Obama's AIG Comments Raise More Questions Than They Answer

President Obama's comments regarding the AIG bonuses were welcome, but in the context of recent events, a bit puzzling:

Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?

In the last six months, AIG has received substantial sums from the US Treasury. I've asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.

If the President doesn't like Geithner's deal, why didn't he stop it before it went through?

AIG had a deadline of Sunday March 15 to pay out $165 million in bonuses to its Financial Products Division, but that was only a portion of the $450 that they are scheduled to receive this year.  Geithner knew about this, so he struck a deal with AIG:

The payments to A.I.G.'s financial products unit are in addition to $121 million in previously scheduled bonuses for the company's senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

So Tim Geithner hears that $286 million is due in bonuses to AIG yesterday ($165 for Financial products plus $121 for "senior executives") and he's "outraged." His "compromise" is to cut out $4.8 million for top executives. 

Wow, hell hath no fury.

But the $286 million is only a portion of the $1.2 billion in bonuses that AIG is "contractually obligated" to pay out to its executives this year ($450 million to Financial Products plus $121.5 in incentive bonuses plus $619 in "retention payments") :

 Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.

If the President doesn't like the deal Geithner made, and is now telling Geithner to "pursue every legal avenue to block these bonuses," why didn't he say that before the deal went down and the bonuses were paid out?  Did he not know about it?

Which raises the question -- when did the administration first become aware of these bonus obligations, and what did they do to address them at the time? 

According to the NYT, "The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken."  So according to the Treasury Department, where Geithner still presumably works -- nothing can be done about it.  It appears the person tasked with finding a solution already knows what the answer is.

AIG got another $30 billion of TARP money at the first of March. Why didn't the Treasury demand they break the bonus contracts then as a condition of receiving the funds, just like they made the automakers break their union contracts?

How does President Obama feel about Larry Summers' comments that "We are a country of law. There are contracts. The government cannot just abrogate contracts"?  Does that mean the UAW workers get their old contracts back? 

How does President Obama feel about the bonus installments that are due in July and September?  How does he feel about the $121 million went out to other AIG employees that weren't in the Financial Services Division?  How does he feel about the $1.2 billion that is scheduled to be paid in bonuses in 2009 within a company that lost a hundred billion dollars last year?

Today the President said:

I know he's working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year.

Liddy is the one who said he has to pay these bonuses in order to be able to keep the "best people," and he believes there's nothing that can be done to get out of the contracts.   On that he and Geithner agree.  Does the President think these are the best two people to be dealing with this?

Bill Black, Tom Ferguson, Walker Todd  and Rob Johnson have a plan for getting out of paying these bonuses: the US government, as 80% owner of AIG, can split the derivatives unit off and put it in bankruptcy.  That would terminate all its obligations.  Geithner's hand-picked man Edward Liddy "should be asked to resign at once, for the sake of public confidence and to send a clear signal that gaming the system is unacceptable," not receiving votes of confidence from the White House.  Bingo, you're there.  Is the President ready to do that?  And why did this not occur to Secretary Geithner and Mr. Summers?

That still leaves all the other AIG bonuses scheduled to be paid out from taxpayer funds this year to deal with. But if President Obama truly does want to stop this, there is no doubt he has both the leverage and the authority to do so.  The question is, are he and Geithner and Summers all on the same page?   

Jane Hamsher blogs at firedoglake.com

Comments

[wrrock]

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/

[January]

And why didn't Ms. Hamsher tell us that she had full confidence that the Prez was in charge and would overrule his appointees whenever necessary? Instead, we get column after column about how tragic it is that Obama appointed financial advisors he can trust and that big business trusts. Instead, he was supposed to appoint inexperienced but more politically correct persons? One can carry PC to a ridiculous extreme. However, we will never hear a mea culpa from a columnist, since they will always demand such of others.

[CitizenE]

Personally, if Obama can get our economy huge investment in green industry and product and unknot the health care problem, he will have done the best that I expect of him. But if he continues to think the same with same players in Treasury and the middle east, his legacy will wind up being that of just another in a line of Presidents beginning with Johnson and running up to the present day who presided over the fall of these states.

[Maxbyte]

Excellent post, Jane.

Your suggestion to move the most dysfunctional unit into bankruptcy is a good idea, and perhaps more rational than my own inclination.

I have argued that the entire corporation be nationalized to stop abuses and eliminate one of our biggest recovery issues. And once the holes are found in that leaky boat, I would argue that the entire organization be sliced and diced, and sold off to the private sector.

I simply cannot believe that "nothing" can be done about the bonuses. And I'm assuming that the contracts were retroactively rewritten to kill acquisitions. Too late. They have to tossed into the round file.

[steamboat]

Jane, maybe this is the reason:

http://www.opensecrets.org/orgs/recips.php?id=D000000123

[Chernynkaya]

Geithner has been a big problem from day one. We should have realized this when his appointment was praised by McCain and the Republicans. His confirmation, despite his tax problems, cost us Daschle for health care. His first public speech was an embarrassment or worse. He will eventually prevent Obama from getting the support he needs for all the programs we want and need.

Sure, it would give Obama a few week's bad press to fire him, but he should cut his losses now rather than when it's too late. Geithner is Obama's Rumsfeld.

[Valyard]

They all knew very well about the contracts just as well as they knew about all the pork in the budget but they had a choice between delaying the stimulus and budget until later or putting something into effect now. Knowing that they were already behind due to the previous administrations passive approach they did the best they could given their constraints.
They now have to figure out how to fish out the turds from the pool.

[Raymond Hernandez]

I guess it's OK for the democratic congress to claim complete obliviousness on the bailout?

[JohnPaulJones]

Of course, they're just poor, helpless creatures at the hands of those big meanie Republicans.

[j-stl]

Didn't Senators Obama, Reid, Dodd and Grassley and Representatives Pelosi and Frank vote in favor of a TARP with no strings?

[JayInDallas]

I want to echo AJT. Most are overlooking the fact that this deal was made as part of Paulsen's plan. Obama wasn't yet president and Tim Geitner wasn't Treasury Secretary. Barney Frank came out and explained this as a preface to a response to questions about what the government planned to do to block bonuses. The American people own 80% of AIG and as such, has the right to exercise right of ownership.No one in their right mind would reward the same derivatives traders who sunk the company with bonuses for doing so. The reasons AIG has offered up for doing this do not hold water. Once again the Obama administration has to mop up the previous administration's mess.

[Raymond Hernandez]

Same issue. Doesn't Congress have the power of the purse?

[j-stl]

I'll echo that as well - Senators Obama, Reid, Dodd and Grassley and Representatives Pelosi and Frank vote in favor of a TARP with no strings? And this year - Senator Dodd inserted specific language into the stimulus bill specifically to block the government from negating these contracts (which the President accepted and signed).

[twofish]

The President's statements are not puzzling -- they're bullsh*t.

[bluemike]

The un-American greedy b*st*rd who runs AIG should go to jail, along with more of his souless acquaintances.

[bluemike]

Dump Timothy and Larry. And stop voting "Present."

[davidly]

These are relevant questions, Ms. Hamsher, the kind that don't get answered by even those who claimed they would "hold this president's feet to the fire". What is obvious - in a general sense - is who has the authority in, and - if need be - over government. It sure isn't the workforce or the mortgage holder. The question now is whether or not the president really cares, or if he is just posturing, politically.

[PhilipTaylor]

AIG CURE: Exercise Government authority within law of 80% ownership:

1. US trustees in charge of AIG instruct corporate treasurer to make NO payments of bonuses - no last minute payments (Merrill case). Investigate previous payouts.

2. Since the government is “80% owner", vote out all the members of the Board of Directors, put in their own directors, who should in turn, terminate and replace all top executives.

3. If AIG can't get out of their "bonus contracts", then the government declares AIG bankrupt.

4. Split the Derivatives Unit off and separately incorporate. Terminate all payouts on CDSs until further evaluation. Ignore Goldman/Morgan requests! If CDSs are "non recourse", then why pay them? If underlying loans/bonds on CDSs are NOT in default, then Bailout money is going out unnecessarily to banks while they collect "premiums"?

5. Sell AIG's other businesses so they can operate normally.

6. Negotiate all CDSs down at least 75% or more!

7. Value all Derivatives at the Market!

8. Stop paying banks, as "counterparties to AIG's risk", that we have already bailed out?

9. Stop paying "insurance bets" at par making banks/hedge funds whole while we watch TARP disappear creating multi-generational debt.

10. Optional: Government takes back all recoverable bailout funds to buy back AIG's life insurance policies.

Obama must LIMIT What Geithner/Bernanke can SPEND!

[TivoliEclipse]

Who knew the Obama Administration would need a Chief Integrity Officer in his Cabinet...

Capitalist Pigs do not have fundamental American values!

[altlic]

Sorry, but Obama is just a puppet. The banksters will take whatever they can get away with. Obama will echo the public's outrage when necessary, to make it look like the banksters are being held accountable. But the fox is in charge of the hen house.