The White House is worried about backlash over AIG’s payout of $450 million in bonuses to the executives in its high flying Financial Services Group, the out-of-control derivatives trading arm that looted the company, destroyed its stock and contracted for huge bonuses even after they saw the risk of collapse.
Robert Reich says that the administration’s failure to stop this is a sign that “our democracy is seriously broken,” and it is. When the story was initially leaked by a “senior government official,” this was the excuse for the administration’s impotence in what can only be characterized as a grand theft:
The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken.
This is difficult to accept at face value — there would be no AIG if the US government wasn’t shoveling cash into it at a furious pace, and the idea we have no leverage in the situation is absurd. It becomes even more risible when Larry Summers jumps into the fray:
We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.
As Glenn Greenwald notes, this argument is patently absurd. We forced auto workers to break their contracts with the US automakers and accept wage cuts as a condition of receiving TARP funds. Yet when it came time to limit executive bonuses at bailed out banks, the American Recovery and Reinvestment Act only stipulated that bonuses would be prohibited for TARP recipients in employment contracts written after February 11, 2009. AIG was quick to note this in their white paper offering the legal justification for paying out these bonuses, which FDL obtained yesterday.
Unlike the auto workers, nobody insisted that the AIG bankers who wrote half a trillion in credit default swaps take a pay cut as a condition of receiving TARP funds. But this was the deal with the auto makers. And as economist Peter Morrici notes, “The Obama Treasury, headed by Tim Geithner, is forcing the terms of that deal on the United Autoworkers.”
Yesterday we found out that Geithner made a $27 billion dollar gift to AIG counterparties, paying off credit default swaps at 100% of their value. Gretchen Morgenson in the NYT asks why these insurance claims “were paid off in full, even though widespread defaults on the underlying debt have not occurred?” Geithner has now reached a “deal” whereby AIG executives get millions more in bonuses by March 15, then more in July, and then September, but AIG has to show that they’ve made progress “selling off business units and repaying the government.”
American taxpayers now own 80% of AIG. They’ll be paying back the government, and paying off the bonuses, with our money. There is no reason to be tiptoeing around these people.
Are Geithner and Summers are just too aligned with Wall Street interests to do what needs to be done?
The bottom line is — nobody trusts them. Congress needs to use its subpoena power to get a hold of these AIG contracts and make their own analysis.
We’ll be delivering our petition to Congress telling them to stop this from happening on Wednesday morning when Barney Frank’s House Financial Services Committee holds a hearing on AIG at 10am ET. You can sign it here and leave your comments for Congress.