In response to the growing ire over the $165 million in bonuses paid out to AIG, Sen. Christopher Dodd (D-CT) has suggested that taxing the compensation might be the answer. The idea is that it would help the government recover some of the money paid out to the executives.
AIG has received $173 billion in bailout money in the last six months and continues to report massive losses. Yet, in the midst of the crisis, AIG paid out huge bonuses, citing contractual obligations. The American public was not pleased with the decision, prompting calls and emails to Senate officials. Dodd echoed the anger of taxpayers, saying, “This is another outrageous example of executives — including those whose decisions were responsible for the problems that caused AIG’s collapse — enriching themselves at the expense of taxpayers. Dodd further noted that executives at other companies that received bailout funds have volunteered to forgo bonuses but AIG did not.
President Obama said he will attempt to block the bonuses for AIG. The president said he has asked Treasury Secretary Geithner to “pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”
Since AIG is not voluntarily agreeing to forego bonuses, the House Financial Services Committee is working to find a way to force AIG to renegotiate the bonuses. This could prove to be fruitless since the contracts were negotiated before the TARP bill was approved. Even worse, under Treasury Secretary Paulson, money was authorized to be distributed to AIG before TARP was even approved.
Congressional officials, however, don’t believe the timing should matter. They claim that this latest action is a breach of public trust and should be fixed immediately. AIG claims that its dirty scumbaggy hands are tied.
One thing is for certain: this issue won’t go away any time soon. Whether AIG gets hit by subpoenas (as in New York), is prohibited from receipt of US funds or whether executives find themselves literally paying for their bonuses in the way of excise taxes, some resolution will be demanded by taxpayers. It is, after all, our money.
If earmarks of 8 billion are just a tiny fraction (so say members of congress) of the recent 480 billion budget bill, why are the AIG bonuses, which are a tiny fraction of the bailout money received by AIG, so significant? Both are taxpayer money. Shouldn’t they be treated the same?
If you have a contract that was agreed to, the only two things I know of that could break a contract is by mutual agreement or bankruptcy. In truth, who is holding the gun and who is holding the bullets…if AIG simply decides to claim Bankruptcy, what would that do to the world’s economy? Not that it’s fair, but it feels like these companies know who is in the driver seat and it isn’t our gov’t.
Do you really want to live in a country where the government can decide you really shouldn’t have been paid last year and so they’re taking back your pay? Maybe we should have something in the constitution about taking property without due process. Or maybe something about ex post facto laws. No wait, let’s outlaws bills of attainder. Yeah, that’ll protect us.
Shame on anyone who wants to give their government that kind of power.
Oh, I like J G’s comment. And, uh, if you want to blame someone, I pick Paulson he was spending money like a drunken sailor. Isn’t the lessen here that no business should be “too big to fail”
I don’t think anyone is suggesting that a regular paycheck be surrendered. These bonuses were, however, allegedly based on performance. In the last quarter of 2008, the company reported losses of more than $60 billion – really, those 73 folks that received the bulk of the bonuses did a good job, you think? Million dollar bonuses – not salary – for what? Those 73 were in the Financial Products subsidiary, which has been blamed for AIG’s meltdown.
The US government has already pumped more than $150 billion into the company – more than 4x any other institution, including those that have voluntary given up their bonuses.
I think it’s crazy to talk now about government intervention as if it’s not appropriate now – maybe it wasn’t appropriate when Paulson handed over a big check with no strings attached? Funny how AIG and others were desperately crying that they needed saving – from the government – and now want the government to step away. It’s kind of like asking your dad for a big fat loan to pay off your student loans but then telling him to “bug off” when you blow it on a Camaro.
Congress or Obama could stop the bonus problem almost immediately. Since the taxpayers own 80% of the company those shareholders (the govt) could replace the board of directors. They in turn could replace the management who would have orders to fire all those getting the bonuses and replace them with others equally skilled but not getting bonuses.
Leaving aside the difficulties of replacing all those folks, congress isn’t going to do this because then THEY would be responsible for whatever goes on with AIG. They would rather have a populist punching bag. They can blow and blather to enrage their base (both parties) but ultimately do nothing. And of course doing nothing will also be blamed on something AIG has done. These guys/gals are much more interested in fixing the blame (on anyone other than themselves) than fixing the problem. It’s no wonder the market is in the dumper when anyone that might want to invest some money has to figure out if congress is going to change the rules after they’ve bought in. Better to collect 2% and sit out this theater of the absurd.
FALLOUT GROWS: Those who voted for the stimulus supported the clause to protect the AIG’s bonuses. Obama’s Own Stimulus Bill Protects the AIG Bonuses He Now Condemns —
http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/
Taxpayers were lured into the bailout believing that Congress and Senate added a “no bonus clause” to the acceptance of bailout monies. Did this simply disappear? Or, I’m guessing it wasn’t exactly what we though it was. Nothing is simple and straight forward, so common taxpaying bailout burdened folks can’t win for losing.
Notice the verberbage the reporters use to describe stopping of the bonus deals. Obama will “try” to stop. Change the context to “will” stop!
The wealthy folks want their bonuses so we have to let that ride?
Sounds like the Revolution is not far away.
I want this nonsense to be over,and so does everyone I know.
These bonuses were negotiated because management believed them to be in the shareholders’ interests. Now, we’re the shareholders, and the bonuses have magically become “outrageous.” We want our TARP money back so long as no one working for a TARP company gets paid more than we do. Soviet economics at its best.
Lawrence, I disagree. They were characterized as performance based retention bonuses. 15% of the employees who received the bonuses have since left the company and there is 0 argument that any of them had particularly great “performance” since that sector reported the greatest losses inside AIG – you’d run a company like this?
Kelly –
They were so characterized by whom? How do you know these things that no one else does?
I’m a little surprised at your tone. I didn’t create this mess, I’m just blogging it. As to the characterizations, you can read about them in almost any of the major press or follow the discussions in the Senate Committees.
Blogging doesn’t entitle you to rely on bad sources. You based your disagreement on a characterization that you cannot trace to AIG. I’m just suggesting that an untraceable “characterization” is not a very good basis for an opinion. Even in a blog.
Here’s one URL from Bloomberg that indicates both performance and retention were facets of the contracts: http://www.bloomberg.com/apps/news?pid=20601087&sid=aU1d040FM6L0&refer=home Cuomo, who has been investigating the bonuses (and thus, has more inside info than any of us) refers to them as “performance” related and also states that they were meant to be retention bonuses.
You can get the same info from Time, CNN, etc.
I just read your last comment. Whatever. I do not use bad sources. I consider comments from the NY Attorney General and our Senators, as reported over and over in major publications to be good sources. Just because they don’t jive with how you choose to interpret the news doesn’t make them bad sources.
My mistake. You use good sources badly.
Read the Bloomberg piece and see who is doing the characterizing. See what AIG says (“retention”) and see what Cuomo says (“performance, sort of, although he never says that AIG called them performance-based.)
In other words, your good sources give you no reason to believe that the bonuses were performance-based, or that any specific individual did not do what he contracted to do. Angry people are only good sources of their own anger. As reporters of facts, they tend to be somewhat unreliable.
You’re entitled to your opinion. My guess is you like to cherry pick your facts – the same has been reported over and over. And of course AIG isn’t going to characterize them that way at this point…
Read anything that those actively involved in the discussions have to say, including Senator Warner’s (member of Banking Finance Committee) letter to Mr. Liddy referencing the contracts. The word “performance” as linked to the bonuses comes up over and over. And your incredulousness over this is confusing: almost all of Wall St/financial execs have similar comp packages, which involve a lower base salary plus bonus based on (gasp) performance. Just because AIG wants to back away from the characterization after posting billions and billions in losses doesn’t mean it’s not true. Even Liddy calls the bonuses distasteful.
Feel free to continue to post all of the criticisms you want. *yawn* I stand by what I’ve said. And I’ll report further after Liddy’s testimony.
As you say, whatever. I’ve never seen the *yawn* thing before, though. Very middle school. Nice.
I’ve unsubscribed, so you don’t have to worry about embarrassing yourself further on my account.
Though I don’t feel the need to defend myself any longer on Mr. Kramer’s account, for those of you who actually do care about the facts, I’ve been watching the hearings this morning. Parts of the contract in question were read aloud and the amount of compensation was absolutely linked to performance.