Free Markets, Free People


Underlining “Contradictory and Confusing”

No one with any sense is going to argue that AIG should be doing what it is doing or that the insurance giant isn’t absolutely tone-deaf to the dirge playing within the economy. But the effort and the PR agenda to reclaim the bonus money pursued by our new president just underscores the “confusion and contradiction” his actions and words engender.

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda.

We’re talking “hundreds of millions” of dollars here. But when confronted by a omnibus spending bill with hundreds of billions of dollars in 9,000 pork projects, meh, no biggie – “last year’s business.”

~McQ

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26 Responses to Underlining “Contradictory and Confusing”

  • Well, I think I have some sense and I certainly see the merit of AIG honoring contracts to it’s employees.  For one, it’s the law.  For another, what’s the point of tossing all these billions at AIG, ostensibly to help them recover, if we’re going to drive all their management out – presumably the people that know the business best?  Most certainly some of them have responsibility for this mess, but all of them?  I imagine there are many who deserve their bonus and had nothing to do with this failure.  I think the matter is far more complicated than simply stating no one should be getting bonuses because the govt. is bailing them out.  And I think the govt. should have figured out and negotiatied bonus denials BEFORE giving them bailout money.   But that’s the federal govt. for you – they always think they can break a contract and change the terms by mere fiat. 

  • It’s = its in some places.  Sheesh.  Doesn’t WP have an edit feature?

  • Oh, I dunno. Boortz, today, makes the case:

    If you’ll remember, AIG has received three government bailouts totaling $180 billion. But yesterday, the company paid out $165 million in bonuses to employees. The fact that AIG had to pay millions in bonuses, considering its massive failings, has politicians irate. Politicians don’t get irate when millions of dollars are spent by government on blueberry research or lobster farms .. but let the private sector pay that type of money pursuant to a contract and all hell breaks loose. We’re certainly not at all shocked to find that one of the ticked-off politicians is none other than Barney Frank. He says that we need to figure out whether or not these bonuses are “legally recoverable.” Barney wants to know, “Who said and at what point, ‘We’re going to give these bonuses no matter what.’ And I do think it’s inappropriate for those people to stay in power at that company.”

    Well at what point in the constitution, Barney, does this issue get addressed? And let’s be honest, here. It’s The Dmeocrats in congress all on their own,  that passed the spending bill without reading the bloody thing. Whose fault is it that such situations weren’t examined as a part of the biggest spending bill in history?

    And legal ramifications (We’ve got to pay it, we’re under contract) aside, consider this; You’ve got an employee who managed to help the company turn a fair profit (According to Obama, just the other day) in spite of it all. Wouldn’t you say a performance bonus is called for?

    Robert Reich is screaming that the administration’s failure to stop this is a sign that “our democracy is seriously broken” . Well, no, Shortstop, it means that the Administration has been going into areas it was never supposed to in the first place.  It also means that the administration is incompetent to the task it unconstitutionally set itself. Either way that gets argued the fault rests on Obama  and the Democrat Congress. 

    The screaming about it just now is them raising cover smoke so nobody will notice the root of the problem.  The fault is not greed, or  capitalism, or private companies. It’s the fault of government by Democrats. All the noise just now is them trying to duck that fact.

    Frankly, Bruce, I’m a little uncomfortable with your line, here:

    No one with any sense is going to argue that AIG should be doing what it is doing or that the insurance giant isn’t absolutely tone-deaf to dirge playing within the economy


    … beacuse playing that line sets us up with a serious risk to removing the fault from the government for this debacle. the risks of accepting that argument for the long term should be obvious. The ones who shouldn’t have been doing what they were doing is the government. Guess who that is, since January? AIG is a busienss and was acting like it. Who of the two was acting outside their purview?

    • No, I don’t think it removes any fault from the government. It has nothing to do with that at all – totally separate issue.

      It’s about knowing what you can and can’t do with money given to your company specifically to strengthen its financial position, and nothing more.

      Whether or not I agree with giving them the money, and I don’t, the fact is they have it. That given, it’s absolutely absurd for AIG then to give bonuses to the unit which caused their downfall. It is tone-deaf on so many levels it almost defies description. How in the world can a company be that out of touch with reality?

      • Further, this tone deafness should serve to illustrate why these businesses should be allowed to fail.  Would a company in Chapter 11 bankruptcy still be giving bonuses?

  • If the government limits the bonuses they should also put in a provision that ‘any company that received bailout funds may not donate to a politician or political group for a period less then 6 years from the time of the bailout. ‘

    I would think that provision would pass easily since they are so worried about the money not being used as intended.

    • Well, ah, er, Skywatch, that would be denying them their constitutional right to, ah, free speech, *cough cough*.  We certainly don’t want to cross that boundary.  Helpless Congresspeople would be hurt.  

  • You’re ignoring what both Eric and I said.  What about those arguments?

  • Many Wall Street firm use a pay formula that is light on salary and heavy on “bonus” money.

    I personally think the Congress-critters should use the same formula .. then we cut off the bonuses each and every year.

  • No one with any sense is going to argue that AIG should be doing what it is doing or that the insurance giant isn’t absolutely tone-deaf to dirge playing within the economy.

    It is real simple, these guys are on retention bonuses and somebody has put up $160,000,000,000 to retain them.  Now the same somebodies are complaining that AIG is doing exactly what they have paid it to do. 

  • The govt should not be in the business of breaking pre-existing contracts.

    They gave the money w/o strings at the time.

    • The money was at the time given without strings, but should that mean they can go off and give out bonuses with it? The government  gave me them a large sum of oxygen and took them off life support when giving so much money. I completely agree with you that the government should not be breaking contracts, but they have a right to make a statement on how they feel. What worries me is that the government will begin to refrain from assisting other companies with bailouts. In this clip, the New York Times notes, “Mr. Obama’s aides said any surge of such a sentiment could complicate efforts to win Congressional approval for the additional bailout packages that Mr. Obama has signaled will be necessary to stabilize the banking system.” (http://www.newsy.com/videos/bailouts_and_bonuses_for_aig/)  It seems like it is not just the President that may begin to hold back, but Congress may do the same.

      It leaves me to question that was it right what they did, or were they actually contractually obliged? 

      • The money was at the time given without strings, but should that mean they can go off and give out bonuses with it?

        That’s EXACTLY what it means. Next time Congress should think for 2 seconds before passing something. Our congress passes things THEY DON’T EVEN READ. God knows what laws someone can slip on the books

        The government  gave me them a large sum of oxygen and took them off life support when giving so much money. I completely agree with you that the government should not be breaking contracts, but they have a right to make a statement on how they feel

        So let Obama and Frank go and yell that AIG is a bunch of poopy-heads for doing it. Let them make a harsh statement filled with frowny faces. BUT BREAKING CONTRACTS JUST TO EXPRESS HOW YOU “FEEL” DOESN’T PLAY.

        • I think perhaps the bigger point here is AIG’s seeming lack of understanding of how such payments would be met by the public.

          There was a much better way to handle this – a) let the Treasury know you have to pay those bonuses due to contractual obligations. Then suggest a joint press release which explains why the payments are being made (contract), where or who they’re going too (traders, etc.) and the fact that had these not been contractual bonuses, none would have been given. There might have been some grumbling, but it would have saved today’s outburst, outrage and silliness. It would have also saved the Obama administration from issuing threats that it may not be able to fulfill (thereby making it look weak).

          All in all a tone-deaf performance by AIG which has again put the Obama admin in a bad position (not that the Obama admin didn’t visit some of it on themselves by jumping on the report like a populist duck on a june bug).

  • I don’t get how people miss the point… they shouldn’t have been bailed out.  More to the point, the government can’t tell them what to do;  They want to cap CEO pay.  Congress doesn’t ‘t do their jobs, know nothing of the industry, didn’t check their contracts or take them into account BEFORE they gave them money.  It’s his fault for not knowing the company or industry.  That’s why you study and have hearings BEFORE you slap a huge bill up.  It also helps not to have a lot of other payback crap in there as well.

    This guy is pulling a Allende.

    It’s like the union wage thing, not only does it usurp states rights (not just federal jobs they gave to them exclusively, nevermind the almost 90% NOT in unions), they demand the union wage for all jobs connected to the stimulus funds.  Hello?  doesn’t that cut a heck of a lot of folks outta work?

  • The funny thing of all this is that the millions in bonuses MUST be paid not only according to contract, but also according to law (see I.R.C. sec. 409A and accompanying regulations (a good summary here)).  The real bear of it is that the penalties assessed for non-compliance with 409A fall entirely on the employee who, in addition to other things, will be assessed a 20% extra tax on all income including the money that wasn’t paid. 

    Oh, and those contracts were required to be inked by 409A as well. 

    In addition, the retention bonuses aren’t just (or even mostly) going to executives, but instead to traders and managers.

  • It’s the *ssh*le politicians that should be strung up here.  The lack of integrity is staggering, even by Congressional standards.

  • Just to put it in perspective:  If the 171 billion dollars taken from (future) taxpayers and given to AIG were $1000, then the 165 million dollars that AIG is trying to pay out in bonuses would be about 96 cents.

    Obama and Frank and the rest carrying on the way they are is like cutthroats robbing you of $1000 and then angrily pointing out that the party they gave your money to has been caught buying a cup of coffee!  With your money!  But don’t worry!  They’re going to move heaven and earth to make that profligate so-and-so give them back a dime or two which they will return to you give to somebody else.

    When one hundred sixty-five million dollars in tone-deaf expenditures are so loudly and thoroughly and self-righteously challenged, who’s going to worry about the other $170,835,000,000 that AIG really really needs to save itself?

  • The outrage felt by the politicians exactly matches the level of their nervousness, that they will be discovered for not knowing what they are doing, and that they will be discovered for not minding the store.

  • Anyone want to bet they could have easily convinced the guys getting bonuses into donating them all to charity or something?

    Instead Obama andthe Dems go on the populist war path – its the easy way out.

  • I think perhaps the bigger point here is AIG’s seeming lack of understanding of how such payments would be met by the public.
    There was a much better way to handle this – a) let the Treasury know you have to pay those bonuses due to contractual obligations.

    Hmmm.Two points. 

    First, and perhaps most important is the idea that it probably wouldn’t have made any difference to the way things get played here, on the part of the Democrats. Do you remember when the stimulus was initially handed out to the banks, and the banks were told you will sign this before you leave the room?  That doesn’t strike me as being overly accommodating to contractual obligations, legal my cities, or anything that stands in the way of the agenda. 

    Secondly, they wouldn’t play in any differently anyway, a link to the idea that they are of the opinion that the private industry, and the private people that run a private industry, are the servants of the government. 

    No, I don’t think it removes any fault from the government. It has nothing to do with that at all – totally separate issue.

    In reality, perhaps.
    Understand me, Bruce, I’m not totally unsympathetic to that position.  in reality it probably is a completely separate issue. 

    At the same time we have to remember that this thing is going to be fought out in the court of public opinion.  If you think the court of public opinion is driven largely by facts, explain to me how it is that Obama is currently residing in the White House.  So what is going to happen here is that we’re going to hear all about how the government is faultless in this and that the whole thing is all we need to capitalist greed.  If you think I’m exaggerating listen to the tone of the pronouncements coming from Harry Reid Nancy Pelosi and so on. 

    However you lay this argument out, it all bottom lines at the democrats running the government attempting to project the private businesses and banks involved as something evil.  Something that desperately needs their supervision , and we’ll get it whether the people want it or not.  They are pitching that narrative for a reason.  In my view, it’s the same reason as they are spending so very much time lately with Bernie Madoff.  Granted, the guy is evil.  At the same time he provides reinforcement to the Democrat position that all usual businesses are that way, that all rich people are that way, that all capitalists are that way.  Call it what you will, but that is the biggest reality in our government right now, which is why the markets are still on their ass. 

    I am terribly afraid that the  democrats must not be allowed to control the narrative here, or there will never be a hope in hell of maintaining a capitalist society again in this country. Laying tone deaf label at the feet of any private firm at this point for operating inside the law and operating to make a profit allows the democrats to extend that narrative. 

    I’ve gone over the bill in question, and can’t find any restrictions in the area of contractual obligations.  Are we now look to assume that the Federal government has jurisdiction over already existing contracts and arrangements?  Or should we have assumed, that all of this stuff would have been taken care of before the bill was signed into law, with the rules of the game clearly laid out ?  

    As I say, it neither one of us are keen on the idea of this money having been spent that way.  But that is something that the democrats should have thought of before they voted on a bill they didn’t read.  The blame for that is squarely in their lap.  Allow them to place any blame for any of this on a ID and the Democrats control the narrative in the court of public opinion.
    Understand also, Bruce, I do not intend to jump on you personally.  You know me well enough to know that, at least.  Thing is, we are walking through a minefield with long-term repercussions  on every step.

  • When the POTUS goes after private contracts, then we all must be very afraid.

  • I stand by my original statement.  If you are going to invest in a company especially if you invest other peoples money shut your stinking pie hole if you don’t have nothing good to say.  When is the last time you heard a mutual fund company go on TV and start bashing the companies they invested in?  You don’t see that saudi prince bashing citi group after investing millions in it do ya?

  • Congress took our money and spent it. They are the only ones responsible for how it got spent. Using Marxist class warfare tactics and their “in the can press” to draw attention away from their culpability is despicable, and frightening.

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