President Obama’s comments regarding the AIG bonuses were welcome, but in the context of recent events, a bit puzzling:
Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, AIG has received substantial sums from the US Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.
If Obama doesn’t like Geithner’s deal, why didn’t he stop it before it went through?
AIG had a dealine of Sunday March 15 to pay out $165 million in bonuses to its Financial Products Division, but that was only a portion of the $450 that they are scheduled to receive this year. Geithner knew about this, so he struck a deal with AIG:
The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.
So Tim Geithner hears that $286 million is due in bonuses to AIG yesterday ($165 for Financial products plus $121 for "senior executives") and he’s "outraged." His "compromise" is to cut out $4.8 million for top executives.
Wow, hell hath no fury.
But the $286 million is only a portion of the $1.2 billion in bonuses that AIG is "contractually obligated" to pay out to its executives this year ($450 billion to Financial Products plus $121.5 in incentive bonuses plus $619 in "retention payments"):
Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.
If the President doesn’t like the deal Geithner made, and is now telling Geithner to "pursue every legal avenue to block these bonuses," why didn’t he say that before the deal went down and the bonuses were paid out? Did he not know about it?
Which raises the question — when did the administration first become aware of these bonus obligations, and what did they do to address them at the time?
According to the NYT, "The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken." So according to the Treasury Department, where Geithner still presumably works — nothing can be done about it. It appears the person tasked with finding a solution already knows what the answer is.
AIG got another $30 billion of TARP money at the first of March. Why didn’t the Treasury demand they break the bonus contracts then as a condition of receiving the funds, just like they made the automakers break their union contracts?
How does President Obama feel about Larry Summers’ comments that "We are a country of law. There are contracts. The government cannot just abrogate contracts"? Does that mean the UAW workers get their old contracts back?
How does President Obama feel about the bonus installments that are due in July and September? How does he feel about the $121 million went out to other AIG employees that weren’t in the Financial Services Division? How does he feel about the $1.2 billion that is scheduled to be paid in bonuses in 2009 within a company that lost a hundred billion dollars last year?
Today the President said:
I know he’s working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year.
Liddy is the one who said he has to pay these bonuses in order to be able to keep the "best people," and he believes there’s nothing that can be done to get out of the contracts. On that he and Geithner agree. Does the President think these are the best two people to be dealing with this?
Bill Black, Tom Ferguson, Walker Todd and Rob Johnson have a plan for getting out of paying these bonuses: the US government, as 80% owner of AIG, can split the derivatives unit off and put it in bankruptcy. That would terminate all its obligations. Geithner’s hand-picked man Edward Liddy "should be asked to resign at once, for the sake of public confidence and to send a clear signal that gaming the system is unacceptable," not receiving votes of confidence from the White House. Bingo, you’re there. Is the President ready to do that? And why did this not occur to Secretary Geithner and Mr. Summers?
That still leaves all the other AIG bonuses scheduled to be paid out from taxpayer funds this year to deal with. But if President Obama truly does want to stop this, there is no doubt he has both the leverage and the authority to do so. The question is, are he and Geithner and Summers all on the same page?