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I’m trying to figure out the politics behind the bill moving swiftly through the House to tax bonuses paid to employees by TARP recipients. Obviously it’s an attempt to get in front of a tsunami of public rage that "nobody could have anticipated":
I interpreted this bill to mean that Congress doesn’t want to deal with forcing AIG to break the contracts that call for $1 billion more in bonus to be paid this year as a condition of receiving more funds. Lune over at Naked Capitalism reads it as a "brewing revolt" against Geithner by the House:
It appears that Congress may finally be growing impatient with Obama. If these Congressional initiatives pass (and Speaker Pelosi seems likely to push these through in the next couple of days), they will be a direct rebuke to Geithner’s vision of providing bailout money with minimal strings attached. While the effectiveness of these new tax plans is yet to be seen (I have no doubt executives will be hiring the best tax lawyers around to skirt the regulations), just the fact that Congress is moving more quickly than Obama on these matters is bad news for the Administration.
Both could conceivably be true.
Kagro noted that on Tuesday, Rangel didn’t want any part of such a bill, but now he seems to be the author of it (PDF). The bill would apply a separate tax of 90% to bonuses paid by TARP recipients, and also apply to those paid by Fannie Mae and Freddie Mac.
According to Roll Call (subscription), bank lobbyists are flocking to Capitol Hill to oppose it. Baucus and Grassley have put forward their own Senate version of the bill that would levy a 35 percent tax on employees plus a 35 percent excise tax on the company that paid it. Part of the effort by bank lobbyists, no doubt, who seek to once again "narrow the breadth of the legislation" (just as they did with cramdown).
Why are lobbyists so freaked out? Roll Call offers a clue:
“The government shouldn’t prohibit expenses that will help strengthen the company,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable.
Bank lobbyists are worried about the health of the banks, I see. Or maybe not:
Lobbyists who work for federally bailed-out banks also have a vested interest in seeing the legislation stopped. Most senior lobbyists at banks such as Citigroup, JPMorgan Chase and Bank of America, earned well over the $50,000 bonus threshold in the Senate legislation.
So much for public spiritedness.
Meanwhile, proving that he’s never been more than a front for bankers who don’t want to pay their fair share of taxes, Grover Norquist is warning that voting for such a bill would break his "anti-tax pledge" that 172 Congressmen and 35 Senators signed.
And I’m listening to Mike Pence in the House, saying that the Republicans have a bill to force Treasury to recoup the AIG bonuses but the Democratic leadership won’t let it on to the floor.
It’s a smart move. As John Aravosis writes, the measure to tax these bonuses is really half-assed and doesn’t get to the heart of the problem — namely, the deal cut by Timothy Geithner calls for AIG to cut $1 billion more in bonus checks to be paid for in July and September of this year. The GOP bill has absolutely no chance of passing since there’s virtually no way these companies can take back bonuses that were paid with the approval of both Geithner and the Fed, pursuant to contracts that nobody (i.e., Eric Holder) has challenged the validity of. But, in the meantime, it gives the GOP a good reason to oppose the tax bill and not sound like they are complete tools for bank lobbyists, which they absolutely are.
The problem of these bonuses is not going away. The only struggle, as far as I can tell, is to see how little Congress and the administration can conceivably do about it.
Related posts:
- Big Banks: Unions Stopped Fighting, and the Entire Left Got Punched
- Army Denies Millions in Bonuses to KBR/Halliburton for Shoddy Work in Iraq
- Obama Rips Lobbyists by Night, Invites Them for Private Briefing by Day
- Why is Timothy Geithner Rejecting Legislative Policy?
- Spitzer: Surprised WH Is Making “Definitive Statements About Geithner’s Involvement” In NY Fed/AIG Scandal
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A number of people linked to Spitzer at Slate yesterday. He made the point there that AIG is just a conduit for haircut-free money for Goldman Sachs and other privileged counterparties.
I hadn’t realized that Spitzer prosecuted AIG and forced the ouster of AIG CEO Maurice Greenberg in 2005 for stock price manipulation.
Greenberg was back on tv last fall advocating the bailout of AIG, whereas we know where Spitzer is.
AIG is a criminal conspiracy. Make Eliot Spitzer Treasury Secretary. That’ll get people’s attention, not least of all the public’s.
Someone in ‘authority’ (choose you favorite Senator or critter or administration sub-cabinet slot) says, “Recovering the taxpayers money is the least we can do.”
That is exactly right, and they may not even be willing to stick their necks out THAT far.. Less is more.
Thank, Jane.
Hurled over the transom:
(No injuries were reported.)
I wonder how they came to the 90% rate? Does this give the recipients just a lesser bonus for their actions? Is this an answer to the blackmail? And they pretend the people aren’t watching.
It is time to close AIG as a failed operation. Those poor corporate giants will have to scramble to get insured as Liddy said. He should know, he is expert at failing.
Dugg.
Digg here!
Robert Scheer’s Perp Walks Instead of Bonuses
Goldman Sachs’ raid on the U.S. taxpayer is still an underreported story.
Spitzer!
Why was Geithner chosen for Treasury in the first place? Rhetorical question. Again, a spectacularly bad choice by Obama–which, by the way, seems to be the norm for his cabinet picks.
Read this morning (don’t remember where) that they picked 90% because they figured the other 10% would be taxed by the states.
CNBC’s Santelli said it best: $165,000,000 is like talking about pennies. So who gives a shit about $1,000,000,000, when the FED is buying crap bonds this very day for $1,000,000,000,000.
So where is the FED getting all these zeros? They are making them up. But you and I have to pay them back.
By the way, why do we give AIG hundreds of billions when we could buy the whole damn company for $4.3 billion right now in the stock market. At least then we could control the bonuses and perform an “internal” investigation.
I think Geithner came in through Summers and Rubin. The banking industry wanted to maintain continuity within administrations.
Here’s a story that gets at it today:
http://www.latimes.com/busines…..7699.story
Well that’s my point, really. Obama appointed an old guard guy and basically promoted him as a new ideas man.
Grover Norquist, what an enabling tool. Not too long ago he tried to argue that the stock market began it’s downslide when Democrats took over the House in ‘06. His idea of deregulated Free Markets:
“I want to reduce the size of government in half as a percentage of GNP [gross national product] over the next 25 years. We want to reduce the number of people depending on government so there is more autonomy and more free citizens.”— Washington Post, 03/11/2001
is a complete failure as the Right’s Money Guru, Greenspan, admitted to Henry Waxman last fall. Issuing empty threats from his empty mind is all Norquist has left. Why would anyone listen to him?
Some of the econ blogs I read have rumors afoot that AIG will file for bankruptcy within 2 to 3 months.
Well shall see.
I also hope that the trading in Geithner’s future proves true. There is a run on Geithner no longer being Treasury Sec within 6 months. That is 5 1/2 months too many but any port in a storm.
Obama is spending ALL his “political capital” on saving billionaires. He is feeding the likes of Bayh and his conservative democrapic group grist. He is in trouble here. He has lost me completely as it is. Not only do I not trust the banks or insurance companies at all, I do NOT trust Obama to do ANYTHING right or competently at all. He cannot even reject Bush “unitary dictator” powers properly.
It’s a daisy chain, circle jerk, copulatin’ money-makin’ machine!
It’s not as though the subject of Obama’s economics team hasn’t been harped on here.
Completely agree.
Geithner knew about the bonuses and probably about the other bonuses too. When hired, he was billed as a mafia boss who knew where the bodies were buried. Personally, I think he is a double agent. Geithner is politically dead. He has no credibility. Obama must fire him.
Thanks. I’ll check it out later. Listening to this morning’s democracy now. Sheer’s just up.
EPU’ed from a few threads down:
The really big financial news of the week are these two items.
First, AIG has $1.6 trillion in derivatives still on its books and it is not clear what these are or how toxic they might be.
The second is that the Fed is injecting another trillion dollars into the financial system:
http://www.nytimes.com/2009/03…..=1&em
The first of these looks like it is a way to shore up the price of mortgage backed securities in a way that might (but probably won’t) help the value of banks’ crap assets.
The second is being taken in an attempt to free up credit. Because the Fed has already blown its ability to affect short term interest rates (this happens when they go to zero), the only place it has left in this area is to move into longer term rates. I doubt this move will have much of an effect except to further reduce the number of tools the Fed has at its disposal.
I should throw out a third issue which I saw over at Naked Capitalism. The market for T bills is declining because exporting countries have less money to invest here. While this means too that we need to borrow less to cover shrinking trade deficits, all of Obama’s big spending programs still require borrowing to fund them. Ultimately, the Fed may have to print lots of extra money. It seems to be doing that anyway.
But what this shows is something that I have been saying for a while. Obama has only one shot at this. His stimulus is too small. So is his help for homeowners. Geithner’s plan to bailout banks and hedge funds is criminally stupid. So if he is going to run big deficits, he needs to do it now, because in a year or two. The government won’t even have the ability to borrow the way it does now.
Yeah, I’m stating the obvious. I feel compelled.
I just had to get in a dig because those of us who were loudmouths about it from the getgo had certain sharp critics who said we were being premature, and give them a chance. Well, a couple of trillion dollars of taxpayer dollars later, does everyone now agree that Obama’s economics team are crooks?
Nice way of putting it. I also like to point out that even if the supply of credit gets loosened, there’s still no demand for credit, as neither employment nor house prices have bottomed.
Bonuses = shiny
Deals = crimes
We should focus on the DEALS. If the BONUSes help us get there, fine. But let’s not be distracted by the SHINY
“He cannot even reject Bush “unitary dictator” powers properly.”
He can. He isn’t. Bad. Very bad.
Drive by comment
We got Polls real polls the only thing that can change a politicians mind after the lobbyist buys him. Polls this big are game changers.
Even if Congress delays these issues and tries to wait for the media storm to pass well it won’t work the economy at best will keep getting worse for a year.
The worse the economy the worse the hate for bank bonuses.
Dave at C @ L has a piece Glen Beck Malkin and Jonah are all anti populism now. I think the GOP just pulled the puppet strings on their 20%, Rush was doing the same thing yesterday.
20%ers who have lost their homes and jobs still have their guns. And the GOP not the dark people still have homes and cash.
The GOP needs a credible scapegoat stat.
He’s in office until 2012. After that we can put Gov. Palin in charge of our economy.
I’m not really sure what people want here.
1. AIG had contracts with some of its employees to pay these bonuses.
2. AIG insured a bunch of banks with lots of toxic assets.
3. Those banks went bust, the bill came due.
4. AIG got bailed out by the government so all those banks would not fall like international dominoes.
5. They used some of the bailout money to honor the contracts with their employees.
6. Everyone wants Geithner’s head.
Why?
What will the global impact be if all these banks get “nationalized?”
Will the stock market go to zero? Making everyone’s 401Ks and pensions and college funds null and void?
I understand the need for a scapegoat, and Geithner seems to fit the bill. But has any one thought this through?
It seems like the Obama administration has its finger in the dike of Great Depression II. Are they making it up as they go along? Of course. There’s no blueprint for this except for the 1930s. That’s the last time there was a banking failure of this magnitude.
I’m still laughing about the fact that Beck had to have “populism” ’splained to him. ;)
{Pretending to be} Taxing this away is not gonna work. Sorry chaps. Try again.
Tax Fail.
see hugh @21
see deadlast @10
The Liddy hearing I don’t think had a single mention of Goldman. Nobody brought up the fact that he had been on Goldman’s board of directors before Paulson picked him to head AIG.
Maybe I’m missing something but it sure looks like Liddy completely mishandled AIG. The repeated bailouts are proof positive of that, but on top of that he seemed really ignorant about what was going on at AIGFP under his tenure. His story changed everytime he told it. The people at AIGFP were the ones who really understood the CDSs even though he didn’t know who they were and even though all those who had dealt with CDSs had left the company. And there were those $1.6 trillion in other derivatives which apparently were quite solid unless of course they took down the whole company.
Nor could he sell off the better divisions of AIG because there was no market for them.
So other than maintaining a vast rathole which has sucked up nearly $200 billion I don’t know what he has done.
I believe GM had contracts with some of its employees as well…
The bonuses are the loose thread that could unravel the whole thing. Another loose thread is the lying about unpaid taxes. An how inconvenient that Geithner had an unpaid tax problem and 13 (or more? … thats more than 50% of the ones checked) TARP recipients lied about their unpaid tax problems.
This thing is starting to echo as it grows.
Hey Congress: Tax ’em all you want. THEY DON’T PAY THEIR TAXES.
I saw only the last 2 hours of the Liddy testimony, but it was a complete shipwreck.
And, back to my point, you are right: not a single mention of Goldman Sachs. It’s the great unspoken word in DC.
I would love to have been a fly on the wall when Goldman planned this raid on the taxpayer. When I was there (1976-86), everyone knew they planned their political contributions to make sure they had their mits on both parties. It is only a small step from that to plan how to get important political appointments in both parties. Too bad no one will ever tell the story of “The Plan.”
1 and 5) Contracts can be changed even after signing. See the auto-making unions, who changed theirs under pressure from the same people who are whining about the sanctity of the AIG contracts.
2) AIG was placing bets (CDSs) with other people’s money.
3 and 4) Lehman went bust; the rest may or may not do so. We were told, when the bailout was being sold to us, that all those banks were going to fail Really Soon Now, but (surprise!) that hasn’t been brought up since.
6) No question on that one: he’s either incompetent or gullible.
ecahn and hugh – i do not understand how the fed’s purchase of treasuries is an attempt to free up credit. (rather i’d think it was an attempt to prevent long interest rates from rising as those who have been buying our debt no longer want to buy whatever we are willing to sell). could you explain the “freeing up credit” angle v slowly please?
While I was willing to give Obama the benefit of the doubt, my concerns over his economic & treasury team have been confirmed.
Can you see the bird at the top of the iceberg?
http://londoncoder.files.wordp…..ceberg.jpg
That’s what these egregious bonuses represent in the bigger picture.
AIG threatens the survival of our real economy and the current administration’s credibility as America stands on the precipice of a global Enron:
1) We are facing a systemic insolvency catastrophe, not a containable but inconvenient liquidity problem, generated by obscene market greed and all too competent deregulatory complicity.
2) D.C. public relations, inspiring speeches, and mass media propaganda won’t put food on the table of a family who’s lost their home to foreclosure, lost their jobs, lost their retirement, lost their access to health care, and lost their faith in fundamental fairness while watching hundreds of billions in rewards showered on those to gamed the system to near extinction — so far, taxpayers’ extinction, not theirs.
2) The mutualism between Wall Street and Main Street, formerly known as capital formation, is dead. Capital today cares nothing for the creation of real assets or middle class living wage employment in this country. One way to restore the balance is enacting and then enforcing a new, tougher version of Glass Steagal along with more effective anti-trust regulation. Any financial entity too big to fail represents too big a risk to the system, and therefore is too big to exist and must be restructured with proper capitalization.
3) Paulson’s debacle as Treasury Secretary was designed solely to preserve Wall Street, prop up his former firm, and lock the new administration into a no win battle between the phantom & real economies.
4) Bailing out these financial firms may temporarily prop up a corrupt system of incentives where profits are privatized, losses are socialized, and investing devolves into arbitrage gaming of the markets but it won’t promote sustainable future prosperity for America.
5) Special federal legislation affecting any one individual or firm exemplifies a complete failure of public policy and equal protection under the law. This applies both to no bid contract earmarks like Halliburton’s and punitive excise taxes to recover taxpayer extorted bonuses from AIG and other TARP fund recipients that should have been banned in the first place. It’s something Idiot Alberto Gonzalez would have dreamed up.
AIG BELONGS IN BANKRUPTCY COURT TO STOP THE LYING & FRAUD
FIRE GEITHNER & SUMMERS. REQUEST BERNANKE’S RESIGNATION.
CREATE & IMPLEMENT A PLAN THAT SUPPORTS MAIN STREET OVER WALL STREET, RATHER THAN THE CONVERSE
this is what emanuel and axelrod are all about: managing public opinion
rather than representing it.
And they’ll fight very, very hard trying to marginalize us, telling us what we think is important despite the exact opposite and trying to cloud the clarity … and the opportunity for unity of the citizenry this matter offers (almost every citizen of all political ilks is outraged about this) … that this provides to these corrupt relationships between the wall street interests and their government. emanuel and axelrod will fight tooth and nail (especially scumbag traitor emanuel, do you think that he wants some light shined on the nexus between wall street and the government with all the money that he made in such a short time on wall street once he left the clinton administration?) becoz they are afraid that if we get our way and get these enemies to a representative government, geithner and summers, removed from obama’s administration, then we will always want our way … and think that we can get it. Essentially, we will expect a government that represents us rather than one in which we just have to be happy with whatever they decide we get. That’s the clarity of it all.
That’s how they think and that tells you a lot about them … especially emanuel who is a HUGE barrier between us and representative government … they don’t want the government to respond to the people, they want it to work for them and their immoral friends. So, that’s why they do not want the government to “give us our way” … becoz then we will always expect the government to actually represent and respond to us … like a representative government is supposed to … and not settle for whatever crumbs of representation these scumbag powerbrokers drop from their table.
Z
This is a very, very important opportunity to make this government begin to represent us and force them to fire these enemies to representative government that obama has appointed, summers and geithner … for now. And what it needs is a critical mass of people behind the words. It needs demonstrations with a simple message that brings this into full clarity: GEITHNER AND SUMMERS, GET OUT OF OUR GOVERNMENT!
That is what this issue is all about, about obama making appointments of people who obviously are not in the business of representing us. They need to go, and we need to force them out … and once we do, he will not be able to appoint a bunch of wall street stooges to take their place with the political price he will have paid for them and also the focus that this will bring upon his future economic appointments.
obama is still redeemable, but he needs to be forced to represent us and not embrace the new democrat/dlc corporatist ways that he seems to be so comfortably inclined to. And we need to hit him with that force right now while the rage is still boiling hot and this unifying issue is in the public’s consciousness.
We need to mobilize and hit his political team, that is much more interested in managing public opinion than representing it, while they are on their heels … while it has gotten ahead of them and they are least able to manage it. This doesn’t involve anything illegal, it just involves putting faces and physical mass to this almost universal disgust of the beltway’s ways. We have to be seen to be heard.
I don’t know of the complexity of the logistics of getting a nationwide demonstration together (I assume that organized labor would be the first place to start), but the sooner we can get people on the streets demonstrating … this weekend? … the better chance we have to get some traction on this foothold of universal citizen disgust and actually get change.
Z
I haven’t paid much attention to what the FRB is actually doing, as I think it won’t help much. But in general, I think they’re trying to lower long-term interest rates, hoping that will revive the housing market, thus loosely referred to as freeing up credit.
BTW it is the steep yield curve which is allowing banks to report “profits” in the 1Q. So if the FRB successfully lowers long-terms rates, the banks’ “profits” decline or disappear. Out of the frying pan into the fire. It’s the problem of running a bailout favoring only the big financial players in the first round, and having no idea of how the system fits together, and therefore what to do to save it.
1. AIG had contracts with some of its employees to pay these bonuses.
The tooth fairy didn’t leave these contracts under their pillows. They are highly unusual in that they are not tied to performance. This suggests, especially given how awful the performance actually was, that there was fraud involved.
2. AIG insured a bunch of banks with lots of toxic assets.
No, AIG insured through CDSs the toxic assets.
3. Those banks went bust, the bill came due.
Again no, AIG was paying off on CDSs even though they weren’t even in default. The CDSs were also so stupidly written that CDS holders could require AIG to post increasing amounts of collateral to back them. And to top it off an unknown number of these were naked CDSs so the holders of them had no liability if there was a default.
4. AIG got bailed out by the government so all those banks would not fall like international dominoes.
This was certainly the story we were given. But it is untrue that AIG or its counterparties had to be bailed out the way they were or that the counterparties needed to be paid off in full. This is also all part of the larger issue of banks being insolvent. An AIG default would not have made these banks insolvent. It would merely have exposed the fact that they were.
5. They used some of the bailout money to honor the contracts with their employees.
I seriously doubt honor had anything to do with it. And why are contracts with AIG employees who created this awful, expensive mess sacrosanct while those say of autoworkers are not?
6. Everyone wants Geithner’s head.
And why not? He has in his brief time in office been a disaster.
I know this much:
In a stunning reversal of fortune, if Pelosi and company do manage to put through these initiatives, they’re likely to see a major upturn in Congressional approval ratings. If Obama puts through one more bailout program for anyone for any reason, his ratings are liable to tank.
On this one, Congress may actually be looking out for the people which, last time I looked, was supposed to be their job. :-)
I can’t imagine this convoluted method working at all
you are allowing the very people who stole and misapropriated their original charge to earn profit where they should be paying penance and compensation
the fed needed to simply make money available to loan through banks, to which the bank could earn a negligable commision
that way no money gets wasted, very little goes toward their rediculous lifestyle and they don’t get rewarded for frigging up our economy
The UAW had a contract with GM, but AIG contracts for billionaires are sacrosanct while mere worker bee contracts are toilet paper.
These banks are INSOLVENT and the system they represent is DEAD AND GONE. It cannot be made to all get up and go again. All Geithner, Summers, Bernanke, Rubin, AND OBAMA are trying to do is reboot the (broken, corrupt bubble) system that WAS. They are trying to reinflate the housing bubble, get people borrowing again(!!!!!!!!!!!!!!) and buying shit with money they don’t have. THAT is the ENTIRE focus and purpose of the Bush bailout AND Obama bailout regimen. That is it in its entirety.
That system is dead and gone and will NEVER come back. They cannot force it to come back. The system has undergone a total and complete phase change.
I strongly recommend ya’ll read this at the Roubini website. Then there is the entire false basis of the entire bailout plans of both Bush and Obama here.
In short, what they are doing, what they are throwing OUR money away on will serve only to enrich the few at the expense of the many and to no good end.
There is NO room for “give them a chance” when they start off wrong to begin with. They HAVE no chance of succeeding.
i can see how they might think that lowering long term interest rates might temporarily prop up house prices a little bit (and therefore the MBS market). not that i agree, but that seems to be the strategy of those who support the bubble paper economy.
what i don’t understand is how that frees up credit. or maybe i don’t understand exactly what “freeing up credit” means. i think of credit as the ability of a business to get loans – for short term payroll or long term investment. or the ability of someone to get a credit card or have their limit increased. stuff like that.
From where I’m sitting, BO has a large opening right now to oust Geithner, Summers and even Bernanke. If he doesn’t take this shot while he still can…well…he’s making a huge mistake. He opens the possibility of being eaten alive from the left and the right…a one-termer, even. And trying to get anything through Congress? You bet.
On the other hand, that would open the door for Palin-Jindal in 2012.
A moose in every pot.
I think part of the problem is the genuine expectation among both the robber baron CEOs and some legislators that the good times will come back, exactly as they were before the meltdown instead of the likelihood that there will be fundamental structural changes. I was in a meeting the other day with a bunch of people advising several counties on infrastructure and real estate issues. The key issue was projecting the return of “normality” to housing/mortgage markets so that municipalities can count on tax increment financing, for infrastructure, education, social services, etc. Such financing is linked to future increases in the value of real estate, so everybody’s pressing question is when real estate values will be restored to their pre-crash levels and when they will start growing again (at the same steady bubble clip) from that point upward.
But what they failed to take into account (and refuse to) is that real estate values have two components, debt and equity (debt+equity-cash is the value of something), so if the ratio of debt to equity (the amount one can borrow relative to how much equity/cash one puts in) changes, then housing “values” will adjust accordingly. In other words, with banks/investors who finance the development of homes demanding more secured loans versus unsecured bonds (from the developers), the amount of debt available to consumers/mortgage holders will likely be diminished along with the security pool, leading to lower mortgage debt/equity ratios at both points in the consumption chain (developers and ultimate homebuyers). If this situation continues beyond the recession, which it almost certainly well, then real estate values (debt+equity) will take a loooong loong time (if ever) to recover to pre-crash levels and continue growth after that, since the amount of debt avaiable would be less. The municipal officials simply refused to even contemplate such a structural change… so once economic recovery takes root, expect a vast spate of municipal bankruptcies.
This is the problem with everybody these days: heads in sand.
I think the wheels are coming off this thing – by thing I mean Obama. Even though I supported him in the election, I really am growing increasingly skeptical about this guy. I think tjfxh at the Agonist has this just about right:
“As Paul Krugman recently observed, this power vacuum is even more evident in Europe than the US. However, the AIG kertuffle has revealed two things about the US. First, the public is approaching the breaking point. They will not stand for much more. Secondly, the Obama Administration is not projecting the kind of judgment and control of the situation that is necessary to mollify public outrage.
At the bottom of this problem is the double standard — one set of rules for the rich, powerful and influential, and another for the rest of us. The public is now announcing that it is not going to stand for this much longer. This double standard was operative throughout the Bush Administration, and Obama ran on the platform of changing it.
However, the Obama, who took bundles of cash from Wall Street for his campaign, and the rented Democratic Congress are countenancing this wholesale disregard for law and ethics, both in the financial world and also with respect to the constitutional high crimes and misdemeanors of the Bush Administration. Unless they fix this fast, it will likely be their undoing. And with this undoing, domestic problems will languish, and global crises will increase in number and magnitude. It won’t be pretty, and the uglier it gets, so will the public mood.”
A T bill auction occurs each month and is for a fixed amount. Bidders bid on the rate. The Fed can enter in and bid a lower rate. In theory this could send some bidders looking elsewhere to lend their money and so create more credit at lower rates for others.
The problem is that while this send these bidders (banks, counties, and such) in other directions it might not send them in the direction Bernanke wants them to go or get them to do what he wants.
And all these cynical political operators/manipulators try to define us … to us … in as few of variables as they can becoz it makes us easier to manipulate. the religious right is particularly vulnerable on this becoz they are single variable … abortion … voters.
the political reptiles do not recognize .. nor want to recognize … nor want us to recognize … that we can be mad about BOTH our economic situation AND the aig bonuses. and a bunch of other stuff that is connected such as the corruption of a government that does not represent us to the point that they hand over our money to people that stole from us so that they can steal more from us.
And we can make these connections, david and rahm … instead of being manipulated by a single variable.
Z
ecahn, I am wondering if you know about tax law, I personally don’t think you can add any tax to a bonus already payed or earned but ianal and ianae
Oh yes. He IS looking more and more the One Termer all the time. He is being eaten alive by this debacle (the bonuses are merely a simple, VALID, illustration of what is wrong with entire thing). He will not make it if he doesn’t actually change direction and actually lead rather than doing the same old same old “s/he has my full confidence” bullshit that all mealymouthed presidents do.
He is NOT going to get another big bailout bill passed at this rate. His bridge is burning in front of him, behind him, and beneath him.
sorry..can’t afford the pot.. or the hunting license.
Nate has a very good analysis posted. If what he describes is the reality behind these “bonuses” (I’m repeating his scare quotes – read the post to see why)… well maybe some haircut is reasonable, but zero compensation for doing the work of unwinding isn’t right.
Somebody buy that man a cappuccino or something.
Yup. He’s a smart guy. Why can’t he see this? Too much smoke being blown up his ass by Rahm, etal?
nobody is talking about zero compensation, we are talking about bonuses which is above compensation
i get the t-bill auction and how the fed can lower rates by participating. that affects the cost of credit. what i don’t get is how that affects the amount of credit available (well, other than possibly to lower it) which is what i understood the terms “freeing up credit” or “loosening the supply of credit” to mean. am i misunderstanding those phrases or misunderstanding something else?
perris, read nate’s post.
The people getting “bonuses” would otherwise get zero compensation – their compensation was based entirely on the performance of the portfolios they managed. These portfolios are toxic. Unwinding them is work that we have to have done. Who do we pay to do this work?
re retention bonuses.
different industry but i imagine it might be somewhat similar – retention bonuses are not tied to performance of the division (or group). i have seen them offered when a manufacturing plant is being shut down and it’s really important to keep a few people until the bitter end. if managed well, people know what is going to be happening when and the people who are asked to stay until the end, or some specified intermediate date, (and this can mean turning down job offers) will be offered some special compensation if they agree and if they live up to their agreement.
i’m not saying anything like this was the case at aig. just that it might have been for a few of the apparently several thousand people who apparently in line for bonuses (far more than iirc the reportedly 300 people involved in the hedging division)
p.s. yes please, let’s fire giethner and summers too while we’re at it.
Correct.
I probably missed this, but does anyone know whether any indispensible who got a “retention bonus” left before the contract was unwound? That would have been an obvious question for the pinhead committee members to ask yesterday.
me neither.
we’ve got to see the contracts. until then it’s all supposition based on statements by known liars (see liddy)..
btw, i think that goes for the derivative contracts too.
why would they get a bonus on toxic performance?
they should get a per diam for work to be done, not a bonus for frigging up their job in the first place
Just to be clear and correct. T bills auctions are held once a week. The bills are sold at a discount off their face value when they come to term. Bidding occurs in this way:
http://www.treasurydirect.gov/…..k/work.htm
Must go eat lunch now because my brain needs sugar.
They should definitely not be compensated at as high a level as they were previously. the 25% haircut given to executives still leaves said executives overpaid. The actual portfolio managers also should see cuts – but there is something to be said for keeping people with detailed knowledge of currently toxic instruments involved in their unwinding, especially now that we’re on the hook. Some of these instruments won’t end up being worthless and the traders that wrote them should do the unwinding to maximize taxpayer value. That doesn’t mean they should ever have been paid as much as they were – that’s the point of talking about compensation in general.
there is something to be said for keeping them for their knowledge
we keep them by offering them a job, to which they will not be able to get since they are clearly incompetant
I have no problem with compensation, if they were given a draw (likely) persuent to performance then they have been comepensated
if they haven’t been payed for the year, (unlikely) then of course they need to be payed for the hours worked
I’m not saying it works but that was what the idea was. The Fed tried to stimulate lending by cutting short term rates to zero. That didn’t work so now it is trying to affect longer term rates by nudging longer term T bill rates down. I don’t see this working either but the idea is to lower long term rates and cause more money to go into lending.
Could you clarify this?
Hugh, can you unravel their thinking on this?
The banks et al. are NEVER going to “free up credit” by letting all that incoming green go out the door to borrowers, not when they can keep it in house.
Why aren’t there some provisions of sending that $$$ directly to consumers/borrowers?
Perhaps you’re gonna have to postpone that lunch?
I suppose the bonus issue can be reduced to two points.
First, given how badly the people at AIGFP performed, a performance based bonus was out of the question.
Second, given how badly the people at AIGFP performed, there was no reason to retain them.
Now I could see bringing in an outside (untainted) team and paying them bonuses based on how well them wrapped up AIGFP and minimized its losses. But this quite clearly was not done.
Instead what we got players who had previously performed terribly and continued to do so (paying full value on securities not in default), and these were the ones who got bonuses.
But more generally at AIG there seems under Liddy to have been very much a business as usual attitude. Which in terms of bonuses meant that they remained both many and large. This completely ignored the disastrous financial state of the company, its dependence on government largesse, and the awful condition of the country’s economy.
This was the claim made by Gretchen Morgenson and I have not seen anyone in government or at AIG deny it.
http://www.nytimes.com/2009/03…..5gret.html
Here’s the interview that Morgenson did at that time. Pretty good stuff, I thought.
http://www.npr.org/templates/s…..=101936770
No, I can’t. Bernanke has been pushing on a string for 6 months now. He seems to think that if only banks have enough money or cheap access to money or as in this case nudged away from one investment vehicle, that they will all go out and start lending again. There are so many things wrong with this and most importantly the evidence that we have seen over and over again that it doesn’t work. But still Bernanke persists.
I think basically (as has been said by others) that he wants to recreate the system that was and can’t accept that it isn’t coming back, that it was all based on air and bubbles, that it wasn’t real but just paper chasing itself.
Since Obama, his economic team, and the political, financial, and media establishments all buy into this though, I think we are pretty much screwed.
Why stop at AIG bonuses?
What about the bonuses awarded at AIG’s counter-parties who have gotten all the money? The bankers who made these bad bets are just laundering the money through AIG. What’s going on with their compensation?
You continue to amaze and dazzle.
Getting to the heart of the matter, and shared with us plebes in our commoner’s language.
A gift, Mr. Hugh . . . . and we are ALL blessed with your sharing of it.
Tween you and Ecahn . . . . (and all the rest) the complex become ’splained.
The inane becomes obvious.
The guilty are revealed.
Thanks, once again.
Ok fine, you were right.
*G*
After reading Deep Capture and Francine McKenna’s info, and matching it all to what’s gone down in here (thanks to you, Hugh and others) . . . it becomes clear in hindsight that MOST of all the Obama Cabinet Picks and his other appointments and selections to critical positions have included the foxes that raided the henhouse, and still occupy it.
There IS the logical argument that it takes a crook to catch a crook, but even that rings hollow at this point.
We’re running out of time and room to fix ANY of the stuff that’s collected to date, be it from Reaganville or anything since . . . . it’s a short time into this presidency, but man, the whole thing is looking either incompetent or collusionary (real word?) . . . whether Obama is reacting step by step or not he’s NOT taken the efforts to really SHOW who he’s fightin for . . . . and that alone at this point, early on as it may be (we’re in a phrellin crisis of historical proportions), is highly suspicious, not to mention ineffective for the real change this system needs if it’s to be what we want it to be for the masses.
More Smartest Guys … in a huge room … in London
Reducing AIGFP to those two points assumes that this isn’t another Enron scenario on a global scale. AIG’s perverse incentive system didn’t make this crisis possible, it made it inevitable. And their exit strategy? A deep pocket cannibalism of the coming $20 trillion U.S. federal debt.
Extorting billions with someone else left on the hook for the debt service, never mind the cost of eventually reducing that balance in the face of all of our other long term needs is fraud.
And as for the sanctity of contracts, the Godfather’s business was built on contracts.
Thank you for the link to the LA Times article that speaks out to a degree about Goldman Sachs ties to the Obama economic team and to the bail-out(s).
Geithner’s background really needs the sunshine poured on it. He worked a couple of years in the Kissinger law firm – hmmm, on whose recommendation was he hired there? Geithner was head of NY Fed Reserve when a lot of the ponzi schemes were high-rollin.
There sure are a lot of Obama’s economic team on the Council on Foreign Relations (CFR), as well as others in his cabinet. Call themselves Dems, huh?
Going to see if I can find out more about Jim Webb’s statement about the bail-out mess.
As bail out disincentives mount, watch for this kind of behavior: http://www.calculatedriskblog……below.html
Wouldn’t it be amazing if we discovered there were some Bushie holdovers at Treasury who got the message, but didn’t tell Geithner or some staffers at the WH who just didn’t know what they were doing when they told Dodd to cut the limits on compensation? Yeah, I know, not likely. But then, it’s not been shown yet that what happened was in fact bad or wrong.
It just seems outrageous that we should have to pay people to clean up this mess.
it’s really infuriating to think that if we did fire the AIG traders/portfolio managers they are going to be the people to find the kind of deals in the linked article. These are people that have been packaging and trading this contracts, they’re connected and have some money from past years exorbitant compensation. They’ll be the people buying wholesale lots of foreclosed properties… or they could be using their knowledge and connection to see to it that that kind of thing doesn’t occur.
it’s really infuriating to think that if we did fire the AIG traders/portfolio managers they are going to be the people to find the kind of deals in the linked article. These are people that have been packaging and trading this contracts, they’re connected and have some money from past years exorbitant compensation. They’ll be buying wholesale lots of foreclosed prperties… or they could be using their knowledge and connection to see to it that that kind of thing doesn’t occur.
That’s the crux of the matter. Resolving the morass as it plunges into an abyss creates risk and opportunity. I don’t trust investment insiders or government regulators for essential changes to the system that protect the real economy from the phantom one. The last administration left Obama a minefield of no win choices. His response thus far recalls Bill Clinton with most of the same economic advisors & treasury officials.
I’m inclined to turn AIG over to Jane, Christy & Marcie. At least we’d know that taxpayers wouldn’t be stolen blind for their own personal enrichment. Cold comfort after trillions have been dumped into Wall Street’s pockets since mid-2007 when the grand unraveling became obvious to those who were paying attention.
i’ve been googling around and nowhere have i seen the fed or anyone else make that claim – that the fed purchase of treasuries is meant to free up credit or that lower long term rates cause more money to go into lending. (i get the short term rate argument. that’s a separate issue). can you give me a link? an explanation would be great, but at this point i’d take anything showing that freeing up credit was actually what the fed is trying to do by purchasing treasuries.
again, i’m not questioning the point about whether whatever the fed is trying to accomplish will actually work. that is a completely separate question.
the numbers don’t add up. if there were over 300 people in aigfp and only 20-25 of them were to blame, then it’s possible that there are a few worth asking to stay and help. of course, i have no idea if these numbers are correct. but i don’t think one can necessarily say that out of hundreds of people there is no one who tried to do a good job in a difficult situation and would be worth asking to stay and help shut down the group.
and we’ve heard that several thousand people are supposed to get bonuses so how can it only be the people who screwed up?
liddy (and probably the entire managment team) should be fired. but that doesn’t mean every single grunt in the company is likewise as dishonest or incompetent. and it’s not the fault of the grunts in the organization that the management is so completely fucked up.
we just don’t have enough info yet to judge more than the management. which brings us back to the need for a really good investigation… and if there hasn’t been one that is again the fault of management and not the grunts.
This may be “The Plan”:
http://video.google.com/videop…..1843120756