Free Markets, Free People

AIG: What Did They Know And When Did They Know It?

Edward Liddy, CEO of AIG, has a piece in the Washington Post today.  It is useful for a couple of reasons, one of which is to try to nail down the timeline in this dustup.

But first, this from another Washington Post article:

Senior White House officials said last night that President Obama did not learn that bonuses worth $165 million were to be paid to executives of American International Group until Thursday, one day before they were issued and two days after his Treasury secretary was informed that the payments were going forward.

A point or two to remember. One – $55 million had already been paid out under the very same plan in December of last year with little or no coverage. This wasn’t something new nor should it have been a surprise. This was a plan that was already in place and one has to assume, unless they weren’t doing their jobs, known to the appropriate people in the administration (not necessarily Obama, but at least Geithner).

That brings us back to the Liddy piece. Liddy joined AIG in September of 2008 to begin the difficult task of saving the insurance giant and structuring it so it was again profitable and able to pay the taxpayer funded bailout money back as quickly as possible. There’s a very telling paragraph in Liddy’s piece which makes the point that the plan which is such a huge surprise to the Treasury Secretary and President shouldn’t have been a surprise to anyone:

To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place. As has been reported, payments were made to employees in the Financial Products unit. Make no mistake, had I been chief executive at the time, I would never have approved the retention contracts that were put in place more than a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.

In the meantime, AIG has restructured its 2009 compensation system (note the use of the word “compensation” by Liddy and not “bonuses”) and made all the cuts and changes I noted yesterday.

The fact that this is just another part of the same plan that paid out $55 million last year without a peep, was in place, per Liddy prior to his assuming the Chairmanship and has been in place for at least a year strongly argues one of two things – A) someone is not telling the truth about when they “knew” this latest payment was going to take place or B) someone was not doing their job and is now trying to cover that up like a cat covering crap.

Obama aides defended Timothy F. Geithner’s handling of the situation yesterday, with White House press secretary Robert Gibbs saying the president has “complete confidence” in the Treasury chief.

Sounds like a “heck of a job, Brownie” moment to me.

~McQ

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17 Responses to AIG: What Did They Know And When Did They Know It?

  • You know, I’m at a point where I think the pace was so fast and the complexity so great that I think rather than politicizing it or focusing on individuals (Paulson, Bush, Obama and Geithner could share a lot of criticism), we need to study this and learn from it.   I tend to be more forgiving of both parties because how can humans really process and know all the details, or register their relative importance.  It does increasingly become clear that the bailout may not have been the best way to save credit markets.  It’s also interesting that only now people are making a big deal about the money going into foreign banks, when it was foreign exposure to AIG that was a major reason the Bush administration felt it needed to bail the company out, with full knowledge this meant  a lot of money would flow outside the US.   But in a global economy, I really don’t think that’s a big deal.

    • How can humans process and know all the details, and register their importance? Training and experience, just like millions of people all over the world do every day. Retention bonuses are a common practice during corporate restructuring. If Geithner et al. were half as savvy as they pretend to be, they would know these things. When you hire professional career political hacks with no experience or training in the real world , you get ignorance mistakes. At premium prices.

    • That’s fine Scott, be forgiving.  But do take note of all the blame redirection by the current administration and Congress.  They aren’t coming out and saying “hey, we missed this, but here’s why it has to happen, regrettably.”  No, they are simply trying to CYA. That’s what a lot of pols do, but it doesn’t make it right.

      • Since blame is shared by both sides, I would prefer if all stood up and said, “this was happening so fast, we didn’t really catch all we should have.”  If you study foreign policy decision making, you realize that the idealized version of government most people have — of experts sitting around and rationally analyzing a situation and then choosing the best option — is so far from the mark that it’s scary.  This is the kind of situation — uncertainty, fast pace, sense of crisis — where more gets overlooked than taken into account.   That’s one reason governments make so many bad calls.

        Of course, the real issue here is that this was common place throughout the industry (and in other bailed out companies) for years — and that was due to private sector actions, not government.  The bonuses were agreed to back in early 2008, when it would have seemed ludicrous to think the government would take over 80% of AIG within a year.  The Obama administration should come forward and accept responsibility and blame, stop re-directing, and then note that the solution is to make sure this doesn’t happen again.  That will, of course, mean more regulation of executive compensation and corporate practices.   But that result comes with the territory of rage against the bonuses.

        • Blame for what on both sides?  What sides?  Is AIG to blame for honoring legal contracts? 

          • Blame for not creating a well planned system for dealing with the bailouts.

            But yes, the problem is that these kind of legal contracts have been numerous.  As I note elsewhere, this is certain to lead to a new era of regulating executive compensation and corporate behavior; my blog today compares the symbolism of the AIG bonuses with the fall of the Berlin Wall.  I don’t think people realize the kind of major transformation that is going to take place in the next few years.

        • “my blog today compares the symbolism of the AIG bonuses with the fall of the Berlin Wall…”

          You have GOT to be sh*ttin me.

  • “Stand by to Jettison!”

    Time for Geithner to go under the bus kiddies.
    Per AP –

    “Analysis: AIG bonuses new cloud over Treasury boss – If not distancing itself from Treasury Secretary Timothy Geithner, the White House is placing firmly on his shoulders responsibility for how the government handled the $165 million in bonuses paid to about 400 executives and traders at American International Group Inc.”

  • I’d SWEAR that was Ott Scerb writing above, but I’m not sure…

  • Hey, you know, he thinks Obama must cut the budget (none of us do of course, we’re not bright enough or something).

     I’m sure the President is studying how to manage that even as I type this.  Probably he’ll do that after we’re paying the triple the estimate cost of his <strike>bait and switch</strike>, um……cap and trade plan. 

  • In the stimulcrapulous package, there was an amendment which allows the AIG bonuses to be kept. Who put it in? It looks like Christopher Dodd (Crook-Connecticut). However, Dodd says that the Treasury Department and The Clown’s™ Maladministration asked him to put it in there.

    Is this true? If so, Dodd is just a scapegoat. And if it is true, Geithner needs to go – and go now. I want to see someone call for his head. The Clown™ should go, too, but we can get to that in 2012.

  • someone was not doing their job and is now trying to cover that up like a cat covering crap.

    (Quiet nod.)

  •   I tend to be more forgiving of both parties because how can humans really process and know all the details, or register their relative importance

    Gee, I dunno, Scott… do you suppose actually reading what they were voting for woulda helped? Just a thought.

  • What’s the big deal?
    The American People Don’t Care About Pork Projects In Stimulus
    http://www.youtube.com/watch?v=JEfICUoWKBw

    Oh wait…
    Sen. Chuck Schumer (D, N.Y.) suggested a 100 percent tax on them.”

  • It’s all just useful noise.

    Wagging the dog.

  • And hey!  let’s see the fun when they explain why Fannie and Freddie execs are going to get a bonus!  Yeeee haaaaaa.  

    This is scripted way better than “dude where’s my car?” don’t you think?

  • Let me see……..pay these execs so they can keep an already failed firm from failing yet again.   hmmmmm……..does the term extortion ring a bell.  Boy, I’ll bet MY bookie would like to have that kind of compensation package.