Obama To Attempt To Block AIG Bonuses

By Big Tent Democrat, Section Obama Administration
Posted on Mon Mar 16, 2009 at 11:38:38 AM EST
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UPDATE - The President said "[i]n the last six months, A.I.G. has received substantial sums from the U.S. Treasury." [He] asked Treasury Secretary . . . Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.” But, "White House officials said that the administration is not looking to take A.I.G. to court to stop the company from paying out the bonuses. But they said the Treasury Department would be trying to figure out what they can do to block A.I.G. from making the payments within the legal confines of A.I.G.’s contractual obligations to the executives."

More . . .

Reuters:

President Obama has told the Treasury secretary Timothy F. Geithner to take all legal measures to block hefty bonuses awarded to employees of AIG, the insurance company that received up to $180 billion in bailout money, a White House adviser said Monday. “The president told Secretary Geithner ... to take every legal means that he has to push back against this, to figure out who put this in the contracts and when, and to make sure this doesn’t happen again,” Austan Goolsbee, a member of Obama’s Council of Economic Advisers, told Reuters Financial Television.

“Obviously we’re not going to break the law, but there are a number of legal means that we have to push back, and the president instructed Secretary Geithner to do so,” he said.

As 80% owners of AIG, the federal government seems well positioned to instruct that AIG not pay out the bonuses. Of course, legal action seems certain to ensue. I have not seen the agreements, but I am very skeptical that the payments can be legally blocked (I promise to write about that issue later.) But obviously from a political perspective, this is a no brainer for the Obama Administration. Better to fight and lose than to not fight at all.

Speaking for me only

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Obama To Attempt To Block AIG Bonuses | 92 comments (92 topical)

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yes (5.00 / 1) (#3)
by lilburro on Mon Mar 16, 2009 at 11:44:06 AM EST

in the triangulation dance, please slam AIG this time. Of course I would love it if it also worked and they didn't receive their bonuses.

Goolsbee sounds a little foolish IMO..."never happens again" - well, most people don't want anything remotely like this to happen again. No-strings attached bailout money? That shouldn't be happening again, period.

Question (5.00 / 2) (#4)
by CST on Mon Mar 16, 2009 at 11:44:30 AM EST

What if the people got fired, would they still be entitled to bonuses?

Or is it like the CEO of Home Depot who somehow got $300 million for being fired? As in, either way they get the cash.

: Depends on what the contract says (5.00 / 2) (#21)
by Democratic Cat on Mon Mar 16, 2009 at 12:05:41 PM EST

and, likely, on the reason for firing. These aren't really "bonuses" as in a reward for doing a good job. They are more like deferred compensation arrangements, where you pay someone a salary and them a big chunk of money at the end of the year. Such arrangements are pretty common, and it sounds as if the amounts were specified in the contracts, if AIG is saying they have to pay them. Such obligations can sometimes be circumvented by firing for cause, but it would be difficult at this point, this far down the road, to fire for cause without AIG getting the bejeezus sued out of it. If they fire people now, it's obviously not for cause, it's to avoid paying the bonuses the contracts require. I don't like it, but I don't see how they avoid paying them. It's good politics for the White House to be outraged, though.

Let us see these contracts (5.00 / 5) (#10)
by andgarden on Mon Mar 16, 2009 at 11:55:33 AM EST

I would be asking for AIG to make them public.

How About Seeing Just the Contracts... (5.00 / 1) (#18)
by santarita on Mon Mar 16, 2009 at 12:02:20 PM EST

of the people getting more than $1 million in bonuses?

How many employees does AIG have?


The problem is a little (or a lot) (5.00 / 2) (#20)
by scribe on Mon Mar 16, 2009 at 12:05:31 PM EST

more subtle than that.

It appears that in doing the CDO and CDS deals, AIG wrote into them that failing to pay bonuses to their employees would constitute an instance of default.

In other words, not paying their employees "their" bonuses would be the same as not paying off on the insurances the actual instruments were selling.

Seeing the employment contracts is only a part - likely a small part - of the problem. I say small because it would seem they spent a lot of time and effort writing into the actual deals all sorts of guarantees to make sure that regardless of anything else, their personal pockets were lined and lined well.


Hmmmm... (5.00 / 4) (#29)
by santarita on Mon Mar 16, 2009 at 12:17:13 PM EST

I share in BTD's question. However, it is not such a far-fetched clause. CDS contracts are only good if the issuer (AIG) is solvent. A purchaser would want to make sure that it has early warning of problems of the issuer. One of the signs of impending trouble would be non-payment of earned bonuses.

It would be interesting to compare the AIG contracts with the standard contracts issued by ISDA to see if there is a difference in event of default clauses.


But I don't see (5.00 / 2) (#51)
by Steve M on Mon Mar 16, 2009 at 12:42:31 PM EST

any quote suggesting that failure to pay bonuses, in and of itself, constitutes an event of default. Having personally dealt with any number of complex corporate transactions, I can't say that I have ever seen a contract that conditioned an event of default on the counterparty's private compensation arrangements. I can't imagine a scenario where AIG would have to provide all these various counterparties with proof that it paid year-end bonuses to all its executives in order to avoid an event of default.

What the link actually says is that well, if a bunch of senior managers were to resign, and then the French government were to respond to the vacancy by appointing someone to run the business in their stead, that might constitute an event of default. And yes, I can certainly imagine a contractual clause that says if the government takes over AIG's operations, that would be a default; that sounds utterly normal to me. But that seems a long long way removed from saying that the bonuses need to be paid or else there's a default.


I agree with you... (5.00 / 1) (#75)
by santarita on Mon Mar 16, 2009 at 02:47:21 PM EST

It looks like the reference is to a French receivership action.

Without the contracts, though, we are just shooting in the dark.


The logic is quite simple: (none / 0) (#57)
by scribe on Mon Mar 16, 2009 at 12:53:29 PM EST

If a certain number of people at AIG quit, then replacements can be appointed by a French bank.

That replacement could be considered an instance of defauly.

AIG Says: "If we don't pay bonuses, they'll quit."

Therefore, "If we don't pay bonuses then they'll quit, and if they quit then replacements can be appointed by a French bank, and if replacements can be appointed by a French bank and are then it can be considered an instance of default."

Reducing out the intermediate logical steps leaves "If we don't pay bonuses then ... it can be considered an instance of default."

If this wasn't a serious possibility and wasn't being waved under the US government's nose as a loaded gun to compel more money being handed over, we wouldn't be talking about it.


The problem is (none / 0) (#60)
by Steve M on Mon Mar 16, 2009 at 12:57:23 PM EST

one eventuality doesn't necessarily flow from the other. There is no evidence that the contracts say anything about failure to pay bonuses equating to an event of default; if someone wants to construct a Rube Goldberg-like chain of logic where we ultimately wind up in a default scenario through a series of bizarre occurrences, that's fine, but no one says we have to jump through all those hoops.


I would wholeheartedly agree, but (none / 0) (#62)
by scribe on Mon Mar 16, 2009 at 01:06:58 PM EST

for this problem:

If this wasn't a serious possibility and wasn't being waved under the US government's nose as a loaded gun to compel more money being handed over, we wouldn't be talking about it.

That waving about as a serious possibility takes it out of the realm of Rube Goldberg and into the realm of serious possibility. And, to be sure, we do not know what all the contracts say in their entirety, nor do we know how they all fit together. I'd suspect the reality is a lot worse than we think.


: I disagree (5.00 / 3) (#66)
by Steve M on Mon Mar 16, 2009 at 01:13:09 PM EST

It sounds more like a bluff to me. If the linked memo represents the best case AIG can make that failure to pay bonuses would constitute an event of default, then they've got nothing.
I'd also note that your pet theory - that AIG executives deliberately wrote these terms into the credit-default swap contracts to ensure that the US government could never take their bonuses away - strikes me as ridiculously implausible. It would require them to have foreseen each step of a rather lengthy series of events that appears reasonable only in hindsight.

We Are Guessing At What The CDS Contracts Say... (none / 0) (#74)
by santarita on Mon Mar 16, 2009 at 02:45:27 PM EST

The quote in the cited reference is from a letter or talking points memo from AIG. Based on that reference, the language suggests the French equivalent of appointing a receiver, which would generally be an act of default.


Right (none / 0) (#80)
by Steve M on Mon Mar 16, 2009 at 03:01:02 PM EST

and along those lines, I'm confident that a major issue throughout the Treasury-AIG negotiations has been structuring the bailout in such a way that the default provisions of these contracts are not triggered. Generally speaking, yeah, if the company that I'm dealing with is taken over by the government, I want the contract to give me an out.


Which is why Uncle Sam is not... (none / 0) (#88)
by santarita on Mon Mar 16, 2009 at 06:48:04 PM EST

pushing AIG into bankruptcy proceedings.


However (none / 0) (#90)
by Steve M on Mon Mar 16, 2009 at 07:15:32 PM EST

it is clear that a very high-level game of chicken is being played here.

If a company knows that the government will not let it fail under any circumstances, where is its incentive to make any concessions whatsoever? We seem to be seeing a lot of that general attitude with the banks.


: seems like (none / 0) (#91)
by CST on Mon Mar 16, 2009 at 07:18:52 PM EST

a temporary "banker tax" may be the only way to go.
Nothing they can do about it then.
Obviously this should only be applied to people making above a certain amount, working for a company that received tax-payer funding.
Has kind of a nice symmetry to it. People benefiting from tax payer dollars should have to pay more taxes for said benefit.

: Uncle Sam Needs To Take A... (none / 0) (#92)
by santarita on Mon Mar 16, 2009 at 07:30:25 PM EST

more aggressive approach with AIG and the banks. If it isn't doing so already, it needs to have federal employees sitting in on management and board meetings. And to become more vocal. How is it that Tim Geithner did not know about the bonus arrangement until the money was out the door?
I do think that outrage over AIG bonuses will have a good impact - AIG and the Banks probably now are getting the message that having Uncle Sam at the party is not so much fun.

You have a link for that? (none / 0) (#23)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:08:55 PM EST

That seems impossible to me.


AIG put it out in their own (5.00 / 2) (#39)
by scribe on Mon Mar 16, 2009 at 12:26:09 PM EST

"White paper" explaining why, as noted and analyzed here.

The thing is, in drafting a contract, you can contract for just about anything to be an event (or incident) of default. So, to make sure they got their bonuses, they drafted it in. If the other guy agrees to it, it's a contract.


That is utterly unconvincing (none / 0) (#41)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:30:13 PM EST

as an argument. It does not even make sense.

I need more than that to believe the argument.


I'm surprised at you. (5.00 / 1) (#55)
by scribe on Mon Mar 16, 2009 at 12:48:23 PM EST

And the naivete you're expressing.

After eight years of Bushism and warping legal language to make torture and warrantless wiretapping not only good, true and right but not-criminal when the Rethugs deem them not to be, you can't wrap your head around the idea that Rethugs in the offices of an insurance company would draft the contracts they were selling in such a way that they could not be fired and could not be denied millions of dollars in bonuses?

I mean, they're a frickin' insurance company. They know all about drafting policies and documents to achieve precisely desired effects. They know all about "We collect premiums. We do not pay claims."

You know, there is a special educational certification for lawyers who draft insurance policies (and similar instruments). A friend of a friend had one of those certifications. And all they do all day is draft policies and parse language. Do you think that AIG could hire and retain some people like that to provide exactly that service, intended precisely to line their pockets no matter what, and make it "legal" and "lawful"?

Not that they didn't have money coming out their ears or anything.

Not that they weren't sophisticated enough to locate the office making all these deals in London, where the regulation would be less and more easily circumvented.

Not that they weren't arrogant enough to tell the Secretary of the Treasury to f*ck off and die.

Please, BTD. The issue at stake is really quite simple: who runs things? The boys in the corner offices of Wall Street, or the government, for the people.

Right now, the boys of Wall Street are winning, and laughing about it.


Well (none / 0) (#56)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:52:16 PM EST

Your comment is utterly unconvincing to me as well.


Get over it. (none / 0) (#58)
by scribe on Mon Mar 16, 2009 at 12:53:47 PM EST

Nothing to get over (none / 0) (#59)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:55:49 PM EST

There was nothing in your comment that convinced me.

You seem well convinced by what you believe. I am happy for you.


: If the public is pissed off (none / 0) (#65)
by MyLeftMind on Mon Mar 16, 2009 at 01:11:01 PM EST

and both Dems and Repubs want some recourse or want to prevent this loss, what can be done to ensure that the Obama team do more than "attempt" to solve the problem?
Please, no empty suit responses. I'm asking about what we can do, not posting a leading question for Obama criticizers.
I've already signed the MoveOn petition.

That link is ... (none / 0) (#76)
by santarita on Mon Mar 16, 2009 at 02:48:26 PM EST

to a paragraph describing the French equivalent of a receivership.


Don't we own AIG now? (5.00 / 2) (#27)
by Democratic Cat on Mon Mar 16, 2009 at 12:14:07 PM EST

As a tax-paying owner of this pathetic company, I agree, I would like to see the contracts just to make sure we are being told the truth. I assume Treasury has seen them, but they are so understaffed perhaps they haven't had time to read them. If you want to see populist outrage, put some of these employment contracts on the intertubes.


I'd Rather See Informed Anger than... (5.00 / 1) (#31)
by santarita on Mon Mar 16, 2009 at 12:18:14 PM EST

populist rage.


: Agreed (5.00 / 2) (#35)
by Democratic Cat on Mon Mar 16, 2009 at 12:23:20 PM EST

How about we settle on "informed outrage"? I don't want people burning down neighborhoods or anything.

: Well, I feel insufficiently informed (5.00 / 3) (#37)
by andgarden on Mon Mar 16, 2009 at 12:24:11 PM EST

That's exactly why I want to see the contracts.

: AMEN!!!! (none / 0) (#67)
by gyrfalcon on Mon Mar 16, 2009 at 01:24:27 PM EST

yes we do, (none / 0) (#93)
by Amiss on Mon Mar 16, 2009 at 10:57:59 PM EST

at least according to Barney Frank tonite on Rachell Maddow Show, and he says no bonuses from the new owners.

"Asking" gets you nothing. (none / 0) (#17)
by scribe on Mon Mar 16, 2009 at 12:01:00 PM EST

Mr. AIG needs to have this sort of experience.


: AMEN, scribe (5.00 / 3) (#33)
by GeorgiaE on Mon Mar 16, 2009 at 12:20:02 PM EST

They cut off the taxpayers heads to get it, let's cut off their heads to get it back..Enough is enough, we (the taxpayers) should not suffer while AIG gets bonuses. The revolution starts NOW..Bring on the "change" that we can believe in!

AIG Bonuses (5.00 / 5) (#14)
by ggb on Mon Mar 16, 2009 at 12:00:13 PM EST

Correct me if I am wrong, but aren't bonuses normally paid for exemplary performance? Since when does anyone get a bonus for pathetic performance? Hence, it seems to me that since they paid the bonuses in error, they should be able to take them back.

Exemplary performance: (5.00 / 2) (#19)
by oculus on Mon Mar 16, 2009 at 12:05:07 PM EST

got lots of U.S. taxpayer money without conditions.


Not the same thing (5.00 / 1) (#24)
by Democratic Cat on Mon Mar 16, 2009 at 12:09:38 PM EST

The media and everyone else calls these things bonues, but they don't mean it in the normal everyday sense of the word. It's more like a deferred (i.e., end-of-year) payment for specific work performed during the year. Part of the bonuses could be discretionary, which may be why they could negotiate the amount down by 30%. But the rest is non-discretionary.


In today's paper I read that the (5.00 / 3) (#30)
by hairspray on Mon Mar 16, 2009 at 12:18:05 PM EST

contracts were written in early 2008. Does anyone wonder that the executives were so clueless early in the year about the financial health of their company? I am not an attorney, but these contracts that suddenly appear so ironclad in the same year the company flames out seem not to pass the smell test imho.


: Good point, if true. (none / 0) (#32)
by santarita on Mon Mar 16, 2009 at 12:19:00 PM EST

Seems to me (5.00 / 10) (#16)
by Steve M on Mon Mar 16, 2009 at 12:00:54 PM EST

that people in Washington were awfully willing to insist that the autoworkers give up some of their contractually bargained-for benefits in the name of the greater good. I'd like to think that well-off executives should merit the same treatment.

Indeed (5.00 / 2) (#22)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:08:11 PM EST

Automakers wanted the government to do the dirty work for them. And they did.

The real question here is will Obama face up to the "counterparties" of insolvent financial institutions as well?

That remains the biggest issue.


Probably the time to do that. . . (5.00 / 2) (#47)
by LarryInNYC on Mon Mar 16, 2009 at 12:37:44 PM EST

was before the money was donated to the AIG Sunshine Fund.


But there was no way Bush (none / 0) (#79)
by denise k on Mon Mar 16, 2009 at 02:57:38 PM EST

would ever do that. Obama is cleaning Bush's mess up to some degree here.


Additional donations (none / 0) (#82)
by cal1942 on Mon Mar 16, 2009 at 04:13:22 PM EST

have been made since the inauguration.


Hence, (none / 0) (#83)
by denise k on Mon Mar 16, 2009 at 04:55:28 PM EST

I said "to some degree". It started with Bush and you can't expect Obama to stop on a dime. Bush is the bigger culprit imho, but both share blame.


: Actually (5.00 / 1) (#86)
by cal1942 on Mon Mar 16, 2009 at 06:27:19 PM EST

put the whole thing on the race to deregulate and there's plenty of blame to be spread around in a three decade long time span.
We wouldn't find ourselves in this position without the long period of dismantling the checks against abuse that for several decades prevented this type of scenario.

Obama The Politician.. (5.00 / 2) (#25)
by santarita on Mon Mar 16, 2009 at 12:11:40 PM EST

rather than the leader. Wouldn't a leader have instructed his subordinate to make sure that AIG bonuses were subject to the review and approval of the US Government before AIG promised them? And didn't Geithner already review the possibility of blocking the bonuses but determined that they were legally binding?

Now if Obama means that he wants Geithner to pursue legal actions in the form of some kind of fraudulent conveyance theory outside of bankruptcy proceedings, that's a different story. Or maybe the US Government could pursue senior management and the board on a negligence theory. It's about time that someone tries to hold the management and board liable for breach of their fiduciary duties.

AIG Bonuses (5.00 / 1) (#28)
by CST on Mon Mar 16, 2009 at 12:16:41 PM EST

were promised in early 2008.

So no, Obama could not have done that before AIG promised them.


US is the Major Stockholder of AIG... (5.00 / 1) (#50)
by santarita on Mon Mar 16, 2009 at 12:40:45 PM EST

that gives Obama a lot of power.


yes (5.00 / 1) (#52)
by CST on Mon Mar 16, 2009 at 12:45:05 PM EST

now they are. They weren't in early '08.

I agree they should've done more and attatched stipulations when they gave the bailout money. It seems a bit unreasonable to suggest they should've done it before AIG agreed to the bonuses, since that happened before the gov't had a controlling stake in AIG.


: I agree. (none / 0) (#54)
by santarita on Mon Mar 16, 2009 at 12:47:26 PM EST

IIRC (none / 0) (#34)
by Democratic Cat on Mon Mar 16, 2009 at 12:21:32 PM EST

the bonuses were agreed to before the bailout was done last year, so the Feds would not have had the opportunity to approve them in advance.

You are correct on Geithner's view; I guess Obama is telling him to look again, and he at least wants to look like he's trying to do something.

Consider also that the company may have to pay the bonuses, but the employees don't have to accept them. There are two parties to every contract.


However... (5.00 / 3) (#48)
by santarita on Mon Mar 16, 2009 at 12:38:53 PM EST

before the Feds issued the first revolver in September, 2008 they could have reviewed the bonus arrangements and perhaps conditioned draws on limiting the bonuses.

It may be that there is nothing to be done. But it doesn't give me a lot of comfort when Geihner appears suprized by this. As the representative for the majority stockholder in this workout, he should have been aware of the employment compensation arrangements.


: I doubt Geithner is surprised (none / 0) (#71)
by Democratic Cat on Mon Mar 16, 2009 at 01:48:02 PM EST

but I'm still not comforted that there is a good solution.
He wasn't in charge in September 2008. He inherited this mess just like you and me.

Riddle me this (none / 0) (#68)
by gyrfalcon on Mon Mar 16, 2009 at 01:28:23 PM EST

If you were an employee of a floundering company that might yet be taken over by the government in the midst of a sinking economy, would you nobly refuse to take the money? Especially if you'd done nothing wrong other than perform your job the way your employer demanded of you?


Mebbe (none / 0) (#70)
by Democratic Cat on Mon Mar 16, 2009 at 01:46:33 PM EST

If I worked for the part of AIG that brought the company down, I think I'd be so embarrassed at my and my colleagues' collective incompetance that I would not take it. There was a nice story in the Boston Globe that someone linked to earlier today about people offering to give up salary increases so their colleagues don't get laid off. There is some altruism in the world!


: That was Beth Israel Hospital (none / 0) (#81)
by gyrfalcon on Mon Mar 16, 2009 at 03:36:16 PM EST

and it's an incredibly heartening story. But BI is in no danger of either bankruptcy or government takeover. It's crystal clear that a cetain degree of shared sacrifice for a while will keep everybody employed and the institution continuing to function.
As for AIG, I don't think we quite know yet until the post-mortems some years from now exactly which part "brought the company down."
I put the blame on upper management. The folks in the London unit weren't operating on their own say-so, they were doing what AIG management tasked them to do. Far from being incompetent, as far as I can tell, the whole problem is that they did what they were asked with such enthusiasm, it loaded the company down with toxic crap in return for gigantic profits.
But it was not their responsibility to decide how much potentially toxic crap the company could handle.
If I had been performing extremely well at a task everybody thought until a very few months ago was an important one that was contributing to the wellbeing of the company-- and especially if I had a family to support-- no way would I turn down that bonus that is contractually owed to me.

That's what you get (5.00 / 1) (#36)
by Saul on Mon Mar 16, 2009 at 12:23:44 PM EST

when there are no conditions to the bailout money. You have to make a laundry list of everything you don't want to happen and make them sign it. Then and only then can you give out anymore bail out money.

Whats with this "attempt" sh*t? (4.75 / 4) (#1)
by kdog on Mon Mar 16, 2009 at 11:42:27 AM EST

Just send the men with guns to get the money back...same as they would if any of us defrauded the US government on such a scale.

: See update. (none / 0) (#26)
by oculus on Mon Mar 16, 2009 at 12:12:56 PM EST

"Wimpy" doesn't begin to describe it.

Taxing the bejeesus out of them (4.75 / 4) (#2)
by scribe on Mon Mar 16, 2009 at 11:43:51 AM EST

seems a no-brainer, too.

Even Republicans - feeling their populist oats - could hardly allow themselves to be painted as favoring bankers stealing millions from the Treasury to line their own pockets.

And slapping a substantial excise tax on CDOs and CDSs would be a good idea, too.

Like the Rethugs are fond of saying, (5.00 / 1) (#5)
by scribe on Mon Mar 16, 2009 at 11:45:13 AM EST

quoting Jefferson:

"the power to tax is the power to destroy."

Well, this is one time we want to destroy this kind of behavior, no?


The 'bonus tax' - 100%! (5.00 / 3) (#8)
by oldpro on Mon Mar 16, 2009 at 11:54:11 AM EST

Works for me.


They had f'g better not mind (5.00 / 5) (#9)
by scribe on Mon Mar 16, 2009 at 11:54:25 AM EST

getting taxed, when they find themselves able to spend that bailout money like this. On frickin' Saturday brunch.

Just why so many people choose to throw an extravagant party on a Saturday afternoon may be less surprising than how they could afford to do so, given the country's economic woes.
Remi Laba, a 32-year-old Frenchman who is a co-owner of Bagatelle, suggests that such celebrating is possible because his guests are not what he calls "recession-prone."
"There's a very specific Saturday brunch clientele," Mr. Laba said, seated at a corner table near the window as brunch was getting started. "Most of them are old money, people who don't mind coming here and spending $5,000, up to $18,000 or $20,000 on a table."
As for another set of partyers, the New York investment bankers whose once-hefty bonuses may have significantly diminished in recent months, "instead of having the $10,000 to $15,000 to spend on a Saturday afternoon, they might spend $2,000 to $3,000," Mr. Laba said. "Which is fine."
* * *
The absence of a velvet rope outside Bagatelle does not signal a lack of exclusivity; patrons must know the cellphone number of one of the owners to get a reservation.
Through the window this afternoon, Mr. Laba observed two young men talking to the doorman about securing a table.
"They will be turned away," he predicted.
And if they had been two beautiful women? "They'll be sent to the bar," he said. "I may even seat them."
* * *
Whatever diversion these afternoons bring, some acknowledged that the sight of the young well-to-do partying hard when many financial firms are being castigated for profligate spending could appear embarrassing.
A man who works in finance and was standing near the bar of Merkato 55 the following Saturday started to talk about this issue, but then he had second thoughts, saying he could be fired for drawing attention to the subject in the news media. Any overt display of conspicuous spending, he added, even if not a dime was expensed to a corporate account, would not sit well with his employer. "Excess," he said, "is frowned upon heavily."
As for how he and his fellow Wall Streeters could still afford such afternoons, he said: "We all made so much money in the past five years, it doesn't matter."
A 29-year-old man who works for a large investment management firm and was at Bagatelle's brunch one recent Saturday and at Merkato 55's the next, put it another way: "If you'd asked me in October, I'd say it'd be a different situation, and I don't think I'd be here. Then the government gave us $10 billion."

F*ck them.


: Nah...Kodak them. (none / 0) (#73)
by oldpro on Mon Mar 16, 2009 at 02:45:19 PM EST

C'mon, kids...use your imaginations! How to humiliate such fools? Expose them...
Don't we need their photos on a website? You know, something like www.shameless excess.org?
Easy to be a sidewalk photographer outside these restaurants/bars or at hotels and yachtclubs...let the public ID these hotshots and add to the website from cities everywhere
When you sell the ads, please send my 10% to Habitat For Humanity, Int'l.

Are they by contract? (3.50 / 4) (#6)
by maddog on Mon Mar 16, 2009 at 11:50:46 AM EST

Are the bonuses by contract? Were they based on some level of sales volume? You can't just say they can't pay them, it doesn't matter who is funding the company.

This is why large institutions like this can't be run by the government. There is no incentive to perform. The workers in the trenches selling are the ones who look for these bonuses. Take that away and what is their incentive to perform, make the sale, get the investors... Do you want banks to be run like the alphabet soup of the Federal government? Not me.

Democrats just can't see the nuance in these things. They see the big total and don't try to consider what makes up the number.

Sheesh (5.00 / 1) (#7)
by Big Tent Democrat on Mon Mar 16, 2009 at 11:52:12 AM EST

: When we hear whining about the (5.00 / 12) (#12)
by scribe on Mon Mar 16, 2009 at 11:57:36 AM EST

so-called "Sanctity of contract", those f'g whiners had better remember that there was no such sanctity for the UAW's contract, nor for all the companies which, by going through bankruptcy, managed to wipe out their sacred contractual promises (of measly pensions and benefits) to their retirees, all so their current owners could pocket a little more.
Try enforcing a contract from a cell at Gitmo, mister. There are plenty opening up, and Cheney says it's a tropical paradise. You'll love it.

Perhaps having a job at all (5.00 / 7) (#11)
by oldpro on Mon Mar 16, 2009 at 11:57:06 AM EST

might be their incentive to perform?

Just a thought...


Heh (5.00 / 6) (#15)
by CST on Mon Mar 16, 2009 at 12:00:44 PM EST

I see nuance. That's why I actually bothered to read about where these bonuses are going.

Do "workers in the trenches" usually get $3 million in bonuses??

What sector is this going to? Hint - read the open thread. It's there.

Exit question - if the gov't had allowed AIG to go bankrupt, would these bonuses still be paid? How can you get a bonus for sales volume when your company has no money and posted a $60 billion loss? The gov't should have every right to say how their money gets spent. You don't like it, don't f*ck up your company and beg for billions from tax payers.


Ohhh pleeeze! (5.00 / 3) (#38)
by hairspray on Mon Mar 16, 2009 at 12:24:51 PM EST

Performance based on fraud? Same thing? How about working hard selling a decent product and making a livable wage. To the republicans one line of work is just as good as another as long as the money is gooood? Frankly, incentives to bring in the sleeeze is what is killing this country!


Taxpayers See "Bonus" and ... (3.50 / 2) (#13)
by santarita on Mon Mar 16, 2009 at 11:59:50 AM EST

they see red. I'd like to see a breakdown of who is getting what bonus - they could do it by position rather than by name. My guess is that many are receiving relatively small bonuses while a few are receiving multi-million dollar bonuses. And some who are receiving multi-million dollar bonuses may actually merit large bonuses for the good business that they are doing.

And then there are the bonuses for the officers and directors...


: My God (none / 0) (#85)
by cal1942 on Mon Mar 16, 2009 at 05:11:20 PM EST

And some who are receiving multi-million dollar bonuses may actually merit large bonuses for the good business that they are doing.
You actually believe that any non-officer making that kind of bonus is an innocent bystander, a good ol' hard working sort that didn't know what was going on?
There's this bridge I can get you at a hell of a price ...

Geeyuck (none / 0) (#84)
by cal1942 on Mon Mar 16, 2009 at 05:01:36 PM EST

There is no incentive to perform.

It should interest you that many people in the chain of this parade of gluttony, namely mortgage brokers, were paid higher commissions for writing trick loans that yielded obscene potential profits above and beyond normal profitabliity.

That's what your treasured incentives did. When I got mortgages in the past nobody made any commission. It was a straight up deal. Of course that's when banks were banks Glass-Steagall style. No one got burned and no one made extra money for selling a tricky loan.

Commercial banking as it should be, certainly not as it is now, is hardly rocket science. We prospered for decades in that tightly regulated environment.

If you want today's banking system then I suggest you take yourself and your banks and steal away to an isolated island somewhere away from civilized society where you can screw each other to your heart's content.


Scott Horton (none / 0) (#40)
by lilburro on Mon Mar 16, 2009 at 12:28:50 PM EST

says:

AIG executives, we're told, argue that they have to proceed with the nine figures in bonus payments because there are contractual commitments in place. From what I see, their analysis of the law and their legal obligations is a bit simplistic. Among other things they need to be taking into account the law respecting preferential payments to insiders and fraudulent conveyances. That would suggest that making "bonus" payments might be a very foolish move, and that any payments actually made might be recaptured. It would also increase the pressure to put AIG into bankruptcy as a vehicle for reversing many of these payments. Is that what AIG management wants?

That is not convincing legal thought (none / 0) (#43)
by Big Tent Democrat on Mon Mar 16, 2009 at 12:31:40 PM EST

from Horton.

He needs to better understand the term "ordinary course of business" and how it impacts preferences in bankruptcy.


I'm Not Sure That Taxpayers Want... (none / 0) (#45)
by santarita on Mon Mar 16, 2009 at 12:34:29 PM EST

AIG to go into bankruptcy.


I don't think so either (none / 0) (#49)
by lilburro on Mon Mar 16, 2009 at 12:38:55 PM EST

but it would provide leverage, no?

If the taxpayer as an individual had individual control over the money given to AIG, there would probably be a lot of people yanking their money away from AIG right now.


: Bankruptcy is not ... (none / 0) (#53)
by santarita on Mon Mar 16, 2009 at 12:46:26 PM EST

a good option at this point.
But better oversight and control by Geithner should be demanded. And maybe finally the feds will start pursuing the officers and directors for breach of fiduciary duties. I can see playing nice with the management for awhile - until the government can get its arms around the business operations and figure out where the bodies are buried. But then I hope to see jail time and fines for some of these officers and directors. A company doesn't go from solvency to insolvency overnight.

Well (none / 0) (#42)
by jbindc on Mon Mar 16, 2009 at 12:31:33 PM EST

Pelosi deferred on the idea of eliminating automatic raises for Congress, so it seems silly that some critters are all upset about these bonuses.

The world is truly upside down when David Vitter has the right idea:

Sen. David Vitter, a Louisiana Republican with personal issues that could threaten his re-election, talked of adding a ban on automatic congressional raises to a $410 billion spending bill already passed by the House.
Great idea, alleged Majority Leader Harry Reid, who's also facing a tough re-election fight next year. But adding the pay issue to the bill would mean sending it back to the House, and that could kill the whole thing, Reid said.

Outrage (none / 0) (#44)
by rgr28 on Mon Mar 16, 2009 at 12:34:07 PM EST

I am outrage of the bonus however I am more outrage that Obama is willing to break the law (I guess he is use to)in order to make a political posture he is just showing the empty suit he is. If the bonus is a contract obligation nothing to do. How come we don't investigate the congress crocks and the wasteful expending starting with Pelosi.

: You didn't read the statement (5.00 / 2) (#46)
by Democratic Cat on Mon Mar 16, 2009 at 12:37:04 PM EST

he didn't say he was willing to break the law; he instructed Geithner to pursue every legal avenue.

The Continued Agony... Request for Explanation (none / 0) (#61)
by dlgreene3304 on Mon Mar 16, 2009 at 12:58:52 PM EST

Can someone, in cogent terms, explain why
AIG can't be allowed to fail-? The moniker; 'Too Big to Fail" probably, really means; 'Too Big to Succeed'. What if all the financial institutions, that made toxic, irresponsible, loans had to own-up to their malfeasance and put this stuff back on their books. Would not a rapid purging of default-swaps unplug the system-? Why not let foreign governments shore-up their own 'AIG counter parties';relieving US taxpayers of their collective burdens. I'd like for some 'PhD, Nobel Prize, Ivy-League dude' to explain why we (taxpayers) should continue pouring resources into AIG. Recognizing that the financial world did survive Lehman; can it be that bad-?

Recognizing (5.00 / 2) (#64)
by CST on Mon Mar 16, 2009 at 01:09:39 PM EST

that the financial world didn't survive Lehman; it can be that bad


Good discussion of this question... (5.00 / 1) (#78)
by santarita on Mon Mar 16, 2009 at 02:53:13 PM EST

over at Naked Capitalism - especially the comments by Tyler.


: Thanks-! (none / 0) (#94)
by dlgreene3304 on Tue Mar 17, 2009 at 12:17:41 PM EST

Appreciate the referral. Will read Tyler's post.

You should read up on the financial failures (none / 0) (#72)
by maddog on Mon Mar 16, 2009 at 02:06:37 PM EST

They are failing not because of the loans they made but because of the bundled loans they bought as securities. It was the banks and fannie and freddie mac that made the loans. The bundled securities aren't worth much now, they can't sell them because of this so they don't have enough capital to continue operations. The government is giving them that capital. Were there any restrictions in the law about what they could spend the money on. If not stop whining.


Not whining... (5.00 / 1) (#87)
by dlgreene3304 on Mon Mar 16, 2009 at 06:40:00 PM EST

I take issue with AIG's credit default swaps ($440 billion by a $200 billion company). AIG profited by insulating lenders from the 'bad' credit decisions they made, ultimately passing the burden now to 'other' entities. What is so bad about letting AIG fail-?? Wouldn't it be better to purge the system of these worthless instruments and put the debt burden back on the lenders-?? What is there to be afraid of-?? Why should we continue giving these folks such vast amounts of money-?? Is there something here that I've missed-??


: A Lot More than $440 bn ... (5.00 / 1) (#89)
by santarita on Mon Mar 16, 2009 at 06:52:15 PM EST

and it's not just the amount, it's also a question of what other countries are impacted.

Simple Solution (none / 0) (#77)
by observer23 on Mon Mar 16, 2009 at 02:52:14 PM EST

Don't pay the bonuses. Make the executives sue the company if they want it.