the country despises these people, how hard would it be to start a campaign to publicly demonize 400 people / find their addresses, numbers etc.

someone on digg or whatever needs to get on it

like if we could send fb msgs to some exec's daughter at yale asking her how she feels about her daddy ruining the world economy...I dunno, I think it'd be fun. not like $100 million fun, but still sorta fun.

are the names public at least?

that was my first thought. the administration could at least go in for some public shaming. i'll be surprised if somebody doesn't dig up at least the bigger ones.

a simple guide to the banking crisis

http://www.businessweek.com/the_thread/economicsunbound/archives/2009/03/a_simple_guide.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

it is amazing that the Justice Department could find the most tenuous of legal interpretations to justify torture and rendition, but cannot find anything to justify rescission of any contractual obligations on AIG's part to pay bonuses. it's been a while since law school (daniel or any current-day law school students here?), but i seem to remember a concept called "disgorgement." i really don't have time to crack open a contracts treatise, though.

like if we could send fb msgs to some exec's daughter at yale asking her how she feels about her daddy ruining the world economy...I dunno, I think it'd be fun. not like $100 million fun, but still sorta fun.

I think there are differing senses of justice at work here

NO-BRAINER, from nYT:

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda.

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

http://www.nytimes.com/2009/03/17/us/politics/17obama.html

it is amazing that the Justice Department could find the most tenuous of legal interpretations to justify torture and rendition, but cannot find anything to justify rescission of any contractual obligations on AIG's part to pay bonuses. it's been a while since law school (daniel or any current-day law school students here?), but i seem to remember a concept called "disgorgement." i really don't have time to crack open a contracts treatise, though.

Sorry, hadn't seen this before. Yeah, disgorgement is a remedy to force someone to repay ill-gotten gains. But the basis for it can't merely be that it's indefensible for AIG to give bonuses with gov't-furnished bailout money. If AIG breached an agreement with the gov't concerning the bailout money or induced the gov't into giving it bailout money by falsely representing that it wouldn't pay bonuses, then a remedy for that wrong might be disgorgement.

More to the point, it seems to me, is that anything short of a slam-dunk win would put the gov't in a very unflattering position if it were to sue AIG over this. Not only would it be unseemly, it would undermine confidence in the gov't (which, I'd guess, would come to be seen as bumbling for not having forced such a promise in the first place) and the markets. I think that's why you see this passage in the NYT article Dr. M linked above:

White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the executives.

An alternative route, it seems to me, would be to refuse future bailout dollars -- which AIG v. likely needs -- forcing the insurance company to become desperate and opt for a quasi-receivership model, where the gov't would hold a power position over issues like compensation.

Too many "it seems to me," it seems to me.

Yglesias makes a similar point. His think-tank has an interesting page on AIG. In part, it argues that the dust-up over bonuses strengthens the case for bank nationalization:

What this weekend's disclosures highlight is the shortcomings of the Treasury's current strategy to prop up the financial system. Basically, the federal government continues to pump billions of dollars into these institutions without receiving full control over how taxpayer dollars are spent in return. Bank nationalization has been floated by people such as Krugman and NYU economist Nouriel Roubini, to former Fed chairman Alan Greenspan and Sen. Lindsey Graham (R-SC). Geithner, however, has so far refused to say that nationalization is on the table. But it should be. "The American taxpayer would be ill-served to receive anything less for putting in the vast amount of money needed to restructure and recapitalize [the banks]," explained Adam Posen, Deputy Director of the Peterson Institute for International Economics. "And the American taxpayer, just like any acquirer of distressed assets, deserves to reap the upside from their eventual resale."

Actually, I'd guess that everything we're seeing now is part of a process. Subject the banks to this "stress test" (hopefully an honest and rigorous one), quietly put people into place to manage big failed banks, have a steady drumbeat of experts condition the public that nationalization is a good -- and likely inevitable -- option to restore the banking system, and then, on a Friday, nationalize a slate of banks, clean them up fast (a process, I admit, that still is a mystery to me) and then re-privatize them. Sort of like a college football coach who says, over-and-over again during recruiting season, "I'm committed to staying at this school, I have no interest in the NFL, and my recruits can take comfort in my words." Then -- boom! -- Butch Davis leaves U.M. to coach the Browns (oh, sorry; the hypothetical coach leaves to run an NFL team).

yeah but the coaches who stay also say that

Yeah, that's true. Come home, Butch Davis, all is forgiven.

(Actually, I like our new coach, FWIW. Off-topic, I know.)

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. When that was done, the UK government was able to go in and basically do anything it wanted. Whether this was the right thing to do has yet to be determined.

However, the US government, as we've seen in the last eight years, can do anything it wants.

One can see why the US government wouldn't want to do this. It would immediately pit Wall Street irreversibly against everyone else. They'd think, OMG! They think we terrorists! They'll come for us next! And then everyone would run for the hills with everything they could grab.

But 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? Or breaking them? The difference is there is a fear of AIG and what Wall Street would or could do if the government turns on them.

This probably has to be weighed against a total collapse of trust for the Obama administration's bailout plans among the general populace.

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.