You know all this fab populist outrage at AIG’s behavior from our President, Senator Schumer, Senator Dodd, Senator Grassley, and Barney Frank? Well, Congress knew about these bonuses before now. WAY before now. If any of these guys supported any of the bailouts, but especially the AIG bailouts, with no strings attached, then they are also partly to blame for the current problems we have. So spare me all this moral outrage. They are also to blame because the requirement that these contractual obligations must be paid is in the stimulus bill, thanks to Senator Dodd.
AIG disclosed its retention-bonus program more than a year ago, including bonuses directed to those handling the exotic derivatives that got the company and the country into this mess.
The bonuses were essentially a nonissue when AIG got its initial bailout money, almost $150 billion under President Bush in the two months surrounding the presidential election. Joe Biden, then the vice presidential nominee, came out strongly against the bailout. Obama did not.
Timothy Geithner, then at the New York branch of the Federal Reserve, was a huge proponent and architect of the AIG bailout. So if Obama had strong private opposition to the idea it did not affect his pick for the person who would oversee all bailouts.
They knew — and even knowing about AIG’s plans to award these bonuses, there were no serious attempts by Congress to hold these bailout recipients accountable to the taxpayers for the money they have spent. It’s a fair bet that at this point Congress has relatively no clue where the money ended up, and they still want to take even more money to sink into a plan THAT IS FAILING to achieve its objectives. Stop the madness.
From the Washington Post:
The payment plan had been no secret.
Beginning in the first quarter of 2008, AIG disclosed the plan to offer retention awards at Financial Products. The unit had already begun to hemorrhage money, a problem that would later grow exponentially. The unit’s executives, fearing they might lose valuable employees in the tumultuous months to come, successfully negotiated more than $400 million for their workers, to be paid this month and again next year.
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.
This argument makes sense, but AIG paying out these bonuses is still more than a little tone-deaf in the current economic climate. No one is going to bail out the average American who pays his or her bills on time every month. Our government will continue to reward the irresponsible and there’s nothing we can do about it.