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Friday, March 20. 2009
Rep. McCotter makes good points, but I still think it was right to pay those folks their compensation. Furthermore, I think it's a big distraction.
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I like Rep McCotter even more after hearing this 2 minute speech in the House.
I agree there was little choice but to pay, and we all should just get over it and move on. Not all of those who received the bonuses were in a position to "be responsible". The sooner Congress and the White House get out of it all, the better. They can't even do outrage right. Yeesh. Keep the info coming! Thanks, BirdDog!
We the American people, the owners of AIG, were contractually obligated to pay the bonuses as stipulated in the stimulus bill no one bothered to read. Geithner knew about the contracts as did the White House. Now, with populist outrage burning bright, our brave leaders are reneging on their commitments and crushing the constitution under foot with a 90% punitive tax; this is an assault on Americans by a mob rule government.
Let's be clear.
1) If Liddy is telling the truth (no reason to believe otherwise) then AIG was contractually obligated to pay the bonuses, and would have lost in court had they tried to welsh out.
2) The bonus protection provision included in the Porkulus bill modifying the terms of the TARP bill, inserted by Dodd, expressly stated that contractual bonuses would be honored, unless the Secretary of the Treasury voided the underlying contracts. Skip the bonuses after that law went into effect, and the underlying contracts would be doubly enforceable, barring Sec. Treasury action. Wouldn't want to be AIG's counsel on that case.
3) Plans were made to pay these bonuses as early as last November, according to an AIG press release.
4) Thus if the WH didn't want the bonuses paid, all Geithner had to do was to void the employment contracts and say they were being re-written.
5) If Dodd didn't want the bonuses paid he could have left out the provision stipulating the contractual bonus clauses were valid.
On the balance, keeping AIG alive probably isn't a bad thing. It has let the government stay out of direct contractual relationships with many, many third party obligees of AIG's. Keeping the government out of contractual privity with dozens of banks and investment firms is good because it keeps nationalization at least one step further away. Would traditional bankruptcy have been better? I don't know. But if you don't like the odds of 536 lawyers getting the right answer, what makes you think that a single lawyer sitting as a magistrate in bankruptcy proceedings is likely to?
Is it too late to sell AIG back to Hank Greenberg? He had lined up private financing to buy, AIG, take through Chapter 11 and back out without any government aid. His proposal was summarily dismissed by the Feds.
This whole story is B.S. Some type of retention bonuses probably were necessary to keep talent in the company to try to slow the bleeding. I received a retention bonus a few years ago after a merger. Mine, unfortunately, was only in the mid-4-figures. But it was a useful tool to keep people with institutional knowledge around at a time when they had incentive to jump ship.
The outrage over $165 million in AIG bonuses is to distract people and the press from the real outrage with AIG.
AIG's financial products group operated under plain view of multiple regulators.
The government has effectively bailed the speculators that wrote CDOs with AIG's financial products group. Tens of billions have gone to speculators!
Why? Because many of the speculators, including Goldman Sachs, are pals with government bureaucrats. Surprised?
Then the political class made a deal to bring in Liddy, who had nothing to do with the mess, to clean up AIG. The political mandarins also approved the compensation scheme.
The people in the financial products group are now working to unravel the complex structures put in place in prior years.
Let me ask this. If these folks are not paid, who will do the job and who has the knowledge base to do the job? Barney Frank and Chris Dodd?
Here is the take on the situation by the WSJ.
Barrett ... asking Barney Frank and Chris Dodd to help with dismembering AIG correctly is like asking two foxes to guard the henhouse while we take a nap. Both are hip-deep in longstanding corruption themselves. In general, I agree with you. We the people now own about 80% of AIG and we'd better pay the experts enough to keep them on deck so that the dismembering of AIG is done skillfully enough so that the salvageable portions are denuded of the toxic portions of AIG. Then maybe, just maybe, the whole conglomeration won't be a complete loss.
There's one other point here, of great importance. If a legal precedent is established by Congress's action in re AIG, that it is now OK to change the substance of contracts ex post facto, that can have a chilling effect all through our business arrangements, both personal and corporate. My God, the Supremes will be busy for years trying to straighten out the mess. We won't be able to buy a car, a house, a refrigerator, other furniture, and on and on, if the seller can change the rules any time he wants to after the 'contract' is signed. Talk about a poison pill. This is a whole bottle, and it could poison the whole economy for the foreseeable future.
Am I wrong about this, Barrister?
I agree with you completely. My reference to Barney Frank and Chris Dodd was simply to point out the absurdity of it all. These two could not manage their way out of a paper bag much a complex derivative shop.
I also agree with you on legal precedent. I made an earlier post in another thread here where I addressed the fact that the rule of law is fading in America. It is the only thing that protects citizens from the tyranny of government. BHO is intent on destroying this protection. If he does, there is nothing between us and despotism.
This whole thing is such a total f'n joke to me. If I could figger out a way to invest in cynicism I'd be a rich man much sooner than scheduled.
1) AIG should have gone into Chapt. 11
2) The people demanding the bonuses should have lost their jobs. These dipshits with MBA degrees who apparently couldn't see the coming real estate crash should be lining up begging me for the opportunity to clean my pool.
3) The "assets" so-to-speak, should have gone to companies employing people who know how to do that job properly.
The graveyards are full of "indispensable" men.
Regarding your first point, I will stick my neck out here to suggest that the market would have figured out relatively quickly who were the speculators and who was trying to hedge exposures if AIG was allowed to fail.
(Let me also point out that the failure of AIG may have been limited to the financial products group subsidiary unless there were corporate guarantees involved.)
As I said earlier, all the government really did was to bail out speculators. Welcome to the gold rush!
(Your second point misses the real issue.)
"The graveyards are full of "indispensable" men."
The nicest thing I can say about what Congress is up to is that it keeps them from screwing up with something more important.
Now we know that Congress can overturn private contracts and selectively target groups of citizens for punitive taxation. I anxiously await Congressional action overturning the compensation and employee benefits packages of the UAW. The auto manufacturers took bailout money and the UAW contracts are killing the compaies and therefore the taxpayers. Where is the outrage?