Since Ponzi schemer Bernie Madoff has gone to jail, the Howard Beal “I’m as mad as hell, and I’m not going to take this anymore” anger towards Wall Street has found a new whipping boy.
It is insurance giant AIG, the proud recipient of $173 billion and counting in United States government aid.
AIG, now 80% owned by the taxpayers, has committed the corporate version of pedophilia sans the usual shame and remorse. The company, almost certainly in need of more cash infusions than the $173 billion already given it by the taxpayers, somehow found enough extra money (from where I do not know) to pay $165 million in bonuses to employees last Friday.
Bonus comes from the Latin word for good, so one would assume that AIG gave the bonuses to their high performing employees. In fact, the opposite was true. The employees given the bonuses — the traders of the credit default swaps — were the very same ones that brought AIG and, in fact, the entire global financial system to its knees. A financial crisis seems an odd time to try a new management philosophy: reward for failure.
The current CEO of AIG recruited for the job by the Bush administration, Edward Liddy, has somehow found a way to defend these bonuses. If anything, this is proof that he should be fired. In a letter to Treasury Secretary Timothy Geithner, Liddy wrote, “We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses — which are now being operated principally on behalf of the American taxpayers — if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”
The $165 million is only the first installment in a total bonus pool of $450 million. Seventy-three employees received more than $1 million dollars. Eleven employees granted bonuses, including one that received a $4.6 million bonus, are no longer with the firm. This obviates the argument that these bonuses are necessary for retention.
President Obama justifiably said that he “could not understand how anyone at AIG warranted a bonus.” He had asked Secretary Geithner to use every legal avenue to recover the money. (No chance of that happening.) Administration officials have known about these bonuses for months. I am wondering why they chose to react now instead of two weeks ago, when they gave AIG $30 billion more.
There was absolutely no need to pay retention bonuses to a group of employees that created $180 billion in losses. Where are they going to go? Liddy, AIG’s CEO, sounds like a battered wife making excuses for standing in the way of her bullying spouse’s fist.
I am not sure that the American taxpayer should even honor a contract that appears fraudulent in origin. The 2008 bonuses in these contacts were awarded at the same robust levels as 2007, even though these contracts were written when it was quite clear that the financial climate had chilled. Maybe questions about these contracts should be answered in a criminal courtroom.
Employees of profitable divisions of distressed companies such as the auto industry understand that they have to forgo their bonuses until the whole company is profitable. Why should Wall Street be any different?
As outraged as I am, Congress has turned AIG into a punching bag. Senator Chuck Grassley (R-Iowa) recommended in a radio interview that AIG executives “follow the Japanese model … resign, or go commit suicide.” An aide later clarified that the senator “does not actually want executives to kill themselves,” but he should not have to. Is a member of Congress actually advocating suicide as a solution for a crisis caused by a lack of government regulation? If that is the case, maybe he should also do the honorable thing.
Congresswoman Carolyn Maloney (D-New York), who usually only gets her panties in a bunch about guns, is calling for a 100% tax on AIG bonuses. Congress is now calling for a 91% excise tax on the bonuses.
America, a country founded on the principle of equality, can not seriously be considering taxing specific employees of one company a different way than all the rest of the workers of the country. What’s next? Will employees of Wall Street firms that earn bonuses have to wear yellow stars and live in a special ghetto?
The attorney general of New York, Andrew Cuomo, has joined the fray by subpoenaing the list of AIG employees that received bonuses. “The whole concept of a performance bonus to me is oxymoronic when it comes to AIG,” said Cuomo.
The real outrage at AIG is not the $165 million in bonuses paid to employees. It is something 1000% bigger. Eliot Spitzer, disgraced former New York governor and attorney general, puts the whole story in context: “The real scandal at AIG is not the bonuses. It’s that AIG counterparties are getting paid in full.
Current NY Attorney General Cuomo also argues against paying the counterparties in full: “If the taxpayer didn’t bail out AIG, those contracts wouldn’t be worth the paper they’re printed on.”
It should be a surprise to no one that the Bush administration’s, particularly Treasury Secretary Paulson’s, favorite charity, Goldman Sachs, leads the list of AIG counterparties by receiving almost $13 billion of American taxpayers’ money. There is no good reason that AIG did not negotiate a haircut on the contract with Goldman Sachs. In effect, Goldman Sachs, the richest firm on Wall Street, received a bailout from the American taxpayer. Many of whom are being thrown out of their houses. An additional $24 billion of our cash has gone abroad to foreign banks to satisfy their AIG contracts.
Stay tuned. I am betting that AIG will continue to make our blood boil. The senior management there refused to accept that the financial world has changed and that they can not continue to operate as they did in the past.