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In case of AIG bonus payments, some contracts made to be broken

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WASHINGTON -- Obama administration officials are fuming with the rest of us real people over $165 million in bonus payments Sunday to key employees of the bailed-out American International Group. Taxpayers own about 80 percent of AIG's outstanding shares, bought when the New York-based insurer received about $170 billion in bailout funds last year.

Larry Summers, director of the White House National Economic Council, said the bonuses were "outrageous" on ABC's "This Week" and CBS' "Face the Nation."

The backstory here is remarkable.

The Obama White House's ability to intercede in a company (too big to fail) dependent on taxpayer cash is limited, apparently. Treasury Secretary Timothy Geithner read the riot act to AIG Chairman and CEO Edward Liddy on Wednesday over the bonuses and got some important concessions over future payments and salaries. Liddy politely called the exchange an "open and frank conversation" in a letter he sent Saturday to Geithner about how AIG's "hands are tied."


WASHINGTON -- Obama administration officials are fuming with the rest of us real people over $165 million in bonus payments Sunday to key employees of the bailed-out American International Group. Taxpayers own about 80 percent of AIG's outstanding shares, bought when the New York-based insurer received about $170 billion in bailout funds last year.

Larry Summers, director of the White House National Economic Council, said the bonuses were "outrageous" on ABC's "This Week" and CBS' "Face the Nation."

The backstory here is remarkable.

The Obama White House's ability to intercede in a company (too big to fail) dependent on taxpayer cash is limited, apparently. Treasury Secretary Timothy Geithner read the riot act to AIG Chairman and CEO Edward Liddy on Wednesday over the bonuses and got some important concessions over future payments and salaries. Liddy politely called the exchange an "open and frank conversation" in a letter he sent Saturday to Geithner about how AIG's "hands are tied."

The Obama administration believes -- as does Liddy, brought in by the Bush White House to run the multinational insurance giant -- that legally they had no choice because the 400 employees of AIG Financial Products had contracts that mandated the bonus checks be paid. Those deals were made with these workers -- considered key -- last May, before the bailout.

The way Liddy explained it, many of these folks at AIG Financial Products had to be enticed to stay with the company because they were the only ones who could understand the exotic financial instruments on AIG's books.

Think of a casino that has to woo croupiers to stay at the tables because they are the only ones who know how to play the games. In the case of AIG, some of these key workers were traders who, AIG maintains, oversaw "transactions that are difficult to understand and manage." These traders, AIG says, had the keys to the kingdom. They knew how to "hedge the book."

As one of many angry commenters on my blog put it, "Why are the contracts with AIG execs more valid than the contracts between the automakers and autoworkers? Congress INSISTED that the autoworkers take pay cuts -- and MODIFY THE CONTRACTS they had negotiated -- before the automakers got federal money? . . . If the federal government owns 80% of AIG, what control do we have over the actions of management?"

I see the point. With the mortgage foreclosure crisis, the Obama administration has moved aggressively to pressure lenders to renegotiate the terms of mortgages. Some contracts, as the saying goes, are made to be broken.

27 Comments

Any of the AIG employees who receives this bonus money is, by definition, admitting to defrauding investors. Rather than giving these crooks a carrot because they know how to "play the game"... TAKE OUT THE STICK! Offer the following to AIG employees: Stay and untangle this mess, or rot in prison. Hasn't anyone learned anything about responsibility?

Are the lawyers deliberately overlooking something in the AIG case? Our experience in the corporate world of bonuses has been quite different. While an executive compensation package is a contractual promise, it is always directly tied to the attainment of performance goals and company success. When an executive fails to achieve outstanding performance at the end of the contract year, i.e. "improves company performance", then the "promise" of a bonus is null and void. How it it that these compensation packages are being treated as "immutable contracts". This is unheard of.

And where is that AIG "talent" going to go? Other failed banks???

How about the obvious, In lmost every case bonuses are based on performance right? How is losing over $60 billion a good performance? And I am sure that there is a clause somewhere in the contract that would allow for at least a reduced bonus amount. And does anyone else find it eerily conicidental that the bail out amount is almost exactly what their bonus payouts are? Also kind of convenient that there was no talk about bonuses until after they got the bail out money. If it were me, I would tell all those "entitled" to a bonus "you can resign, or continue working with no bonus". Every employer, or company onthe country informs their employees that their employment can be terminated at anytime without notice. Not to mention, isn't that labor law stuff? I sure wish I could perform my job horribly and get a huge bonus! Bottom line, do the right thing, don't hold out one hand for help, while grasping with the other!

"The way Liddy explained it, many of these folks at AIG Financial Products had to be enticed to stay with the company because they were the only ones who could understand the exotic financial instruments on AIG's books."

Strikes me as more than a little like saying "We can't arrest organized crime bosses -- they're the only ones who know how to run the rackets!"

The guys getting most of the bonuses are the ones who drove AIG into the hole. Unless their contracts contain not a single clause concerning forfeiture of pay and/or bonuses in case of mis- or malfeasance, I think we, the taxpayers -- who are now the owners of 80% of AIG! -- should demand that those who destroyed their company should not be allowed to profit so extravagantly for their misdeeds, at the expense of those of us who are already suffering for the wrongs they did.

Some questions for Mr. Liddy.
How much was your bonus, Mr. Liddy?
If there had been NO bailout for AIG where would your precious bonus money have come from?
How is what AIG is doing different from other big scams that are sending people to prison?
Which politicians helped you with this scam?
Do you really think the American taxpayer is so dumb that we can't see through all this BS you are giving out?
What about all the contracts average Americans had with their companies when the companies failed? Oh, right their contracts were worthless!!
Mr. Liddy you and all your BS'ing top dogs need to give every bonus penny back. You all could have said NO to the bonuses contract or no contract, but no you were more interested in filling your greedy pockets then doing the right thing for America. AIG can still do the right thing. Give the bonus money back and suck it up just like the rest of us.

1% of $180,000,000,000.00 = $1,800,000.00:
The bonuses equal less than 1% of what the government gave AIG. There are many parts of AIG, some which are doing very good. Many "greedy" executives sign contracts with a the clause stating that with success comes reward/bonuses. Do you guys know who these bonuses are going to? Honestly, I don't either, but I seriously doubt that AIG is rewarding failure. I'm not saying that each bonus being rewarded is legitimate, but I am saying that all you guys who listen to this joke Barney Frank do not know that they aren't legitimate. Before you write this garbage, get all of the facts. The government should have never gotten involved in the private sector.

I agree with your angry commentator! If Prnciple IV of the Nuremberg Trials states

"The fact that a person acted pursuant to order of his Government or of a superior does not relieve him from responsibility under international law, provided a moral choice was in fact possible to him"

then why, provided AIG has a MORAL choice possible to them, are they saying their hands are tied and they must pay out this insane bonus?

Absolutely insane.

American intelligence experts are analyzing a new terror video from the American International Group (AIG) in which the leader of the shadowy organization demands billions of dollars from the United States.

In the four-minute tape, which surfaced over the weekend and caused deep concern among U.S. officials, a man believed to be the chairman of AIG says that if his organization is not paid its ransom, "chaos and destruction will rain down on the American economy."

"If we are not paid billions more in bonuses and corporate golf retreats, America will be made to suffer," the man threatens.

Reacting to the video, Homeland Security Secretary Janet Napolitano raised the nation's terror alert level to orange, meaning "taxpayers are about to get reamed again."

Treasury Secretary Timothy Geithner also released a response to AIG's latest demands, but intelligence experts said they would need several weeks to decipher Mr. Geithner's response.

Capitalism at it's worst but who are any of you to break a legal contract between an employee and an employer? The problem is this, the people put in charge of this have no capacity to handle the amount of money they're throwing around. The only person who can handle this - someone who was in the business - yet these bonus plans were somehow a surprise? When the rest of this country wakes up and realizes the concequences to their actions - we will be in such a state of hurt. What's your Obama going to do for you then? Another stimulus?

This is simple.

Step 1. Fire the top 25 AIG people for signing such contracts and not finding a solution to this problem months ago.

Step 2. Indict all bonus receipients for Fraud.

Step 3. Make the following offer, return your bonus and we give you immunity to Fraud and you get to keep your job OR keep your bonus and you are terminated immediately, you may be prosecuted for fraud.

Step 4. As part of the fraud investigation, everyone has a full IRS tax audit to make sure they accounted for all their taxes on their money.


Do not violate their contracts, but hold their actions totally accountable.

It seems GS is running our treasury. The bonus payments were simply a byproduct of GS making sure that they got their $12B at par. How can these counter parties have these hedges done with AIG and have no risk! They should have taken a 10-15% haircut, that would have saved us all > $10B. Was this deal really done with AIG, Paulson, Geitner and GS as the only parties in the room as H. Greenberg contends? Something very fishy there.

This is outrageous, unethical and cheating. When you have a top person who is crook and cheat, others who work under him follows the pattern. The money should be taken back from all executives and tied to stocks so that they learn lesson. Here heart surgion does surgery on heart patient to save lives- he does not get bonus, I am a chemist with PHD degree i never got bonus more than 5 or 10 k in a year -how can they get bonus in millions for failed performance.
This is unheard of
MY Blood simply boils

I worked for AIG for 18 years, 16 of them overseas. During my time overseas AIG unilaterally changed my contract and I was told that I could eather take it or quit. I was alos supposed to get 6 months of employment uppon completion of my 2 year overseas assigment and an additional 3 months for each additional complete year. When they laid me off I got jack. I feel that if the company insists on awarding bonuses then they should recieve less federal money by a factor of 1000 x the total bonus amount paid! Also if you do not know AIG derrives over 50% of its income from the US, however it has been creating subsidiary companies overseas to where it is transfering American jobs. I think that any rescue package should be weighted by the percentage of US Taxpayers in the companies employ.

I think we should publish the names of everyone getting a bonus (they work for the government) as the beginning of a shame campaign. Also, the treasury department should audit each of these people going back as far as allowed and promise each it will not stop until they are dead and buried.

I agree with Les Salter. All these bleeding heart liberals are going on and on about corporations spending taxpayer money. Newsflash, it is not your money anymore, its theirs, Congress gave it to them! The money was made to bail them out of payments they will not recieve from the American people who tried to finance houses they could not afford, not give them the houses. They should therefore continue business as normal, this would include golf retreats, limos, and all the other incintives for people to practice these careers. By the way, someone has to tend to the grass at the golf course, and someone has to drive the limo, thats stimulus. If you didn't want this to happen, you should have written to your Congressman and voiced your opinion to let the businesses fail.

I wonder what their bonuses would have been had AIG actually made money in 2008.

I think getting the names of the people involved in this is a great idea. Having this list people should track these people and boycott AIG or any other company that hires any of them. Boycotts are effective if enough people care enough to impact their bottom line. The people who take this bonus in MY opinion are stealing from WE TAXPAYERS. BOYCOTING WOULD GET ACTION IF THEY BELIEVED THIS WOULD AFFECT THERE FUTURE EMPLOYMENT OPERTUNITY.

Beginning to think we should offer a "bounty" on these executives.
I feel they should each be paid for their services, with a few years at the local pen.
Not the high end jails Nixon's crew were sent to either...
How about Gitmo?

Easy, name the AIG bandits and post their pictures for all to see and shame them. It's insane that no news coverage refers to them by name but AIG Executives, no wonder they feel safe and protected from all the outrage.

Okay AIG execs, we agreed at the start of 2008 that you would get paid X% of your sales as a bonus or commission. Sadly, 2008 saw little in profits, so we would like to renege on our promise and pay you X-y% instead. Ideally, we would like you to waive your commission entirely, so we could use your money to pay back our shareholders (in this case, the taxpayer). If you do not agree, we will bankrupt your unit and pay you nothing at all. Of course, like any worker, you are entitled to sue to force us to pay your agreed compensation, but we can probably string this out for years. We don't really mind if our costs to defend the suit is more than your compensation - and if you can't say the same, you would be unwise to go to court.

PS: To all other current employees and job applicants: just because we got out of paying some employeess their agreed compensation does not mean we won't honor our contracts with you. Trust us, we're bankers.

The outrage that I feel over the payments of bonuses to anyone at AIG is tremendous. I understand the concept of honoring the contracts with the AIG employees and the need to pay these individuals but, I still don't believe that everything that can be done has been done. I have only the word of someone who was to stupid to prevent this from happening in the first place to go on. Shouldn't the terms of these bonus payments be made public so we can all see that we had to pay these bonuses. I mean, I own a 79% share of this company as a taxpayer shouldn't we all be entitled to know the terms of these payments. At least can someone tell me that we have taken steps to prevent these bonuses from being paid again in the future.

I recommend the government freeze their assets and force them to go to court and plead their case...

I agree with Les. Has anyone reviewed or even seen one of these contracts? Could it be that these contracts are rewarding individual successes and not the failures of the elite? Maybe, just maybe, these bonuses are due to the few who may have assisted AIG in cutting its' losses and in effect, saving tax-payer dollars. Is business not founded on trust, a profit motive, and yes accountability. Not everyone is a Madoff, are we just out for a which hunt, looking for a couple of scapegoats. Only upon review of these documents; the promises, the performance metrics, and the acheivements, or lack there of, will we know. Thanks for "listening".

Joe (not the Plumber) McG.

Seriously people! Do we really want to resort to violence by asking for "the list of execs"? Do we really know who is receiving the bonuss? AIG obviosly failed to notice they were not hedged correctly, but there are good divisions within the company that are viable. Shouldnt those people be treated accordingly.

If we are going after people, maybe we should go after our neighbors who defaulted on their loan before all this started. After all, they are the ones that cause this mess.

FALLOUT GROWS: Those who voted for the stimulus supported the clause to protect the AIG's bonuses. Obama's Own Stimulus Bill Protects the AIG Bonuses He Now Condemns —


http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/

Where was the outrage at the $140 million spent on the inauguration, or the $1.2 million to redecorate the oval office? If the supreme court holds up this outrageous tax then our God help us all.

"1% of $180,000,000,000.00 = $1,800,000.00:
The bonuses equal less than 1% of what the government gave AIG"

The problem with that is the bonus amount stated was 170,000,000,000.00, of which 165,000,000.00 was paid in bonuses. That's closer to 10%. While I'm sure some sectors did their jobs, a company should NOT use 10% of BAILOUT monies to pay bonuses. The money was to help the company, not to insure some random exec gets to keep he house in the Hamptons.

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Lynn Sweet

Lynn Sweet is a columnist and the Washington Bureau Chief for the Chicago Sun-Times.

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About this Entry

This page contains a single entry by Lynn Sweet published on March 16, 2009 6:38 AM.

AIG pleads case to the White House. Read AIG Chairman Liddy letter here. was the previous entry in this blog.

Obama will move to block AIG bonus payments. Said it is "hard to understand" why AIG traders deserve money. is the next entry in this blog.

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