The futile arrogance of AIG outrage

posted at 8:51 am on March 17, 2009 by Ed Morrissey

The Barack Obama administration needed a new target for their populist rabblerousing, since they’ve apparently decided that Rush Limbaugh fights back and the oil companies don’t make enough of a profit to matter.  The contractual bonus payouts at AIG came just at the right time for them to demonstrate moral outrage and get the people to aim their ire at a shared enemy.  So far, few have figured out that the Obama administration enabled the bonus payouts:

A tidal wave of public outrage over bonus payments swamped American International Group yesterday. Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn’t show up at all.

“It’s a mob effect,” one senior executive said. “It’s putting people’s lives in danger.”

Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products’ complex trades and who are trying to dismantle the division before it further endangers the world’s economy.

“It’s going to blow up,” said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. “I have a horrible, horrible, horrible feeling that this is going to end badly.”

Maybe it’s an Obama stimulus.  After all, someone has to pay all of those guards, answer those threatening phone calls, and screen the mail for anthrax.  Just think how many jobs got saved by the White House turning AIG into a pariah — after dumping tens of billions of dollars into it.

The nasty little secret at the center of all the outrage is that the Obama administration could have stopped the bonuses by simply stopping the bailout.  They could have forced AIG into bankruptcy, which would have voided the company’s contractual compensation obligations.  Instead, the Obama administration chose to inject liquidity into AIG, following the lead of the Bush administration, which had done the same thing.  That kept AIG’s doors open, and therefore kept its contractual obligations to its employees intact.

Now Obama is outrageously outraged, as Allahpundit put it yesterday, but over what?  A company complying with its contractual obligations?  AIG has no more right to abrogate those contracts than any other employer would with its union contracts.  Whether or not the compensation agreements reflect wisdom and managerial brilliance, they exist — and as a matter of law, AIG has to honor the commitments.  Screeching about the bonuses now is not just futile, but a demonstration of the arrogance involved in these bailouts. If the government wants to tear up all the contracts, it will have to nationalize AIG and get Congress to approve it.

In the future, we can avoid having taxpayer dollars go to Wall Street bonuses by not bailing out private companies with taxpayer dollars.

Update: Fausta has more, plus a poll.


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getalife on March 17, 2009 at 6:57 PM

I have no problem with someone critiquing the government, as long as they have facts and figures to back it up. The problem with the two I mentioned is that they are populist, so they will check whichever direction the wind is blowing, and then express outrage about the reverse direction. IMHO, that’s not journalism, it’s pontificating. I don’t need a journalist to tell me how to think, I need him/her to give me the facts so that I can decide.

peter_griffin on March 17, 2009 at 7:40 PM

“Hey, the economy ain’t so bad…..now watch me hit this drive….”

BobMbx on March 17, 2009 at 7:47 PM

Let them have the damn money and choke on it hopefully.

johnnyU on March 17, 2009 at 8:17 PM

Thank you for the sanity, Captain.

When the public joins in the rants congress is throwing about AIG, the public is letting the smoke the real culprits are blowing get in the way of rational thinking. Congress is responsible; congress is blowing smoke by ranting and any conservative falling for this dodge is aiding and abetting.

Congress bails out AIG then ensures AIG’s demise by inciting popular outrage against AIG irresponsible business practices congress already knew about. When congress wrote the bail out of AIG to include language specifically protecting bonuses, congress set the stage for this abomination!

We should express indignation and/or rage at the perpetrators … congress!

MsDollie on March 17, 2009 at 8:49 PM

Sadly, this latest round of political misdirection may come at the cost of further damaging a company that’s 80% owned by the U.S. taxpayers.

hawksruleva on March 17, 2009 at 3:55 PM

Latest AIG stock price: 96 cents. Down from about $65.

MB4 on March 17, 2009 at 9:17 PM

Obama’s and Geithner’s newfound outrage is pure bullshit:

Cummings Requests Congressional Hearing to Investigate AIG

Washington, D.C. — Today, Congressman Elijah E. Cummings (D-Md.), a senior member of the House Committee on Oversight and Government, sent the following letter to Committee Chairman Edolphus Towns (D-N.Y.) and Ranking Member Darrell Issa (R-Calif.) requesting a Congressional oversight hearing to examine recent actions of insurance giant AIG—the government bailout of which has cost taxpayers $152 billion (text of the letter below). The Congressman is specifically concerned about:

Reports that the company is secretly giving “retention payments” to thousands of its employees. This new information conflicts with both an SEC filing and a letter from AIG CEO Edward Liddy to Rep. Cummings that placed the number of recipients at 130 and 168, respectively.
Reports that the company continues to send executives to lavish retreats, including a recent event held in Phoenix, Ariz. Mr. Liddy insisted during a phone call with Rep. Cummings, as well as on national television, that no AIG executives were in attendance. However, media coverage of the event shows that at least eight executives were present and spent the majority of their time away from the official conference events.
The extent to which the Department of Treasury and Federal Reserve are informed of the compensation policies of AIG.

http://www.house.gov/apps/list/press/md07_cummings/20081216aighearing.shtml

drjohn on March 17, 2009 at 9:18 PM

AIG’s stock price has about quadrupled in the last week, so someone is making out like a bandit. Maybe Soros?

MB4 on March 17, 2009 at 9:20 PM

AIG’s stock price has about quadrupled in the last week, so someone is making out like a bandit. Maybe Soros?

MB4 on March 17, 2009 at 9:20 PM

Bet your life on it.

drjohn on March 17, 2009 at 9:24 PM

More Obama bullshit:

AIG Said to Offer Retention Payment to Bigger Group of Workers

By Hugh Son

Dec. 13 (Bloomberg) — American International Group Inc., the insurer under fire for paying 168 executives not to quit after a government takeover, is giving retention awards to at least 2,000 more employees, according to a person familiar with the matter.

The “retention bonus” equals as much as a year’s salary and recipients were ordered to keep the payment secret, said the person, who declined to be named because the plan was labeled confidential. Awards were offered to as much as 10 percent of staff at businesses that are for sale, including plane-leasing and insurance units in the U.S. and overseas, the person said.

AIG said in September that 130 executives will get awards, just days after the New York-based firm got a government rescue package that now totals $152.5 billion. AIG Chief Executive Officer Edward Liddy told Congress last week the payments will go to 168 people, with some getting as much as $4 million.

“If it has the money to give these disguised bonuses to thousands of its employees, then I think it is time for Mr. Liddy to write a check to the federal government repaying the money it took,” said Representative Elijah Cummings, a Maryland Democrat, in a statement yesterday.

Nicholas Ashooh, an AIG spokesman, said life insurance unit chiefs were allowed to give retention awards to as much as 10 percent of their staffs, and selected “closer to 7 or 8 percent” of workers. There are about 37,000 employees in AIG life units around the world, Ashooh said. A typical payment is equal to about six months of salary, he said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=al7HigWEZYgA&refer=home

So Obama and Geithner just learned this?

Freaking liars.

drjohn on March 17, 2009 at 9:32 PM

Why are we quibbling about $165 million?

Oh wait, that’s Chuck Schumer’s line “Why quibble over $200 million?”

Where is the quibble line?

ProfShadow on March 17, 2009 at 9:34 PM

peter_griffin on March 17, 2009 at 5:28 PM

.
You are right China slipped my mind.

darktood on March 17, 2009 at 9:39 PM

A.I.G: All Recipients

MB4 on March 17, 2009 at 9:46 PM

Well good for AIG for finally recognizing certain obligations. No such recognition existed when they were selling all the swaps that they had neither intention nor ability of covering.
tartan on March 17, 2009 at 2:50 PM

They were for being bloody bastards before they were against it. Rather like much of congress.
MB4 on March 17, 2009 at 3:00 PM

Exactly

tartan on March 17, 2009 at 10:22 PM

On Sunday night, Paulson briefed a representative of President-elect Barack Obama’s transition team on the revised plan, according to senior Treasury officials, who spoke on condition of anonymity. The officials said the $40 billion AIG investment is separate from the $250 billion the Treasury has earmarked for buying stakes in banks.

The arrangement announced Monday requires that AIG limit executive pay and perks and freeze the size of the annual bonus pool for the top 70 company executives. In October, the New York State attorney general, Andrew Cuomo, reached an agreement forcing AIG to freeze payments to former executives.

http://www.iht.com/articles/2008/11/10/business/11aig.php?page=2

Obama knew. Cuomo also knew.

drjohn on March 17, 2009 at 10:23 PM

You’re painting with too broad of a brush. You must be a RINO yourself.

fogw on March 17, 2009 at 9:48 AM

I see you posit nothing constructive. No points or facts to refute me you just offer your opinion and call me a RINO as if that suddenly makes you right. You dismiss any idea that does not fit your comfortable view of the world. You are what’s wrong with the republican party my friend. You heard it here first.

kanda on March 17, 2009 at 10:42 PM

I’m wondering if this made up outrage is to divert our attention from stories like this one:

FDIC tells good bank to be more risky

肖恩

xiao_en on March 17, 2009 at 10:45 PM

peter_griffin on March 17, 2009 at 6:50 PM

Dobbs and Cafferty at least haven’t advocated some of the things that the extremists at Fox advocate.

That’s why I am a lot more inclined to give them the proverbial time of day and watch them instead.

sethstorm on March 17, 2009 at 10:47 PM

sethstorm on March 17, 2009 at 10:47 PM

That’s why I made it a point to not listen to any populist journalist at all. They are taking the easy way out – trying to tap populist sentiments without doing the hard legwork that journalists need to do to get *actual* information. Anyone can express an opinion, but it takes hard work and discipline to get to facts, specially when there are parties trying to shield them.

peter_griffin on March 17, 2009 at 10:57 PM

FDIC tells good bank to be more risky

xiao_en on March 17, 2009 at 10:45 PM

You don’t need a spammy link to do it.

sethstorm on March 17, 2009 at 10:59 PM

HIGH IMPACT – Thanks to our stimulus spending bill search engine, we discovered that Obama granted AIG a free legal pass to give high bonuses because of the following stipulation in Obama’s stimulus bill he personally orchestrated and signed into law:

From page H1412 of the Final Stimulus Bill, “SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE:

“(iii) The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a writte employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.”

This amendment provides an exception for contractually obligated bonuses agreed on before Feb. 11, 2009, which exempts the very AIG bonuses Obama is condemning every single chance he gets. The amendment is in the final version and is law.

Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org — According to the Wall Street Journal, Sen. Dodd placed this section into the final stimulus bill, making him responsible, along with Obama, for AIG receiving these bonuses.

http://www.butasforme.com/2009/03/17/obamas-stimulus-bill-explicitly-grants-aig-the-legal-right-to-hand-out-bonuses/

drjohn on March 17, 2009 at 11:03 PM

I’m still at a loss. AIG was a victim of Obama Waters Franks, LLC., and if these people want to picket anything, they should picket the White House and Capitol Hill.

Given that the Government owns 80% of AIG, maybe they should force a board meeting and vote on new members. AIG made no promises not to do what has just happened, and the Government can only close the barn door after the cows have all run out.

Again, we need to leave the ex post facto laws and bills of attainder to the Democrats — the Republicans should stay well away.

unclesmrgol on March 17, 2009 at 11:04 PM

But the trillion that you say was damaged, does not really disappear, right? Say the trillion that was used to bail out all the banks, really paid for the CDS’-es they promised, and finally were forced to pay back as the foreclosures hit the market. In effect, they are paying for the homes given to unworthy customers (for whatever reason). So, in effect, it is ensuring that these homeowners keep spending, which will help re-trigger the economy. I am not convinced you made an analytical case that this trillion is going into a black hole.

peter_griffin on March 17, 2009 at 5:04 PM

It would be more accurate to say this trillion dollars is being pulled out of a black hole – it’s deficit spending being extracted from future generations, who have no ability to defend themselves or agree to these spending programs. (Wouldn’t massive deficit spending therefore qualify as “taxation without representation?”)

Not only will every one of those trillion dollars cost more than one dollar to deliver, due to the cost of servicing the debt, but it will produce less than one dollar worth of value, because it is money being reallocated by political demands instead of market logic. Propping up failed banks and auto companies involves imposing government power on the economy to force it to do the opposite of what it wants to do, although in the case of the banks, it was largely government pressure that forced them to make the poor decisions that led to their downfall.

Consider the plight of the auto companies. Put simply, they have a ludicrous business model that causes them to lose money on every car they build, because their union labor costs them far more than it’s worth in terms of value. To use a number I’ve heard kicked around, something like $2000.00 is lost on every Ford and GM vehicle due to inflated labor costs. The obvious free market solutions would be (1) renegotiate labor contracts to reduce cost to realistic levels, (2) charge more for the cars to make the company profitable, or (3) go out of business because the business model is unsustainable, freeing up the mass of Ford and GM customers to be snapped up in a competitive market battle by other car companies. The government works with the labor unions to make option 1 impossible, and it just pumped hundreds of billions of dollars into these companies to forestall option 3 – which irrationally diverts market forces by pumping money from outside the market, seized from taxpayers and their children, into failed enterprises. This is not only immoral and unfair to the taxpayers, it is also unfair to the other auto companies, which are denied their chance to grab the sizable market share that would be released by the failure of Ford and GM.

Option 2 would be the most logical and obvious course of action – raise the price of the cars to cover the bloated labor costs. Of course, if the auto makers did that, their sales would decline sharply because they would not be competitive with the companies that are already eating their lunch. Few car buyers would cheerfully fork over an extra $2000 to keep the lavish benefits of union workers flowing. In fact, almost none of them would, especially if the purpose of the $2000 price increase was made clear to them (a “Union Benefits Surcharge” line item on the sticker.) The government bailout therefore relieves the actual auto buyers of the responsibility for paying that $2000 per car, and disperses it among taxpayers and future taxpayers – invalidating their freedom of choice by forcing them to buy a little piece of a Ford no matter what car they choose to drive. It is a horribly unfair and inefficient system, bleeding away the value of each dollar as it is routed through Washington and re-directed by politicians.

The flow of money in a free market passes from consumers to businesses, who become consumers. Money passed through the government loses its value because the government adds no value, beyond the minimal services it should be performing – but aside from national defense, rarely performs well, or even bothers to perform at all. The fatcat executive or investor who buys a yacht did something to earn that money – he returned some value to the system, and if he doesn’t return sufficient value for his salary and bonuses, the system will eventually reject him. When Barney Frank buys a yacht, he uses gigantic amounts of money he did absolutely nothing to earn – even ignoring the massive damage he did to the economy, his activities create no market value, beyond a minimal, justifiable regulatory role for which he should earn a minimal compensation. As we know, most of Barney Frank’s millions are pure graft – political payoffs from wealthy friends who are essentially purchasing power from outside the free market, and using it to distort the market. And, unlike the fat cat executive who will be expelled by the system if he keeps making stupid mistakes, Barney Frank will never suffer any personal losses as the consequences of his failure. As we have seen, his influence on the markets is at least as likely to increase as diminish, even after doing an amount of economic damage that would have made Hitlers’ top generals drool with envy. He’s Senator-for-Life from a state that will never vote him out of office.

No system can survive and prosper when it is controlled by agencies that exist outside its feedback loop. When cars replaced horses, the buggy whip industry died off. In fascist America 2009, if the buggy whip makers were wise enough to purchase political influence with the Obama Administration, they would never be allowed to die off – there would be billion dollar subsidies for buggy whips. Money seized and spent by the government is wealth lost, because it is no longer available for the free market to distribute efficiently, according to market forces.

Doctor Zero on March 17, 2009 at 11:46 PM

Force is force whether it be by gun or practicality.

sethstorm on March 17, 2009 at 5:40 PM

That’s the single most Orwellian thing I’ve heard since Orwell died. Practicality is “force?” That’s the logic of totalitarianism, no different than the hard socialist idea that “freedom” means every citizen must be free from hunger and thirst, so the assets of working people must be seized by dictatorial force and used to provide food and housing to those who don’t work. “Freedom is slavery.” What a chilling line of reasoning.

Doctor Zero on March 17, 2009 at 11:51 PM

Doctor Zero on March 17, 2009 at 11:46 PM

Thanks for your comment, Doctor Zero. Maybe we should start our own blog j/k :-)

I agree with your line of reasoning, you are absolutely correct that we cannot keep borrowing from our future to service the present. However, what if we did not bail out the banks? Undoubtedly, that would have resulted in significantly worse Libor spreads which would have continued for a very long time. Beyond a certain period of time, it could potentially result in a depression. Would that not result in the following?

(1) loss in productivity for a generation (those who are at the peak of their intellectual prowess would be going around looking for ways to pay their mortgage/rent)

(2) death of multiple companies which are smaller players in the market, yet create outstanding products (like AMD does in a semiconductor market dominated by Intel)

(3) create a generation that would be terrified to invest (our grandparents’ generation comes to mind)

So, while a lot of impacts may not be directly quantifiable, there are good reasons to prevent a depression from happening, even if it looks like a losing proposition on face value. It goes against my instincts and my philosophy, too, but I think it is a reasonable risk. Please feel free to opine otherwise.

peter_griffin on March 18, 2009 at 12:33 AM

Doctor Zero on March 17, 2009 at 11:51 PM

I know, that scared me too. Once we resort to use of force, we are no different from any police state. It is a road to ruin.

peter_griffin on March 18, 2009 at 12:35 AM

A contract with an employee was signed?

There’s nothing to be done?

Goodness.

Does AIG think the American public is a bunch of rubes?

A legion of lawyers makes its living challenging such contracts, under a variety of legal theories, including fraud.

Walk into any civil courthouse across the country and just watch.

There is also no shortage of theories from financial analysts on how to give AIG leverage to renegotiate those contracts, including making the AIG business unit that cut those bad deals into a separate company and threatening to put it into bankruptcy and end its obligation to pay the bonuses.

In short, there’s plenty that can be done to stop payment on those bonuses or radically slash them.
- Chicago Sun-Times

MB4 on March 18, 2009 at 12:42 AM

Sign crap you don’t read? These politicians know every bit of whats going on. If they don’t they need to be escorted to McDonalds to see if maybe they can manage something a little less complicated.

These problems were expected and I assure you there’s going to be more, thats why they said ‘oh I didnt have time to read anything’ but we had to sign it since the country was crumbling. Hell they even have the Kremlin fooled. Sit back now and watch our market repair itself because I think they have run out of things to screw it up with. Well, there’s the military cuts coming, but we’ll see.
Seems like Billy C. x10 as far as being ‘asleep at the switch’ is concerned. AND maybe OBL is still out there….maybe. Vote these jokers the hell out, they sure are showing how much they deserve it and hopefully America won’t have another 9/11 in the meantime. FLicking teabags isnt going to fix this. VOTE these jokers OUT!

johnnyU on March 18, 2009 at 5:24 AM

What would their bonuses be had the bailout not come along? Give them THAT figure. uh.. can you say 10% of NOTHING!
dammit I want to throw a teabag sooo bad right now.

johnnyU on March 18, 2009 at 5:27 AM

MB4 on March 18, 2009 at 12:42 AM
.
That is why lawyers are known to be scum.

darktood on March 18, 2009 at 6:42 AM

You don’t need a spammy link to do it.
sethstorm on March 17, 2009 at 10:59 PM

that wasn’t intended to be one – I’m not sure how that particular link was posted

xiao_en on March 18, 2009 at 8:38 AM

well what really pisses me off, They KNEW it was in there. and now that its out in the open they are going to tax the bonus at 90 + % ???
Why are WE going to let them do that to ANY ONE!

Am I the only one that see’s that obama and congress are raping the american tax payer at every turn?

We cannot let them do that to the AIG weenies because then they can turn around and do it to ALL OF US!!!!

ColdWarrior57 on March 18, 2009 at 11:38 AM

.
That is why lawyers are known to be scum.

darktood on March 18, 2009 at 6:42 AM

Then they might as well be useful scum.

MB4 on March 18, 2009 at 11:52 AM

There would be no outrage, no anger, no angst, no problem, if these dummies in Congress had NOT approved the bailout.
End of story!

Herb on March 18, 2009 at 3:14 PM

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