I heard last night that $40 billion of our money was going to rescue foreign backs through AIG, does anyone know if this is correct?
Bailing out AIG basically involved giving them money so they didn't default on insurance contracts they sold to all sorts of domestic and foreign buyers. So the extent that foreign banks bought that insurance, that money would have filtered out to them when that insurance had to be paid. I know Goldman and others also got chunks of it.
Yup, those "smart" employees at AIG figured out all sorts of ways to insure risky investments and made tons of bonus on those deals. I mean you really need those "smart" people by giving them more bonus so they can clean up their mess.
Totally, I mean the derivatives contracts are written in some weird form of ancient Sanskrit that only former AIGFP employees can understand!
1. I didn't really think of this as "Obama's bill." I thought the House came up with this dumb idea by itself. 2. I don't think such a tax should be legal. 3. This is not the start of Obama's class warfare. 4. They are free to look for new jobs. They were free to look for new jobs a year ago and the best one looked like the AIG one that promised this bonus. If they knew at the time that the government would screw them over, they would have left for a different job a year ago. 5. This wouldn't have happened if the government wasn't so completely incompetent at overseeing the bailed-out companies. I'm glad they are trying harder now, but I knew disaster was coming when they rushed these bills through without a framework for oversight in place (and with funding). 6. This whole exercise seems self-defeating. So, they'll screw this current group out of some money, but the companies will pay similar compensation in a different form, like straight salary. AIG may even overpay these same guys later to make-up for the losses they sustain now.
Just to clarify - the AIG bailout and the TARP bailout are very different things. The AIG bailout was done over a weekend because not doing it would have led to the immediate collapse of the global financial system. The TARP bailout (the $700B) might actually be doing OK so far. Many of the major banks involved like JPMorgan, Bank of America, Goldman, and Morgan Stanley claim they are expecting to be able to pay back the funds by the end of 2009 or 2010. Whether true or not is unclear, but if that happens, then basically it will be the equivalent of a 5-7% interest 2-yr loan that the gov't makes a profit on (since it's borrowing funds at 1-2%).
Actually, I know it is 100% true.... Some of these people would get snapped up, but you are making a massive assumption that these are the best people, when in fact, some of them are the WORST people. Again, they would all be out of work, let them leave....and someone else will come up and take their spot....and probably for less. People thinking others are irreplaceable have never owned a business.....EVERYONE is replaceable. Without exceptions....in these kind of businesses. DD
I hope you're right that TARP will pay off (I wonder if the government syndicated this investment to private investors, if they'd have any takers). But, neither came with enough oversight. We're really seeing it with AIG right now. But, I don't see that TARP is any better from an oversight perspective, even if we don't lose in the end for it. With this, I agree. The idea that AIG had to keep these people as the only people who know how to unwind the trades is laughable. My father says, "Cemetaries are full of indispensable people." On the flip side, NPR was talking about how some of their contracts state that the loss of the trader might be grounds for terminating their relationships and that AIG needed to keep these people because some counterparties might be looking for an excuse to break-up. That might make this somewhat of an exception.
I am not real fond of this legislation. I don't like that people got huge bonuses with tax payer money but I don't like the idea of putting bandaids in the tax code. Also, AIG is a very big company and that has very profitable divisions. Like the former American General division that sells life insurance. This group has been making money hand of fist and has nothing to do with the banking fiasco, but these guys are going be screwed out of their compensation. The government should have let AIG go bankrupt before it stepped in. That way all these contracts could have been renegotiated .
I don't think you understand what the consequences of the alternative would have been. What happened post-Lehman would have been nothing compared to what would have happened if AIG had actually filed. This is just congress being congress ... the people are outraged, congress is outraged, but it is what it is. Apparently the Israelis are even more outraged -- they're going for a full 100% tax on AIG bonuses. I thought Obama did the right thing last night by distancing himself from it. The recovery process cannot be about band-aids. You have to know exactly what you're doing to build a new long term foundation.
What if we had just guaranteed the insurance contracts and let AIG die? They seem to be just another way to funnel cash back into the banks.
I studied at the University of Chicago and am probably as much of a "free market" guy as anyone, but I can't get myself to feel sorry for these people. I'm with DD on this one, he makes very good points. That is, as long as it is 100 % clear that this is an absolute exception because the company is using taxpayer (bailout) money and should not set a precedent for cases in which this is not the case.
I love the legislation. It's just that it isn't constitutional. Paying people extra money based on a track record of utter failure with tax payer money is ridiculous.
Paul Krugman on the proposed legislation: Preliminary thoughts on the tax bill: 1. It’s not the way you should make policy — it’s clumsy, and it will punish some innocent parties while letting the most guilty off scot-free 2. But — there wasn’t much alternative at this point. And for that I blame the Obama people. I’ll leave to others the question of who knew or should have known that the bonus firestorm was coming; but it’s part of a pattern. At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached. This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.
Washington Post on the proposed legislation: Washington Gone Wild Congress's destructive reaction to the AIG bonuses Friday, March 20, 2009; A18 "SHORTSIGHTED," "opportunistic" and "irresponsible" aptly describe the actions of those who fueled the debacle on Wall Street. They are also apt descriptors for lawmakers more focused on currying favor with a public outraged at the bonuses handed out by bailed-out companies than on fixing the fundamental and still potentially disastrous cracks in the financial system. By changing the terms of a deal months after it was entered into, Congress will show the government to be an unreliable partner, further draining confidence from the financial system and endangering long-term recovery. Yesterday, the House had the feel of a mob scene, with lawmaker after furious lawmaker vying for floor time to rail against the $165 million in taxpayer-funded bonuses lavished on employees of American International Group's disgraced Financial Products division. House members rushed through a bill to impose an effective tax rate of 90 percent on bonuses paid to AIG employees and employees of other firms that accepted at least $5 billion from the Troubled Assets Relief Program -- though when then-Treasury Secretary Henry M. Paulson Jr. pressed many of those firms to take the funds last fall, government interference in their compensation systems was not part of the deal. The legislation, approved by a vote of 328 to 93, would affect employees who received bonuses on or after Jan. 1 and whose household incomes exceed $250,000. Late yesterday afternoon, lawmakers on the Senate Finance Committee introduced their own, broader version of the bonus clawback that would affect firms that accepted as little as $100 million of government funds. We understand that legislators are hearing from furious constituents, and we understand why those voters are angry. It is unquestionably galling that some of the employees who crafted and pushed risky derivatives that wreaked financial havoc worldwide should line their pockets with some of the $173 billion in public funds meant to prop up the too-big-to-fail insurance behemoth and its global business partners. The bonus anger resonates, too, because of a larger sense many voters have that the people who helped trigger this whole economic mess are not the people paying the greatest price. But elected officials have a responsibility to lead, not just to pander; to weigh what makes sense for the country, not just what feels good. The effective confiscation of legally earned and contractually promised payments may well be unconstitutional. It is almost certain to be unhelpful. The bonuses paid at AIG represent less than one-tenth of 1 percent of the bailout provided so far; recouping those funds will have no discernible fiscal effect. But it will help drive away the best talent at the firm, and despite all the glib messages of "good riddance," that is a strange action for an owner -- and the American public now owns AIG -- to take. But the real damage goes well beyond any effect on AIG. The economy continues to suffer from a shortage of credit. The government needs financial institutions -- including relatively healthy ones -- to take public funds that will then be lent to responsible businesses and consumers. The Obama administration reportedly intends in the next week or two to announce the details of a "private-public partnership" to buy troubled assets from ailing banks. The participation of private hedge funds, investment banks and other firms will be key to the plan's success. But what executive in his right mind will enter into a deal if he or she believes the rules can be changed six months or one year down the road purely on the basis of polls and politicians' fears? Rather than bringing reason to the debate, President Obama has stoked the anger, and last night, the White House commented favorably on the House action. Perhaps Mr. Obama believes that only by lining up with an angry public now can he persuade it, and Congress, to approve the hundreds of billions more he will need to right the credit system. But he might have expressed his sympathy with public anger over irresponsible behavior in the financial sector while also steering the government in a more constructive direction. The absence of backbone on either end of Pennsylvania Avenue this week could carry a steep price.
I think when your company requires 150 billion dollars of gov't money to keep operating it's safe to say that the people running that company don't have a freaking clue either. I am all for performance bonuses bases on sales targets - but c'mon, contractual bonuses for guys who are responsible for losing the money? Hey, don't hurt the average joe here, but why should I pay for AIG's executives ritzy life when they are partly responsible for the pain many of people are feeling. I don't think that's right. I want my bonus money back. It's not fair to tax my income and give it to AIG employees as a bonus. How can you support that kind of tax? Think about it - that's essentially what is happening. You are getting taxed to pay out a failed companies bonuses that aren't even performance based. No way.
