Is Obama Finally Pushing Back on the Wall Street Barons' Supreme Arrogance?

Discuss

78 Responses to “Is Obama Finally Pushing Back on the Wall Street Barons' Supreme Arrogance?”

  1. Anonymous says:

    “and as they are now party to those contracts, bring suit to nullify the contracts judicially (perhaps as unconscionable) and let the companies fight it out in court for the right to pay the bonuses”

    The company won’t sue, the employees that are contractually due bonuses will. They will win. The company will then pay the bonuses plus damages and interest.

    The burden for a contract to be unconscionable is much higher than you think — remember that you have to evaluate the contract *at the time it was signed*, not at the present time. During the time when the contracts were signed, AIG was booming and those bonuses were quite commonplace.

    If I contract with you to buy 100 gallons of beer when the price is $50/gal and then it drops to $1, sure the contract would be unreasonable now, but it was reasonable then and I’m obligated to cough up the money.

    ~Anonymous lawyer

  2. Patrick Dodds says:

    You are Andrew – I wasn’t, I know, but I’m clutching at straws. I’m in the UK and the same thing is happening over here (RBS chief walks away from busted bank with a £700,000 p.a. pension). I know in my heart of hearts you can’t make laws because things happen you don’t like. However, I know if it were striking miners who were in the frame for some alleged wrongdoing the powers-that-be would be all over them like a bad suit.

  3. DaveLaFontaine says:

    “Vigilantism”? “Revolutions”?

    Slow down there, Dan. That’s the kind of talk I expect to hear from the wingnuts over at Stormfront. Next you’ll be using dog-whistle phrases like “Lone Wolf”…

    I am pissed about this as well; I don’t think there’s an American outside of the robber barons & their enablers who is not increasingly furious about the scale of the thefts here & the blatant disregard for society. But focusing in on these simple examples of outrageous arrogance obscures the larger issue that we’re going to have to face up to, sooner or later.

    That is, the enablers of this were all of us. The whole culture of “I’ve got mine, Jack” that came in style in the “Greed Decade” of the 80s as a reaction to the failures of the patchouli&granola movement, have hit the wall.

    The pundits & internet libertarians screaming the loudest about “socialism” are missing the point – that it was the opposite of socialism that caused this problem. The bankers & brokers who cared only about extracting their slice of the wealth before the house of cards collapsed by their actions revealed that they cared nothing about the society in which they existed.

    I dunno. Maybe you’re right. Maybe it is time to start dusting off the tumbrils. I hope not.

  4. Takuan says:

    by the logic in that article, Sisterbeer, the Nuremberg Trials should never have been held since very single German in the country was guilty.

  5. aelfscine says:

    Does anyone know what would happen if we just let these jackasses fail? What would be the consequences? Of course, THEY’LL tell us that the world will explode in flames if they go down. Will it indeed cause horrible problems? I’m not asking this leadingly, I honestly would like to know.

  6. jamie says:

    100% tax on bonuses? Really? Let’s think about that…

    150% tax on bailout-funded bonuses works better for me.

  7. edgore says:

    What I can’t understand about all of this is that we are talking about bonuses. How badly were these original contracts put together taht these guys still get their bonuses while the company goes down in flames. At the company I work for our bonuses are tied to company performance, and meeting certain goals (and the program has been unilaterally suspended for all employees incl. management for 2009). The company can change those goals throughout the year – if the economy in general is booming, then the goalposts can be moved, since the bonuses are supposed to be for performance above and beyond “doing our job”.

    How did these AIG guys end up with bonuses the company is contractually obligated to pay, even though their performance is awful? THAT is what I want to know. How did the AIG directors approve a bonus program that pays out under these circumstances? Sounds like criminal negligence to me.

  8. Takuan says:

    I see the UK is deposing the government of the Turks and Caicos as “corrupt”. A tax haven, are they not? I can’t help but feel there is as great deal going on behind the scenes at a global level that amounts to a banker’s war, a settling of scores and jockeying for positions in the next durable paradigm. A tattle-tale war where the elected and the powerful spill the dirt on rivals to keep the peasants away from their own castles.

  9. benher says:

    So… about how many more months of this until the time for talking is over?

  10. DWittSF says:

    Yes, by all means, you *little people* should keep following Teh Law. Breaking it is the exclusive privilege of the wealthy, so STFU and go back to work.

    thanks,
    Mgmt.

  11. sisterbeer says:

    Thank you, #70. Finally, someone with actual AIG employment experience speaks. AIG isn’t made up of only executives who get millions of dollars in compensation. There are many, many people there that work for less than 6 figures, including bonuses.

    And I’d like to thank #28, I believe it was, who suggested that folks should harass AIG employees. Now they’re receiving death threats. That’s just lovely. I’m sure killing will solve everything.

    And as for #58…wtf? Really? Nazis?

    We should really aim our frustrations at the hedge fund managers and the folks at the banks that will make even more money renegotiating the crappy mortgages that they sold to suckers in the first place. They’re going to make their money twice over, and this time the taxpayers will be paying for it. And that won’t be a loan–the money will simply be gone. At least AIG is paying theirs back.

  12. bwcbwc says:

    Supposedly the government owns about 80% of the company. If that’s in voting shares, call for a shareholder meeting and vote the board out and have the new board fire the execs.

    If it’s not voting shares, shame on the idiots who gave AIG the money.

  13. Takuan says:

    I thought all the execs took the money and quit same day?

  14. bwcbwc says:

    Mark @#9. I think they had to pay it out on insurance claims on mortgage backed securities, CDOs and so on that became worthless. That’s why most of the money got passed to banks like Goldman Sachs.

    If the management at AIG doesn’t want to be the center of a firestorm, they’d better plan on quickly donating their “contractually obligated” bonuses to a worthy charity. Like the federal deficit reduction fund.

  15. grikdog says:

    Obama’s been a disappointment on Iraq, Afghanistan, homeland surveillance (and insecurity), Guantanamo and the Wall Street status quo. Some of it appears to be deer-in-the-headlights disbelief that there’s a world outside community organizing, frankly. It’s not that he has no ideology, but that his ideology is too small. Was Jesse Jackson right (http://www.youtube.com/watch?v=TQl_6buUggM)? This is not good. Obama stands a good (i.e., bad) chance of reprising the Carter administration if he doesn’t start digging up a few more heartfelt principles.

  16. Teresa Nielsen Hayden / Community Manager says:

    I don’t think Obama is in bed with the financial interests. I think it just never occurred to him that AIG would do such a thing. In fairness, I wouldn’t have imagined it either.

    I did like Troofseeker’s proposal that the bonuses be paid in AIG stock.

    DeWynken @28, that would be wrong.

    Anonymous @33, the UAW had contracts too.

  17. angusm says:

    I can picture the AIG guys sitting there with hurt expressions on their faces saying “Wow, who knew they’d get all cranky about something like that?”

    I don’t know if it’s hubris or that they’re just totally disconnected from reality, but I really don’t think they see things the same way that the rest of us do.

  18. edgore says:

    Fascinating that the auto bailouts are contingent on UAW workers renegotiating their contacts and taking pay cuts, while executive bonuses are apparetnly part of a sacred unbreakable trust. You know, we already have a method in this country to allow a court to break and renegotiate contracts – it’s called bankruptcy, and it is what AIG should be in. Keeping them in zombie mode is going to cost us more in hte long term.

  19. robulus says:

    I for one welcome the next durable paradigm.

  20. chris says:

    Hmm… maybe we shouldn’t have been bailing them out in the first place?

    We’ve given them USD$170,000,000.00 and has it helped them? No. Their stock is still below $1.

    The US Government has an %80 share of the company, and has appointed members. They either need to finish the job and nationalize, or back out and let AIG go BK. None of this wishy washy shit.

    I think the “too big to fail” argument is a bunch of bullshit. Really, large centralized power in any form is a BIG problem. We have that today in the form of many large corporations, which in turn lobby the hell out of government… which is only getting bigger. So this is a case where large centralized powers are exploiting the people because of their power. Maybe it will take years for people to realize that we’re getting robbed!

  21. GeekMan says:

    @Angusm: Nope. In their minds, they EARNED those bonuses.

  22. QueQueg72 says:

    I love how the letter talks about retaining the best and the brightest.

    The best and the brightest what? Thieves and liars?

  23. Teller says:

    Since the issue is contracts, and they are ‘sacred’ in our legal system, I find solace in Marshall’s wedge: “Contracts don’t easily withstand credible allegations of illegal behavior.”

  24. Takuan says:

    I don’t understand why after eight years of no attention at all paid to the law that now it should be so much in the forefront. Shouldn’t Obama be allowed at least one year of totally unfettered and unaccountable action just to even things up?

  25. Anonymous says:

    The AIG brass claim they can’t legally withhold these bonuses to their executives. If they fired these executives with cause for gross mismanagement, then their bonuses would be forfeit. Since the government basically owns AIG now, Obama should fire the all the C*Os and VPs and be done with it.

  26. dross1260 says:

    Since AIG will inevitably fail, we get the money back right?

  27. Mark Frauenfelder says:

    I’m dense, but who is really getting that $170,000,000? I mean, when the gov’t cuts AIG those checks, where does the money go after that?

  28. jjj says:

    our best & brightest supremely arrogant thief & liar thinks AIG won’t do as they please? this on the job training is gonna take forever

  29. Anonymous says:

    The AIG bailout was NEVER about bailing out AIG per se. It’s about quietly preventing people from realizing how insolvent the banks that are relying upon them to insure the value of their assets are.

  30. bardfinn says:

    AIG’s response was that the bonuses were “Contractually obligated”.

    IANAL, but I am fairly sure that the legal system of the United States does not wish to enforce contracts that are not – for a very specific, legal use of the term – reasonable ~ wherein what is and what is not reasonable are a function of what a legal standard called the reasonable person would accept and would not accept. This applies especially to so-called boilerplate contracts a.k.a. contracts of adhesion.

    The best way forward at this point, in my less-than-my-own-standard-of-thoroughness-founded-on-less-than-all-available-facts opinion, is for the executive administration to find a legal reason to claim that the bonus contracts for these assclowns are unenforceable by law (not necessarily through any method that I might dream up, but by /some/ method which will (MUST) actually work), and as they are now party to those contracts, bring suit to nullify the contracts judicially (perhaps as unconscionable) and let the companies fight it out in court for the right to pay the bonuses; Otherwise, to make some small apology with an explanation stating “We won’t let them do it again, and here is how it is going to work henceforth”.

    Unfortunately, the part of my brain that is running the figures and the systems and the methods realises that this last bonus payment is really a relatively small leak, a holdover from before the takeover by the government which is unlikely to recur, and the legal implications of having the government be able to declare by fiat an entire class (or several different classes, depending) of employer-employee contracting as unconscionable and unenforceable – that is pretty severe; The government (whether legislative, executive, or judicial) doesn’t get to specially craft legislation or precedent for particular instances. They can’t say “just this once but never again”.

    I would prefer to see those who actually failed to exercise due diligence, those who provably set up our world to fail for their own gain, to be punished. The cynic in me thinks that’s not going to happen, and that another generation will do this same type of thing again under different circumstances, and that government regulators will have too much conflict of interest, too little resources, or too little forensics to see it happening.

  31. IWood says:

    #39 posted by aelfscine:

    Does anyone know what would happen if we just let these jackasses fail? What would be the consequences? Of course, THEY’LL tell us that the world will explode in flames if they go down. Will it indeed cause horrible problems? I’m not asking this leadingly, I honestly would like to know.

    The Banking Wars. Using national armies as proxies, multinational financial conglomerates will seize American assets equal or greater to the value of the defaulted assets, by force. This will be greatly aided by the development of the submarine-launchable APNW (Asset-Preserving Neutron Warhead).

  32. Anonymous says:

    Contractually obligated Bonus is an oxymoron. This is a tax evasion strategy.

    Wall Street owns the country and therefore the government, literally. So when they see things going south, this is what they do (this also explains the 10-year cycle):

    Run a ‘centrist’ Republican to get rid of him and alienate their base. When the Democrat (inevitably) wins, which they insure with doubleplusgood wingnuttery, blame everything on him, ESPECIALLY the stuff that happened before he even looked at the job.

    Once the hard times are over, reinstall Republican agenda.

    Lather. Rinse. Repeat. ad nauseum

  33. IWood says:

    *Er, “equal to or greater than.” My grammar has depreciated.

  34. xian says:

    @Mark: I’m quite dense too, I just don’t get it. It’s probably not this black and white, but why doesn’t the government set aside that $170,000,000 and make it available to AIG as insurance? A sort of insurance-insurance I suppose.

    Or better yet, don’t give one penny to AIG. Instead help out the people defaulting on their home loans so the securities their mortgages backed really are AAA rated. According to wikipedia, “AIG’s Financial Product division headed by Joseph Cassano had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans”. It would have cost us 1/3 of the money to go out and BUY these peoples homes for them. Again, I’m dense and I don’t really know what I’m talking about, so someone please enlighten me if I’m way off the mark here.

  35. cleek says:

    it’s a little more complicated than contracts.

    from emptywheel:

    Departures also have regulatory ramifications. As an example, the resignation of the senior managers of AIGFP’s Banque AIG subsidiary would allow the Commission Bancaire, the French banking regulator, to appoint its own designee to step in and manage Banque AIG. Such an appointment would constitute an event of default under Banque AIG’s derivative and structured transactions, including the regulatory capital CDS book ($234 billion notional amount as of December 31, 2008), and potentially cost tens of billions of dollars in unwind costs. Although it is difficult to assess the likelihood of such regulatory action, at a minimum the disruption associated with significant departures related to a failure to honor contractual obligations would require intensive interactions with regulators and other constituents (rating agencies, counterparties, etc.) to assure them of the ongoing viability of AIGFP as well its commitment to honoring counterparty contracts and claims.

  36. Anonymous says:

    Thanks for pointing out the obvious solution: peronsal income tax clawback for every dollar over $400k for employees of a firm receiving government funds. Full stop.

    And to all the GS whiners who want to give the government funds back, let’s talk about the funds GS got via AIG.

  37. usonia says:

    No way. This is part of Obama tricking us into thinking he’s going to “change” things. It’s been more than 60 days, he should have fixed everything by now. Isn’t that why we voted for him instead of…uh…that other fellow?

  38. zuzu says:

    Does anyone know what would happen if we just let these jackasses fail? What would be the consequences? … I’m not asking this leadingly, I honestly would like to know.

    Adapting to the inherent uncertainty of the future is precisely the reason that markets work! (Basically, the distributed cognition of market actors would be able to cope with those unknown consequences far more robustly and quickly than the relative few people acting as government agents ever could.)

    Arbitrary spending and bailouts by the government actually increases this uncertainty, because people don’t want to do what’s “right” only to find out later that they would have been bailed out if they stuck with the bad investments.

    There’s no such thing as “too big to fail”; malinvestments need to be liquidated so they can be once again put to productive use. That means bankruptcy.

  39. Todd Knarr says:

    Part of the problem is that “bonus” as used in describing the pay package for those executives doesn’t mean the same thing as “bonus” when those executives are discussing ordinary employees’ salaries. For an ordinary employee, a “bonus” is something awarded for exceptional performance and not something they’re entitled to. For those executives, if you read their contracts “bonus” is part of their base pay, something they are entitled to just for showing up for work. It’d normally be called “salary” or something, but they want it called by a different name so if anybody asks they can honestly say “Oh, my salary’s only $500,000/year.” (even though their income’s $2.5 million/year).

    Still, if as an ordinary employee I’d screwed up so massively I drove the company to the brink of bankruptcy, I’d count myself lucky to only be demoted and my salary slashed. More likely I’d be fired for gross incompetence and become unemployable in my field. Perhaps some of these executives need the demotion and salary cut they’d hand out to any ordinary employee who’d damaged the company as badly as they have.

  40. Anonymous says:

    @ #3, #8, and #11

    You’re all missing 3 zeroes. We’ve lent AIG $170,000,000,000.00. Which is approximately $500 from EVERY SINGLE PERSON IN THE UNITED STATES.

  41. newe1344 says:

    I am outraged like the rest of the people reading this article. However, I don’t think punishing or even focusing on the “evil doers” is going to get anything done. The system (and I’m not talking about washington) is broken. I’ll summerize:

    You work 40 hours a week and make a wage. You need to buy a car…

    You to a bank and take out a loan. You see the vault in the bank and figure “Gee, they must have a lot of money in there!” It occurs to you that the loan they just gave you must be backed by all the money in the vault. This couldn’t be further from the truth…

    On the $10,000 loan the bank gave you, they magically created roughly $8,900 of it from nothing. Meanwhile, they sit back and collect payments (with interest) on your hard work…

    This doesn’t seem too bad, but when you consider your job creates real value in actual dollars and cents while their job simply creates astronomically high amounts of figurative money, it’s not hard to guess why we are breaking down. There’s no way to keep up with paying someone back who can just “make-up” however much money they want.

    It happens about every ten years. This one is happening almost exactly 80 years from the other great depression. Wake up people! Your real employer is a banker, and they like to keep you just stressed and scared enough to keep working.

  42. bizwack says:

    @13

    No, we voted for Obama because the other option was 4 more years of Republicans and religious fanaticisim.

  43. bizwack says:

    woops…I meant @16

  44. John Coulthart says:

    Douglas Rushkoff suggests letting corporatism die:

    http://www.arthurmag.com/2009/03/16/let-it-die-rushkoff-on-the-economy/

  45. remember you love you says:

    Unforunately OBAMA! isn’t the super hero everyone was so desperately wishing for. He is a tool of the banking elite and works for AIG indirectly. Any huffing and puffing by him is only to serve your happiness glands that “SOMETHING WAS DONE!” in the vein of “YES WE CAN!”.

    I am astounded how so many USANS fall for such hollywood hype president after president after president.

  46. Brainspore says:

    I LOVE that “100% income tax for bonuses from companies bailed out by taxpayers” idea. Is there a petition or anything like that yet?

  47. Cupcake Faerie says:

    165 Million / 175 Billion < 1/10 of 1%

    In other words 165 million is not very much compared to 175 Billion.

    This is not to excuse AIG , not by a long shot,

    But the so called “outrage” seems a weirdly out of proportion.

    Personally, I’d like to know who got how much of that 165 Million.

    Sure! I’d like to see the AIG execs boil in oil too, but I don’t think many people really understand the numbers we’re talking about.

  48. SamSam says:

    Although I’ve enjoyed several of Dan’s posts, I find all the populist rabble-rousing a little. I feel like I’m reading a newspaper tabloid. Maybe all these posts should have tabloid-style headlines?

    Bad Businesses Bag Bonuses
    AIG Sleazeballs Take Our Money

    etc. etc.

    This is especially rich after a post entitled “Tabloid TV Goes After Bailout Babies:”

    Tabloid journalism is often worse than none at all. But now, the NY Times reports, the media business’ bottom feeders are going after the corporate sleazeballs who blew up the economy.

    Does the “bottom feeders” label still apply?

  49. TroofSeeker says:

    If the execs have to be paid their bonuses, pay them in shares, at today’s value. Better yet, tho, fire the losers. There’s plenty of talent available nowadays.

  50. hockeybrad says:

    So why are you spending so much time calling Obama no better than Bush? Your past few articles clearly show that you hate everything and are ready to shout about it. You aren’t willing to see the good in good people. I think you can’t grasp that politics and running the government isn’t like running a small business.

    This is a huge boat. It’s not going to turn on a dime. This is the first president in my lifetime to say anything as bold as what he’s said AS PRESIDENT in the first few months. He might actually be a do-er instead of a talker. Stop fighting everything and open your eyes and mind to the idea that we’re undergoing a huge shift in this country.

  51. aj says:

    The bonuses are meaningful if small. Even 1/1000 of the bailout money could have saved a bunch of middle class jobs, or not been borrowed in the first place.

    Here’s my idea: take a cue from the NFL and renegotiate these punks’ contracts. Liddy or designate informs every exec at Financial Products that they may renegotiate their contract for $500K (okay, $1M for really top performers who actually MADE money) and no bonus until AIG is sold, OR they may be fired for cause, in which case the full faith and credit of the US Government will defend the wrongful termination lawsuit.

  52. SamSam says:

    I would like to know if Dan also believes that people who go on food stamps should be able to get out of paying their child-support debts?

    A legal contract was signed (before bailouts) and neither the president nor the press can just stand up and demand that it not be honored.

    If AIG still owes money to contractors who built an expensive toilet two years ago, then they are likewise still obligated to pay those contractors as well, even if in hindsight we know that they should never have built the expensive toilet. Does anyone believe that the contractors should be stiffed?

    I don’t care if they people who are owed the bonuses are the scum of the earth — all this rabble-rousing and baying for blood by the tabloids, Dan and whoever else is really starting to piss me off. The future of our economy is not going to hinge on whether these guys fulfill their contractual obligation to pay the bonuses.

  53. zuzu says:

    The future of our economy is not going to hinge on whether these guys fulfill their contractual obligation to pay the bonuses.

    I concur that focusing on bonuses, compensation packages, and golden parachutes are a red herring to the much larger scams being perpetrated.

    Does anyone believe that the contractors should be stiffed?

    In bankruptcy that’s likely what would happen. That’s part of the risk the contractors knowingly took in allowing an accounts receivable with AIG (rather than money up front).

    If the contractors are running their business properly, they can afford to “write off” the bad debt.

  54. IWood says:

    #8 posted by Mark Frauenfelder:

    I’m dense, but who is really getting that $170,000,000? I mean, when the gov’t cuts AIG those checks, where does the money go after that?

    The underlying issue that’s making this so opaque to the average American taxpayer is that a huge proportion of the toxic assets–that is, the mortgage-backed securities and credit default swaps issued by these failing companies–are held by non-American investors (i.e. banks and corporations) that expect to be paid.

    This is why we can’t just say, “Let them go bankrupt.” For example, there are non-American banks who won’t be pleased if we just let AIG go bankrupt and thus tell them to eat the money they’re owed, or wait years to get pennies on the dollar in a settlement.

    These include: France’s Société Générale ($12 billion); Germany’s Deutsche Bank of Germany ($12 billion); Britain’s Barclays ($8.5 billion); and Switzerland’s UBS ($5 billion).

    In other words, this is not a problem than America can unilaterally fix by letting companies go under.

    See Michael Mandel’s A Simple Guide to the Banking Crisis for more on the international underpinnings of this mess.

  55. ZekeSulastin says:

    @All the people noting the contract situation:

    Remember, there was a debate about whether or not a contract you signed should be able to be voided because you said you didn’t read it. You think anyone here gives a crap about contract law when it doesn’t benefit them?

  56. remember you love you says:

    (super)OBAMA! will not stop any of this… he’ll huff and he’ll puff but he wont be taking money from the people that pay him.

    This is the con game of the century.

  57. UUbuntu says:

    @cupcake faerie (#21)
    The issue isn’t the <0.1% of the bailout money going to “deserving” executives. The issue is that AIG is spending any money, time and effort distributing bonuses at all to their employees, when those employees clearly deserve nothing.

    Most of us would rather see that $165M bonus money used to save 1000 random people from losing their homes to foreclosure than to see it distributed to hundreds of already too-rich execs.

    I do like the idea of establishing a 100% tax bracket for any employee of a company taking government bailout money who makes more than the POTUS.

  58. DeWynken says:

    Not to advocate anything ‘eeeeleeghaall’ but perhaps list of names and addresses of the bonus payees could..oh..magically appear on the intraweb, and concerned taxpayers could..do whatever..ya know.. wink wink nudge nudge know what I mean gov?

  59. Andrew says:

    Sounds like a pretty poor idea to me. Look, the government has found itself owning a piece of business — lousy idea, but what’s done is done. Now the business finds itself obligated by a contract that the government doesn’t like. And your solution is that they should legislate their way out of it? Create laws ad-hoc for a specific situation just to show that they have power and are “doing something”? Isn’t that exactly the kind of thing that should never, ever be done?

  60. Patrick Dodds says:

    @29 Andrew – isn’t that exactly the sort of thing governments do every day? They didn’t have laws about radio frequencies in 1672.

  61. RationalPragmatist says:

    I agree with Zuzu. Bankruptcy is the means by which to avoid contracts requiring bonuses and to remain within the rule of law.

    I also agree the bonuses are a tiny fraction of the massive numbers at stake. But, honestly, can’t you understand why this has caught the attention of so many people? Unlike the complexities of derivatives, everyone can understand that bonuses for failure make little sense.

    Be compassionate. Let people vent.

  62. Anonymous says:

    I don’t think the author of this post understand what happened. *Before* the meltdown, AIG signed contracts promising those bonuses to its employees. They cannot break those contracts or rather, they can but the employees will sue and win because it’s black-letter law here.

    Now, if AIG were bankrupt, the contracts would certainly be thrown out by the trustees as no longer in the best interest of the company. Alas, AIG is not bankrupt (at least they aren’t in bankruptcy proceedings), so their contracts are absolutely still binding on the new owners, even if those new owners are the government. This is why bankruptcy is the best way to restructure failing companies — it allows the courts to essentially step in and start modifying the contractual obligations that don’t make any sense in order to keep the company afloat or, if that’s not possible, to preserve as much value for eventual liquidation.

    Short of AIG declaring bankruptcy, there is absolutely nothing that can be done about those — they were signed, they are valid, the bonuses must be paid. As a matter of personal emotion, I don’t like it one whit, but the law is the law whether we like it or not and there is nothing that allows the government to renege on the clearly stated contractual terms.

    ~BB reader (yes IAAL)

    PS. There is an interesting parallel here between these contracts and the UAW contracts with GM. In both cases, a healthy company made extravagant promises that it can no longer keep. In both cases, instead of declaring bankruptcy and modifying those promises, those companies decided to defer the moment of truth by cash infusion.

  63. strangefriend says:

    Um, as we foam at the mouth about AIG bonuses, the other shoe has dropped:
    “China ‘worried’ about US Treasury holdings
    BEIJING – China’s premier didn’t say it in so many words, but the implied warning to Washington was blunt: Don’t devalue the dollar through reckless spending.

    Premier Wen Jiabao’s message is unlikely to be misunderstood at the White House. It is counting on Beijing to help pay for its stimulus package by buying U.S. bonds. China already is Washington’s biggest foreign creditor, with an estimated $1 trillion in U.S. government debt. A weaker dollar would erode the value of those assets.

    “Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” Wen said at a news conference Friday after the closing of China’s annual legislative session. “I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.” ”

    Which means the US may have to tax the crap out of its’ citizens to keep its’ creditors happy. I think Obama can start by telling the rich that they’ll have to give Bush’s tax cuts back. Plus KBR & Halliburton’s excess profits from the Iraq war.

  64. zuzu says:

    Premier Wen Jiabao’s message is unlikely to be misunderstood at the White House. It is counting on Beijing to help pay for its stimulus package by buying U.S. bonds. China already is Washington’s biggest foreign creditor, with an estimated $1 trillion in U.S. government debt. A weaker dollar would erode the value of those assets.

    c.f. reserve currency and dollar hegemony

    Debasing the USD is the catch-22 given the debt load with China, because at some threshold China will want to change out their T-bills before they’re worthless… which only expedites the problem of increasing the supply on the market devaluing them even further.

    Currency competition is one way out of this mess. I was just talking about financial cryptography in another thread.

  65. zyodei says:

    Oh, give me a break. What a f***** joke.

    This bailout is what, $9 Trillion or something at this point? And everyone is carping about a few hundred million in bonuses? You think the rest of that money isn’t going into some crook’s pocket?

    So, maybe Obama will stop this $300M from being distributed, and everyone will call him a populist hero for this purely symbolic act. Meanwhile, he continues the Bush policy of giving billions or trillions to crooks.

    It’s just smoke and mirrors.

    @Strangefriend: no level of taxation would pay for this mess if China stopped buying our treasuries – even 95%. The end result would be hyperinflation. Read up on it, it’s not pretty. But the chance of seeing it in the next several years in America is very real.

  66. mdh says:

    This is the con game of the century.

    Pffft. We’re not even 10 years in.

  67. edgore says:

    @29 Andrew

    You mean like retroactively immunizing Telco’s from their heinous lawbreaking? Hey, if we are going to special case that, we might as well special cae things I agree with…

    Personally, I think that we should let them enter bankruptcy – which does not mean everythign falls apart, it means they get put into recievership and cut to peices. Maybe the government steps in to help out with paying off some creditors that have political implications (see the post above about large foreign insurees). The goal should be a controlled shutdown, investors lose out, creditors get put in order and assests divvied up. That is what happens when you screw up a company this bad, and trying to pretend we can do anything else, or that these guys really still have jobs is idiotic.

  68. crenelle says:

    Isn’t financial sausage-making interesting?

    On the one hand, AIG must operate. The AIG people are better aware of how to do that, and are more likely to know how to better recover from the current debacle.

    On the other hand, the US government just became majority share owner. It doesn’t want to be involved in day-to-day operations, but if there’s going to be little gems like this weekend’s bonus story happening now and then, the US government cannot avoid being involved in decision making.

    So I think if the US Government must take a majority share of a business over in order to maintain operations of that business, the business should also be required to file for chapter 11 bankruptcy protection. Doing this is a very big (and excruciating) deal, but an apparently necessary one. Government must have active representation watching the process, with overriding authority to prevent checks from being cut. Bankruptcy is designed just for situations like this; even if checks are cut, the money can be pulled back.

    A judge and staff then monitors every transaction while helping to establish a new order designed to ultimately get the government back out of the business, all the while allowing the company to continue operating.

    If there is money to be paid, the judge will have to read the contracts between employees and corporation, and then decide what to do with them. The judge will be critical about paying “bonuses,” and likely more sympathetic to employees missing a monthly $16K paycheck than a 10 million dollar end-of-year non-performance-related payment.

  69. Anonymous says:

    while I do completely see why everyone in this comment section is totally cranky, I have to say that this country is still a country with laws, and laws determine when contracts must be honored. If those (tone-deaf) executives have contracts, they have to be honored as written unless they are renegotiated. I think that AIG management should have at least attempted to do that, if the people with whom they have contracts refuse to renegotiate, there really isn’t anything AIG (or Obama or Geithner or the government)can do LEGALLY. None of you would like this country without our laws, which protect all of you, too. Otherwise, we become the same as Russia or Venezuela.

  70. Anonymous says:

    Despite the lessons of the last eight years, the Executive Branch does not get to just do what it wants to do. If the law states that AIG HAS to pay those bonuses, their hands are in fact tied.

  71. strangefriend says:

    zyodei :
    You’re very likely right. Increasing taxes would just be a way of saying to the PRC that their concerns are being taken seriously. Of course, raising taxes during economic busts goes against Keynesian economics. In the Great Depression, Roosevelt @#$!ed up when he decided his New Deal was working & he raised taxes. Unemployment soared again.

  72. zuzu says:

    On the one hand, AIG must operate.

    Why?

  73. Andrew says:

    Patrick: Only when they’re fucking up bad. Granted, fucking up bad is what the government does pretty much every day, but that’s another issue. Good law is as timeless as justice. It’s not set in stone because sometimes our understanding of the world changes and we have to extend our conception of justice a bit to deal with it — but the extension should be rational, it should espouse existing principles as far as possible, and it should provide a general framework going forward. The spectrum licensing plan we have now isn’t perfect, but it at least attempts to meet those goals. To go off legislating ad-hoc whenever anything “bad” happens is an easy reaction, and it happens very often, but it’s not what’s supposed to happen. It’s a travesty of law and an exercise in the exercise of power. That felt kind of rantish, but am I making any sense here?

  74. Anonymous says:

    Hi,

    As someone who worked for AIG some time back, I can tell you with certainty that AIG isn’t the Wall Street villian it is being made out to be.

    It’s quite a complex, but largely well managed “old world” type company as far as its core insurance business is concerned. They hardly hire the Ivy league finance MBA types who have earned the scorn of the media lately. It is very common to hear of AIG executives retiring after having put in 20-30 years in that place.

    The bonuses at AIG arent that great – in fact they are below industry mean as far as I know. For astronomical bonuses you should look at the I-banks.

    So in short, I think this is a case of a large traditional organization committing one stupid, costly mistake (CDS) that jeopardized all its other sound businesses, and the economy too.

  75. misterfricative says:

    On a lot of threads here — and indeed all over the interwebs — in the event of a grievance/issue/complaint, then we’re routinely exhorted to contact our congressperson and make ourselves heard. Because that is how things are supposed to work in a democracy.

    And yet here’s Dan telling us — quite correctly imo — that all congress is good for is whining. And, as he says, ‘Congress will continue to whine.’ Sometimes with a bit of hand waving and smoke’n’mirrors thrown in.

    Meanwhile here we are getting fucked over once again. So if we’re going to do anything about it — and probably we won’t — then our only recourse is to… what? (I leave the answer as an exercise for the reader.)

  76. dwhitaker says:

    This is yet another example of the offensive tactics the corporations are using to steal money from the taxpayers. It is truly reprehensible. Unfortunately, nothing seems to be changing, and I don’t think anything will until the system itself is overhauled.

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