6 ms·

Fire the AIG management

24 points by sanj 18y ago

CWuestefeld 18y ago
These bonuses were a contractual obligation. If the problem had been allowed to run its course, a bankruptcy judge would have determined how to discharge all of the company's debts. But that time is past. The US government has elected to keep AIG afloat, and to do so without allowing the company to reorganize its debts. Thus, it still owes 100% of its debts to all of its creditors. The company cannot now go picking and choosing which debts to pay. To do so would do far more damage than failing to retain the executives in question now. While the US government has been trying to shore up confidence in AIG, an action like this would cause ALL of its creditors to question whether the debts that it is owed would be the next to be ignored. Thus, failing to pay these debts would set expectations that future debt might not be paid. This risk would at best increase all costs to AIG, and at worst completely prevent it from doing any business in the future when they can't be trusted. In short, welching on these debts would likely lead to exactly the problem that the government has decided must be avoided.
- sanj 18y ago
  I was under the impression that "bonuses" are discretionary, and not contractual. Every company I've worked with has a baseline bonus based on how the company did and (sometimes) a spiff on top of that due to individual contributions and/or your team's contributions. All discretionary.
  - jacoblyles 18y ago
    It really depends on the employment contract.
  - CWuestefeld 18y ago
    There seems to be little debate over the facts, including that these were, in fact contractual. The debate is only over whether AIG is somehow not bound by those contracts, and if not, whether they should break them. See, for example, http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus-contracts-can-be-broken/#more-1459 http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus... FWIW, I have a small contractual bonus in my own compensation (not from AIG)
    - jhancock 18y ago
      ...and if you commit fraud or take risks that hurt your company, do they still have to pay your bonus?
      - CWuestefeld 18y ago
        I would imagine that any employment contract worth its salt would subject to immediate termination any committing fraud. But you and I have no idea about these particular contracts, do we? But that's really academic, because the AIG employees did not commit fraud. And we're talking about investment bankers. Their job is to take calculated risks. These are very finely calculated. In the case of AIG, the problem isn't that their gambles went south. The problem is that somebody changed the rules on them, so the paper value of the investments (said values not having been realized yet) was changed, changing the calculations going into AIG's credit rating and thus making lenders wary. As was noted elsewhere in this thread (http://news.ycombinator.com/item?id=522777 http://news.ycombinator.com/item?id=522777 ), these executives weren't committing fraud, nor were they even losing actual money.
        jhancock 18y ago
        you are correct that I know nothing of what's in their contracts. and you know nothing of if they committed fraud...or do you? The real problem is AIG is an INSURANCE COMPANY, not an INVESTMENT BANK. At least the part that the gov is bailing out is about its insurances. An insurance company is only supposed to invest its moneys in very low risk investments. The reason is they are supposed to constantly monitor the costs of covering their underwriting and keep enough funds on hand to cover their bets. They have not done so. This is the root of the problem. Is it fraud for an insurance company to not have enough to cover its underwritings and to continue to take on more? I think so...and that's the core of this problem.
  - gojomo 18y ago
    That a 'bonus' is discretionary or conditional is the common usage -- but the condition set in these contracts, staying through certain dates (even if the recipients are not there now) was apparently met. It also seems the case that in certain fields, 'bonus' is essentially a part of contractually or traditionally guaranteed compensation. They've stretched the term -- but that's become the new meaning, in that field, for years if not decades. So a lot of this hullabaloo is caused by terminological confusion.
  - colins_pride 18y ago
    This is why all of the recent fury against bonuses is so mis-guided. People literally don't understand what they're angry about. The irony is that bonuses are how people everywhere should get paid. Can you imagine how much better our schools would be if there was a mechanism to pay good teachers more than bad teachers?
    - silentOpen 18y ago
      The irony is that these "bonuses" aren't meritocratic like your good teacher/bad teacher scenario. These are retention bonuses contractually agreed to by AIG and their employees. Last year, back when AIG knew things were hitting the fan, they decided to offer a carrot to employees who would stay through the storm. Turns out, AIG is "too big to fail" so those that decided to stay with AIG through our current adventure appear to be getting rewarded for incompetence.
- madmanslitany 18y ago
  "In short, welching on these debts would likely lead to exactly the problem that the government has decided must be avoided." I think this is true of the payments made to AIG's counterparties, not so much of the bonuses being paid to the financial services division. Pretty much everyone on Wall Street's compensation has gotten hosed so I don't think trading partners are going to flinch about seeing employees go bonus-less. There's a bit of irony in me saying this (think about who I might be doing technology for[and it's not AIG] that would make my words the most ironic...), but bonuses only work as a positive motivator up to a point. Past that, you end up getting people doing the wrong things for the wrong reasons--there were a few good HN posts about this concerning case studies conducted on bonuses and why companies should pay above the market average but not be at the top percentile.
anthonyrubin 18y ago
"This shows a worrisome lack of basic business knowledge." "The manager of your local McDonald’s is smarter than the AIG executives." These types of remarks seem common when discussing this and similar situations related to the current economic situation. Perhaps the intentions of these executives was not to save the company, but to take care of themselves. I don't see this as stupidity. Greedy and unethical? Most definitely. These people are not stupid.
old-gregg 18y ago
I used to despise tax evaders and considered my taxpaying obligations to be an essential part of living in a civilized society. While I didn't really think in terms of "getting something back" but I've been assuming that, in general, my own well being, especially later in life, is kind of guaranteed simply because I've been a good citizen of law obeying society. During 2008 my attitude towards paying federal taxes has changed dramatically. What I'm seeing now is pretty much a racketeering organization where healthcare, finance and law have semi-merged with the government and are pretty much holding the rest of the population as their personal slaves. Justice and health (legal and medical costs) are out of reach for nearly everybody and, frankly, what else is a government good for? Maybe for protection from Canadians or Mexicans? I don't want to sound like a crazy conspiracy theorist or a libertarian, but paying taxes now looks pretty much like feeding these gangsters and I'm determined to find every single available legal loophole and exploit it in full. I also like to entertain myself with a thought that ultimately, over my entire lifespan, this decision will cost US government a significant sum of money, especially if I am not the only 30 year old aspiring entrepreneur with such attitude.
- dkokelley 18y ago
  I don't remember where I saw this, but someone said that it is the duty of the citizens to pay the legal minimum amount of taxes they are obligated to pay, and no more. You seem to represent this strategy now. I think it's important for more people to adopt this attitude.
- tc 18y ago
  Don't be so sure you won't end up a libertarian if you keep your eyes open. The injustices you've just discovered are the underlying sentiments that motivate most libertarians. The basic libertarian insight is that far from being new, these activities have been the fundamental business of government for millennia. In times like these, the curtain is pulled back a little bit farther than usual.
jacoblyles 18y ago
>"We voters do it every 4-8 years for the U.S. government, a vastly more complex operation than AIG." The government is not in the business of meeting any objective goals. It simply appropriates funds, does things with them, and then tells you about what it did with the best spin possible. As long as nothing too bad happens and the people in charge are serious-looking and wear suits, nobody complains. The government could be run by a ferret, as long as it had a good press secretary. Private companies, on the other hand, have an objective performance standard to meet. They must make money, or eventually die. The pressure of an objective performance standard makes them much harder to run. The ability to achieve results is much more important, and the ability to look good on camera is much less. There is punishment for incompetence. I suggest that firing the current crop of executives and making it clear to new potential hires that they will be underpaid and under intense public scrutiny is a good way to run what is left of the company into the ground. Given the other options available, this might be a good thing, but it could be done more directly.
- gnaritas 18y ago
  > The government is not in the business of meeting any objective goals. That's an absurd statement. We don't send officials to congress without them running a campaign specifying their goals. You might not like the process, or trust the process, or think private companies (dictatorships) do it better, but don't say they have no goals. Every single one of them has goals for their districts/states and they get fired (not reelected) if they fail more than the public likes. If government seems so inefficient and difficult to get things done, it's often because members of congress have conflicting goals so getting anything done is difficult. This isn't an accident, it's how the system is supposed to work. > There is punishment for incompetence. Usually, but as we're clearly seeing now government and business are so tightly interwoven in the modern world that execs knowingly abuse the government and do things that would be bad if they didn't know they'd be bailed out by their buddies in government who they paid to have elected. > I suggest that firing the current crop of executives Not going to happen and you know it.
  - CWuestefeld 18y ago
    > We don't send officials to congress without them running a campaign specifying their goals. Perhaps you have a different concept of "goals". Political candidates spew platitudes, but when have you ever heard they cite a specific, measurable goal? The few instances I've heard always specify a timeframe that's conveniently just beyond the next election, e.g. a presidential candidate promising that something will happen in 5 years, so that their next election can't be held up by it. > execs knowingly abuse the government ... their buddies in government who they paid to have elected It works both ways. Don't just focus on business, also look at the government officials who are so willing to prostitute themselves.
davetufts 18y ago
Directing anger at AIG is misguided. Our government is the wrongdoer here. Failing to let state bankruptcy court and natural liquidation happen - as we did with Enron - started the problem. The problem with exec bonuses was exasperated in the final version of the American Recovery and Reinvestment Act of 2009. Here, Chris Dodd added the “Dodd amendment” http://www.google.com/search?q=dodd+amendment http://www.google.com/search?q=dodd+amendment It reads: ‘‘(iii) The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.” http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1 http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1: That amendment guarantees all bonuses that were contracted before the date of the Act. Of course, Dodd and Obama are “outraged”. But why did Dodd add that provision? Why did Obama sign it? Not surprisingly Dodd, Obama, Bush, McCain, and Shumer are the largest benefactors of AIG’s massive lobbying. http://www.opensecrets.org/orgs/recips.php?id=D000000123&type=P&state=&sort=A&cycle=A http://www.opensecrets.org/orgs/recips.php?id=D000000123&#38... AIG isn’t taking our money. Our government is.
- jhancock 18y ago
  you are correct in what is happening "right now". But that is not what got AIG and many others into this mess. AIG "insured" debts it did not have enough holdings to back up. I quote the word insured because, insurance is barely what it used to be. Traditionally, government demanded insurers have low-risk holdings to back up a sizable percent of their outstanding obligations. The regulations that handled this have been dismantled over the years. Additionally, the "insurance" has been broadened to include other type of investment vehicles instead of traditional insurance. AIG got greedy and was able to do so because they and others lobbied hard to allow them to be greedy. This was a multi-decade process.
  - davetufts 18y ago
    Right, my comments are about "right now", because they reference the article which deals with the situation right now -- specifically firing AIG's management because they are "sucking down" big bonuses. I contend that the article focuses on one of the symptoms "right now" (bonuses to poor management still running a company); whereas the cause is government intervention. Without that intervention, the "right now" symptoms would not exist, i.e. AIG would not exist. You bring up the long debacle that led to this situation. However, you fail to mention that our government and the Federal Reserve have been tightly tangled with AIG for a long time. Regarding "multi-decade process", there's plenty of government blame to go around. http://www.lewrockwell.com/rozeff/rozeff253.html http://www.lewrockwell.com/rozeff/rozeff253.html If you're contenting that AIG was insolvent and still issuing insurance, they should have been prosecuted under state fraud laws, not bailed out with billions of dollars.
condor 18y ago
I love it, everybody has an opinion because in theory everybody is a part owner . . . AIG will be a great case study on why companies are best managed as dictatorships and constrained by a marketplace. It'll be interesting to see what happens when neither of those is in place.
ironsam 18y ago
This is quite a poor article, for reasons others have already mentioned here. Ultimately, any government "solution" that involves the bailout of companies is flawed and immoral.
bwd 18y ago
A couple of points to consider here. First, for all of the people who think that AIG should have gone bankrupt: go look at www.aig.com under "individuals and families" to see what lines of business AIG is in, then check out the "insurance holdings by state" section of the wikipedia page. AIG owns two dozen insurance companies in California and controls 4.7% of the life insurance and 2.7% of the property and casualty market in West Virginia, among other things. IANAL, but I have to assume that policy holders would revert to general creditors in the event that they had a loss and the insurer was bankrupt. Would you want to go to bankruptcy court and stand in line with Goldman Sachs, Societe Generale, etc. to try to get your payout if your house had burned down or your spouse had died and you needed the money to pay your bills? It may be the case that state governments stand behind insurers that do business in their state (insurers are regulated at the state level so this may vary by state) but this converts the problem into one that is much more complicated and expensive to sort out than just giving money to the parent company. I expect that this is why the parent company was bailed out instead of going bankrupt. As for bonuses paid to executives, these people are employed in units that basically trade derivatives, and they know what positions AIG has on its books. It is thus possible that the guy who earned $6.4 million in bonus could earn a lot more than that if he started a hedge fund and bet specifically against the positions that he knows AIG has. If this is the case, then AIG is actually saving money by paying this guy to stick around and help them unwind the book. Confidentiality provisions will not protect a company from a former employee betting against their positions, only from having them disclose information.
- erso 18y ago
  I don't agree with your position that AIG was in the right by paying bonuses. If the executive in question can be bought so easily I don't think they'd stick around when they know they can make more money elsewhere. Case in point: NYT reported today that according to Andrew Cuomo 52 of the executives that were given bonuses have already left the company. These people took the money and ran.
  - anamax 18y ago
    > These people took the money and ran. They got pre-agreed bonuses for what they did. They saw that things were changing for the worse and left. What part of that do you have a problem with? Thanks to the handwringing, started by people who knew about the bonus months ago, AIG is going to have trouble hiring people. Since we're hoping to get tax money back, it's unclear why that's a good thing.
jobeirne 18y ago
>"The manager of your local McDonald’s is smarter than the AIG executives." I would beg to differ. The manager at my local McDonald's hasn't convinced an entire country to pay him $6.5 mil for doing a horrible job. >"McDonald’s doesn’t say 'We had a bad year last year and you might be discouraged, so we’re writing you a fat check unconditionally in hopes that you will like us and stick around this year.'" Broken analogy; it's the government who wrote the fat check, not AIG.
ratsbane 18y ago
It's very Merchant-of-Venice-ish - Antonio owed Shylock money via a legally valid contract which permitted Shylock to claim a pound of flesh in case of default. The court ruled in Shylock's favor - he could claim the pound of flesh - but said that if Antonio died that Shylock would be tried for murder. I'm starting to read more thorough explanations of the bonuses - they were approved 1Q 2008 to encourage retention during the 2008 year, with payment at the end of the year. As such they're probably legal, but the proposal to tax them 100% - or better yet, scrutinize the actions of the bonus recipients during the last year and hold them to a high standard of responsibilty - seems appropriate to me. Holding highly-compensated executives to high standards is what we should be doing anyway. With rewards come responsibilities. EDIT - It wasn't threat of murder - the court ruled that Shylock couldn't take any of Antonio's blood on pain of forfeiture of all of his (Shylock's) assets. http://en.wikipedia.org/wiki/The_Merchant_of_Venice http://en.wikipedia.org/wiki/The_Merchant_of_Venice

24 points by sanj 18y ago

These bonuses were a contractual obligation. If the problem had been allowed to run its course, a bankruptcy judge would have determined how to discharge all of the company's debts. But that time is past. The US government has elected to keep AIG afloat, and to do so without allowing the company to reorganize its debts. Thus, it still owes 100% of its debts to all of its creditors. The company cannot now go picking and choosing which debts to pay. To do so would do far more damage than failing to retain the executives in question now. While the US government has been trying to shore up confidence in AIG, an action like this would cause ALL of its creditors to question whether the debts that it is owed would be the next to be ignored. Thus, failing to pay these debts would set expectations that future debt might not be paid. This risk would at best increase all costs to AIG, and at worst completely prevent it from doing any business in the future when they can't be trusted. In short, welching on these debts would likely lead to exactly the problem that the government has decided must be avoided.

sanj 18y ago
I was under the impression that "bonuses" are discretionary, and not contractual. Every company I've worked with has a baseline bonus based on how the company did and (sometimes) a spiff on top of that due to individual contributions and/or your team's contributions. All discretionary.
- jacoblyles 18y ago
  It really depends on the employment contract.
- CWuestefeld 18y ago
  There seems to be little debate over the facts, including that these were, in fact contractual. The debate is only over whether AIG is somehow not bound by those contracts, and if not, whether they should break them. See, for example, http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus-contracts-can-be-broken/#more-1459 http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus... FWIW, I have a small contractual bonus in my own compensation (not from AIG)
  - jhancock 18y ago
    ...and if you commit fraud or take risks that hurt your company, do they still have to pay your bonus?
    - CWuestefeld 18y ago
      I would imagine that any employment contract worth its salt would subject to immediate termination any committing fraud. But you and I have no idea about these particular contracts, do we? But that's really academic, because the AIG employees did not commit fraud. And we're talking about investment bankers. Their job is to take calculated risks. These are very finely calculated. In the case of AIG, the problem isn't that their gambles went south. The problem is that somebody changed the rules on them, so the paper value of the investments (said values not having been realized yet) was changed, changing the calculations going into AIG's credit rating and thus making lenders wary. As was noted elsewhere in this thread (http://news.ycombinator.com/item?id=522777 http://news.ycombinator.com/item?id=522777 ), these executives weren't committing fraud, nor were they even losing actual money.
      - jhancock 18y ago
        you are correct that I know nothing of what's in their contracts. and you know nothing of if they committed fraud...or do you? The real problem is AIG is an INSURANCE COMPANY, not an INVESTMENT BANK. At least the part that the gov is bailing out is about its insurances. An insurance company is only supposed to invest its moneys in very low risk investments. The reason is they are supposed to constantly monitor the costs of covering their underwriting and keep enough funds on hand to cover their bets. They have not done so. This is the root of the problem. Is it fraud for an insurance company to not have enough to cover its underwritings and to continue to take on more? I think so...and that's the core of this problem.
- gojomo 18y ago
  That a 'bonus' is discretionary or conditional is the common usage -- but the condition set in these contracts, staying through certain dates (even if the recipients are not there now) was apparently met. It also seems the case that in certain fields, 'bonus' is essentially a part of contractually or traditionally guaranteed compensation. They've stretched the term -- but that's become the new meaning, in that field, for years if not decades. So a lot of this hullabaloo is caused by terminological confusion.
- colins_pride 18y ago
  This is why all of the recent fury against bonuses is so mis-guided. People literally don't understand what they're angry about. The irony is that bonuses are how people everywhere should get paid. Can you imagine how much better our schools would be if there was a mechanism to pay good teachers more than bad teachers?
  - silentOpen 18y ago
    The irony is that these "bonuses" aren't meritocratic like your good teacher/bad teacher scenario. These are retention bonuses contractually agreed to by AIG and their employees. Last year, back when AIG knew things were hitting the fan, they decided to offer a carrot to employees who would stay through the storm. Turns out, AIG is "too big to fail" so those that decided to stay with AIG through our current adventure appear to be getting rewarded for incompetence.
madmanslitany 18y ago
"In short, welching on these debts would likely lead to exactly the problem that the government has decided must be avoided." I think this is true of the payments made to AIG's counterparties, not so much of the bonuses being paid to the financial services division. Pretty much everyone on Wall Street's compensation has gotten hosed so I don't think trading partners are going to flinch about seeing employees go bonus-less. There's a bit of irony in me saying this (think about who I might be doing technology for[and it's not AIG] that would make my words the most ironic...), but bonuses only work as a positive motivator up to a point. Past that, you end up getting people doing the wrong things for the wrong reasons--there were a few good HN posts about this concerning case studies conducted on bonuses and why companies should pay above the market average but not be at the top percentile.

anthonyrubin 18y ago

"This shows a worrisome lack of basic business knowledge." "The manager of your local McDonald’s is smarter than the AIG executives." These types of remarks seem common when discussing this and similar situations related to the current economic situation. Perhaps the intentions of these executives was not to save the company, but to take care of themselves. I don't see this as stupidity. Greedy and unethical? Most definitely. These people are not stupid.

old-gregg 18y ago

I used to despise tax evaders and considered my taxpaying obligations to be an essential part of living in a civilized society. While I didn't really think in terms of "getting something back" but I've been assuming that, in general, my own well being, especially later in life, is kind of guaranteed simply because I've been a good citizen of law obeying society. During 2008 my attitude towards paying federal taxes has changed dramatically. What I'm seeing now is pretty much a racketeering organization where healthcare, finance and law have semi-merged with the government and are pretty much holding the rest of the population as their personal slaves. Justice and health (legal and medical costs) are out of reach for nearly everybody and, frankly, what else is a government good for? Maybe for protection from Canadians or Mexicans? I don't want to sound like a crazy conspiracy theorist or a libertarian, but paying taxes now looks pretty much like feeding these gangsters and I'm determined to find every single available legal loophole and exploit it in full. I also like to entertain myself with a thought that ultimately, over my entire lifespan, this decision will cost US government a significant sum of money, especially if I am not the only 30 year old aspiring entrepreneur with such attitude.

dkokelley 18y ago
I don't remember where I saw this, but someone said that it is the duty of the citizens to pay the legal minimum amount of taxes they are obligated to pay, and no more. You seem to represent this strategy now. I think it's important for more people to adopt this attitude.
tc 18y ago
Don't be so sure you won't end up a libertarian if you keep your eyes open. The injustices you've just discovered are the underlying sentiments that motivate most libertarians. The basic libertarian insight is that far from being new, these activities have been the fundamental business of government for millennia. In times like these, the curtain is pulled back a little bit farther than usual.

jacoblyles 18y ago

>"We voters do it every 4-8 years for the U.S. government, a vastly more complex operation than AIG." The government is not in the business of meeting any objective goals. It simply appropriates funds, does things with them, and then tells you about what it did with the best spin possible. As long as nothing too bad happens and the people in charge are serious-looking and wear suits, nobody complains. The government could be run by a ferret, as long as it had a good press secretary. Private companies, on the other hand, have an objective performance standard to meet. They must make money, or eventually die. The pressure of an objective performance standard makes them much harder to run. The ability to achieve results is much more important, and the ability to look good on camera is much less. There is punishment for incompetence. I suggest that firing the current crop of executives and making it clear to new potential hires that they will be underpaid and under intense public scrutiny is a good way to run what is left of the company into the ground. Given the other options available, this might be a good thing, but it could be done more directly.

gnaritas 18y ago
> The government is not in the business of meeting any objective goals. That's an absurd statement. We don't send officials to congress without them running a campaign specifying their goals. You might not like the process, or trust the process, or think private companies (dictatorships) do it better, but don't say they have no goals. Every single one of them has goals for their districts/states and they get fired (not reelected) if they fail more than the public likes. If government seems so inefficient and difficult to get things done, it's often because members of congress have conflicting goals so getting anything done is difficult. This isn't an accident, it's how the system is supposed to work. > There is punishment for incompetence. Usually, but as we're clearly seeing now government and business are so tightly interwoven in the modern world that execs knowingly abuse the government and do things that would be bad if they didn't know they'd be bailed out by their buddies in government who they paid to have elected. > I suggest that firing the current crop of executives Not going to happen and you know it.
- CWuestefeld 18y ago
  > We don't send officials to congress without them running a campaign specifying their goals. Perhaps you have a different concept of "goals". Political candidates spew platitudes, but when have you ever heard they cite a specific, measurable goal? The few instances I've heard always specify a timeframe that's conveniently just beyond the next election, e.g. a presidential candidate promising that something will happen in 5 years, so that their next election can't be held up by it. > execs knowingly abuse the government ... their buddies in government who they paid to have elected It works both ways. Don't just focus on business, also look at the government officials who are so willing to prostitute themselves.

davetufts 18y ago

Directing anger at AIG is misguided. Our government is the wrongdoer here. Failing to let state bankruptcy court and natural liquidation happen - as we did with Enron - started the problem. The problem with exec bonuses was exasperated in the final version of the American Recovery and Reinvestment Act of 2009. Here, Chris Dodd added the “Dodd amendment” http://www.google.com/search?q=dodd+amendment http://www.google.com/search?q=dodd+amendment It reads: ‘‘(iii) The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.” http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1 http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1: That amendment guarantees all bonuses that were contracted before the date of the Act. Of course, Dodd and Obama are “outraged”. But why did Dodd add that provision? Why did Obama sign it? Not surprisingly Dodd, Obama, Bush, McCain, and Shumer are the largest benefactors of AIG’s massive lobbying. http://www.opensecrets.org/orgs/recips.php?id=D000000123&type=P&state=&sort=A&cycle=A http://www.opensecrets.org/orgs/recips.php?id=D000000123&#38... AIG isn’t taking our money. Our government is.

jhancock 18y ago
you are correct in what is happening "right now". But that is not what got AIG and many others into this mess. AIG "insured" debts it did not have enough holdings to back up. I quote the word insured because, insurance is barely what it used to be. Traditionally, government demanded insurers have low-risk holdings to back up a sizable percent of their outstanding obligations. The regulations that handled this have been dismantled over the years. Additionally, the "insurance" has been broadened to include other type of investment vehicles instead of traditional insurance. AIG got greedy and was able to do so because they and others lobbied hard to allow them to be greedy. This was a multi-decade process.
- davetufts 18y ago
  Right, my comments are about "right now", because they reference the article which deals with the situation right now -- specifically firing AIG's management because they are "sucking down" big bonuses. I contend that the article focuses on one of the symptoms "right now" (bonuses to poor management still running a company); whereas the cause is government intervention. Without that intervention, the "right now" symptoms would not exist, i.e. AIG would not exist. You bring up the long debacle that led to this situation. However, you fail to mention that our government and the Federal Reserve have been tightly tangled with AIG for a long time. Regarding "multi-decade process", there's plenty of government blame to go around. http://www.lewrockwell.com/rozeff/rozeff253.html http://www.lewrockwell.com/rozeff/rozeff253.html If you're contenting that AIG was insolvent and still issuing insurance, they should have been prosecuted under state fraud laws, not bailed out with billions of dollars.

condor 18y ago

I love it, everybody has an opinion because in theory everybody is a part owner . . . AIG will be a great case study on why companies are best managed as dictatorships and constrained by a marketplace. It'll be interesting to see what happens when neither of those is in place.

ironsam 18y ago

This is quite a poor article, for reasons others have already mentioned here. Ultimately, any government "solution" that involves the bailout of companies is flawed and immoral.

bwd 18y ago

A couple of points to consider here. First, for all of the people who think that AIG should have gone bankrupt: go look at www.aig.com under "individuals and families" to see what lines of business AIG is in, then check out the "insurance holdings by state" section of the wikipedia page. AIG owns two dozen insurance companies in California and controls 4.7% of the life insurance and 2.7% of the property and casualty market in West Virginia, among other things. IANAL, but I have to assume that policy holders would revert to general creditors in the event that they had a loss and the insurer was bankrupt. Would you want to go to bankruptcy court and stand in line with Goldman Sachs, Societe Generale, etc. to try to get your payout if your house had burned down or your spouse had died and you needed the money to pay your bills? It may be the case that state governments stand behind insurers that do business in their state (insurers are regulated at the state level so this may vary by state) but this converts the problem into one that is much more complicated and expensive to sort out than just giving money to the parent company. I expect that this is why the parent company was bailed out instead of going bankrupt. As for bonuses paid to executives, these people are employed in units that basically trade derivatives, and they know what positions AIG has on its books. It is thus possible that the guy who earned $6.4 million in bonus could earn a lot more than that if he started a hedge fund and bet specifically against the positions that he knows AIG has. If this is the case, then AIG is actually saving money by paying this guy to stick around and help them unwind the book. Confidentiality provisions will not protect a company from a former employee betting against their positions, only from having them disclose information.

erso 18y ago
I don't agree with your position that AIG was in the right by paying bonuses. If the executive in question can be bought so easily I don't think they'd stick around when they know they can make more money elsewhere. Case in point: NYT reported today that according to Andrew Cuomo 52 of the executives that were given bonuses have already left the company. These people took the money and ran.
- anamax 18y ago
  > These people took the money and ran. They got pre-agreed bonuses for what they did. They saw that things were changing for the worse and left. What part of that do you have a problem with? Thanks to the handwringing, started by people who knew about the bonus months ago, AIG is going to have trouble hiring people. Since we're hoping to get tax money back, it's unclear why that's a good thing.

jobeirne 18y ago

>"The manager of your local McDonald’s is smarter than the AIG executives." I would beg to differ. The manager at my local McDonald's hasn't convinced an entire country to pay him $6.5 mil for doing a horrible job. >"McDonald’s doesn’t say 'We had a bad year last year and you might be discouraged, so we’re writing you a fat check unconditionally in hopes that you will like us and stick around this year.'" Broken analogy; it's the government who wrote the fat check, not AIG.

ratsbane 18y ago

It's very Merchant-of-Venice-ish - Antonio owed Shylock money via a legally valid contract which permitted Shylock to claim a pound of flesh in case of default. The court ruled in Shylock's favor - he could claim the pound of flesh - but said that if Antonio died that Shylock would be tried for murder. I'm starting to read more thorough explanations of the bonuses - they were approved 1Q 2008 to encourage retention during the 2008 year, with payment at the end of the year. As such they're probably legal, but the proposal to tax them 100% - or better yet, scrutinize the actions of the bonus recipients during the last year and hold them to a high standard of responsibilty - seems appropriate to me. Holding highly-compensated executives to high standards is what we should be doing anyway. With rewards come responsibilities. EDIT - It wasn't threat of murder - the court ruled that Shylock couldn't take any of Antonio's blood on pain of forfeiture of all of his (Shylock's) assets. http://en.wikipedia.org/wiki/The_Merchant_of_Venice http://en.wikipedia.org/wiki/The_Merchant_of_Venice