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Thread: Prepare for populist backlash: AIG hands out millions in bonuses to epic fail bosses

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    Friend of Gossip Rocks! buttmunch's Avatar
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    Default Prepare for populist backlash: AIG hands out millions in bonuses to epic fail bosses

    WASHINGTON — The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda.

    The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger.

    “We’ve got enormous problems that need to be addressed,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “And it’s hard to address because there’s a lot of anger about the irresponsibility that led us to this point.”

    “This has been welling up for a long time,” he said.

    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.

    As it is, there have already been moves in Congress to limit compensation to executives at banks and Wall Street firms that are receiving government help to survive.

    Beyond that, a shifting political mood challenges Mr. Obama’s political skills, as he seeks to acknowledge the anger without becoming a target of it. A central question for Mr. Obama is whether his cool style — “in a time of crisis, we cannot afford to govern out of anger,” he said in his address to Congress last month — will prove effective when the country may be feeling more emotional.

    Even as Mr. Summers was denouncing A.I.G. for the bonuses, he suggested that there was little if anything the government could do to stop them, seconding the conclusion of Treasury Secretary Timothy F. Geithner. But even if their reasoning was legally sound, they also risked having the administration look ineffectual in the face of what Mr. Summers said was the worst financial abuse of the last 18 months, since the economy began turning down in earnest.

    “Never underestimate the capacity of angry populism in times of economic stress,” said Robert Reich, a professor of public policy at the University of California, Berkeley, and labor secretary under President Bill Clinton. “A big challenge for President Obama will be to maintain a rational and tactical public discussion in the midst of this severe downturn. The desire for culprits at times like this is strong.”

    In a further development, A.I.G. on Sunday named dozens of financial institutions that benefited from its huge rescue loan from the Federal Reserve last fall. The list included Goldman Sachs, Merrill Lynch and Wachovia.

    On Monday, the White House is expected to unveil proposals to help small businesses, an effort to make clear that the administration is not only focusing its attentions on Wall Street and big corporations like the automakers.

    But the financial crisis is the most acute problem facing the administration, one it will not be able to play down. Christina D. Romer, the White House’s chief economist, said Sunday on “Meet the Press” on NBC that the administration was close to unveiling details of its plan to remove the worst of the bad assets from the books of banks, a move sure to refocus attention on winners and losers from bailouts.

    The disclosure that A.I.G., which has received $170 billion in government assistance to remain afloat and avert a cascade of failures in the financial system, is paying bonuses to its executives is the latest in a series of episodes that Mr. Obama’s aides said seemed to be feeding a resurgence of public anger.

    The public responded angrily to previous disclosures of large bonuses on Wall Street, to auto executives who flew on corporate jets to Washington for Congressional bailout hearings, and to last week’s face-off between Jon Stewart of “The Daily Show” and Jim Cramer, the CNBC financial commentator, over the network’s reporting on the crisis.

    “There’s unquestionably a strong populist surge out there,” said Joel Benenson, Mr. Obama’s pollster, citing his own polls and focus groups. “It’s been brewing for close to four years. For the last two years, Americans were clearly indicating that they believe that one of the biggest obstacles to progress on America’s toughest challenges — notably health care and energy independence — was the influence of special interests and corporate interests on the agenda in Washington.”

    A New York Times/CBS News Poll in February found that 83 percent of respondents said the government should cap the amount of compensation earned by executives of companies that are getting federal assistance.

    Mr. Obama’s advisers argued that to at least some extent, this was a sentiment they could tap to push through his measures in Congress, including raising taxes on the wealthy. They pointed out that in his speech to Congress, Mr. Obama denounced corporations that “use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet.”

    “The president has been very clear about this,” Mr. Axelrod said. “There is reason for anger, but we also have to solve the problem. We need a functioning credit system. That’s our responsibility, and he intends to meet it.”

    Still, aides acknowledged the risks of a backlash as Mr. Obama tries to signal that he shares American anger but pushes for more bail-out money for banks and Wall Street.

    For all his political skills and his capturing of the nation’s desire for change in the 2008 election, Mr. Obama, a product of Harvard Law School who calls upscale Hyde Park in Chicago home, has shown little inclination to strike a more populist tone. The danger, aides said, is that if he were to become identified as an advocate for the banks and Wall Street, people could take out their anger on him.

    “The change now is you have a free-floating economic anxiety that has expressed itself in a kind of lashing out at those being bailed out and people who are bailing out,” Michael Kazin, a professor at Georgetown University who has written extensively on populism. “There’s not really a sense of what the solution is.”

    “I do think there’s a potential for a ‘damn everybody in power’ kind of sentiment,” Mr. Kazin said. http://www.nytimes.com/2009/03/16/us...gewanted=print
    I cannot even believe they are handing out so much in bonuses to people who ran the company into the ground. What do have to do to get canned on Wall Street? Unfuckingbelievable.
    Last edited by buttmunch; March 16th, 2009 at 04:20 AM.
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    Elite Member McJag's Avatar
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    I would like to slap them upside the head. How did they leave this little loophole open?? Mad!
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    Elite Member LynnieD's Avatar
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    Mother of God.....unbelieveable. Truly.

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    Elite Member Little Wombat's Avatar
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    And yet, somehow, I'm not surprised that AIG did this.
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    Elite Member louiswinthorpe111's Avatar
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    Let them sink. Don't even try to "save" them again.

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    potentially disruptive public anger.

    I keep waiting for some potentially disruptive anger from the public but so far, nada.

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    Elite Member chartreuse's Avatar
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    i just KNOW that these sick fucks are sitting back in their bitchin' offices laughing at how they just scammed all of this money from the government & are still living their exact same extravagent lives. our government sucks balls so fucking bad.
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    Elite Member Grimmlok's Avatar
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    Obama's trying to shut them down, gobama

    President Obama publicly fumed today over plans by the bailed-out insurance giant AIG to reward it executives with $165 million worth of bonuses and asked his treasury secretary to "pursue every single legal avenue" to block them.

    "This is a corporation that finds itself in financial distress due to recklessness and greed," the president said.

    "Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said today during a news conference announcing an aid program for small businesses. "How do they justify this outrage to the taxpayers who are keeping the company afloat?"

    At one point, Obama had to cough and said half jokingly, "I'm choked up with anger."

    Obama said Treasury Secretary Timothy Geithner was working to resolve the conflict with AIG CEO Edward Liddy , who took the company's reins after the contracts allowing the bonuses were agreed to last year.

    "I know he's working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year," Obama said.

    "This isn't just a matter of dollars and cents. It's about our fundamental values," he said. "All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million-dollar bonuses. All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."

    Obama said the bonuses underscore a need for overall financial regulatory reform to prevent a similar situation in the future and "so we have greater authority to protect the American taxpayer and our financial system in cases such as this."

    New York Attorney General Andrew Cuomo, who has been investigating AIG's executive compensation, sent a letter today to Liddy saying he was "disturbed" to learn of the scheduled bonuses and asked again for the names of executives who had received extra cash.

    "We need this information immediately in order to investigate and determine... whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout... and whether such contracts may be unenforceable for fraud or other reasons," Cuomo wrote.

    Federal Reserve Chairman Ben Bernanke also criticized the AIG contracts in a rare interview Sunday on "60 Minutes."

    But he gave Americans a glimmer of hope, saying that the recession could wind down as early as this year.

    "We do have a plan. We're working on it," Bernanke said in rare interview Sunday on "60 Minutes." "And I do think that we will get it stabilized and we'll see the recession coming to an end, probably this year."

    "We'll see recovery beginning next year," he continued. "And it will pick up steam over time."

    That progress, he said, would hinge on whether the government can keep the banks from failing and if the banks, in turn, could start to lend more freely.

    Outrage over AIG hasn't seemed to dampen Wall Street's spirits: The Dow Jones industrial average was up more than 40 points by the mid-morning, continuing an upswing that began early last week after Citigroup reported strong performance for the current quarter.

    But Bernanke's optimism didn't take away from his anger over AIG's spending of $165 million in bonuses.

    He told CBS' "60 Minutes" Sunday that out of all the events in the last 18 months, the federal government's intervention with AIG makes him the angriest, saying the company made "unconscionable bets."


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    Elite Member sparkly's Avatar
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    MsDeb just made a thread about this, where we can sign a petition to stop AIG from receiving bonus money.
    Everyone is entitled to be stupid, but some abuse the privilege.

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    Elite Member Fluffy's Avatar
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    Monday March 16, 2009 08:59 EDT
    The sanctity of AIG's contracts

    Larry Summers, Sunday, on AIG’s payment of executive bonuses:
    We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.
    Associated Press, February 18, 2009:
    The United Auto Workers’ deal with Detroit’s three automakers limits overtime, changes work rules, cuts lump-sum cash bonuses and gets rid of cost-of-living pay raises to help reduce the companies’ labor costs, people briefed on the agreement said today.

    The UAW announced Tuesday that it reached the tentative agreement with General Motors Corp., Chrysler LLC and Ford Motor Co. over contract concessions, as GM and Chrysler sent plans to the Treasury Department asking for a total of $39 billion in government financing to help them survive.
    Concessions with the union are a condition of the $17.4 billion in government loans that the automakers have received so far.
    Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

    As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

    Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.

    The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so -- they haven't exactly proven themselves to be paragons of business ethics -- but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

    Legal strategies aside, just as a business matter, one of the first steps taken by every company in severe distress is go to its creditors, explain that it cannot make the required payments, and force re-negotiations of the terms. That’s as basic as it gets. To see how that works, just look at what GM and other automakers did with their union contracts – what they were forced by the Government to do as a condition for their bailout. Obviously, if a company goes into bankruptcy, then contracts to pay executive bonuses are immediately nullified, but the threat of bankruptcy or serious financial distress is, for obvious reasons, very compelling leverage to force substantial concessions. And the idea that, in this economy, AIG executives (of all people) will be able simply to leave and go seek employment elsewhere unless they receive their "retention bonuses" (even assuming that’s an undesirable outcome) is nothing short of ludicrous.

    There may be other reasons why the Treasury Department decided it wanted AIG to pay these bonuses (Marcy Wheeler considers some of those reasons here), but this claim from Larry Summers that the sanctity of contracts precludes any alternatives is not just false, but insultingly so. It's difficult to recall anything quite so vile as watching hundreds of millions of dollars in taxpayer money flow to AIG executives. One would expect the Obama administration to do everything possible to prevent that from happening. Instead, they seem to be doing the opposite.

    The sanctity of AIG's contracts - Glenn Greenwald - Salon.com

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    Elite Member Little Wombat's Avatar
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    ^ So is the point that the gov't didn't oblige AIG to renegotiate employee contract negotiations when it bailed them out? I mean, in the auto example, the government stipulated that GM & Chrysler had to basically renegotiate the contracts, but I guess they didn't do that with the financials being bailed out by the TARP? I thought the Dems or at least Chris Dodd had angled to have something in there about salaries/bonuses, but maybe those were just going forward (i.e., new contracts)? And they didn't think to put in anything about current contracts? Or maybe renegotiation/concessions came quicker to mind for the automakers because of the unions??
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    Elite Member msdeb's Avatar
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    Quote Originally Posted by sparkly View Post
    MsDeb just made a thread about this, where we can sign a petition to stop AIG from receiving bonus money.
    thanks Sparkly

    Sign the petition regarding the AIG bonuses
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    Cuomo's Letter to A.I.G. - AIG, american international group, and andrew cuomo

    March 16, 2009
    Edward M. Liddy, Chairman & CEO American International Group, Inc.
    70 Pine Street New York, NY, 10270
    Re: AIG Compensation Investigation
    Dear Mr. Liddy:
    The Office of the New York Attorney General has been investigating compensation arrangements at AIG since last Fall. We were disturbed to learn over the weekend of AIG's plans to pay millions of dollars to members of the Financial Products subsidiary through its Financial Products Retention Plan. Financial Products was, of course, the division of AIG that led to its meltdown and the huge infusion of taxpayer funds to save the firm. Previously, AIG had agreed at our request to make no payments out of its $600 million Financial Products deferred compensation pool.
    We have requested the list of individuals who are to receive payments under this retention plan, as well as their positions at the firm, and it is surprising that you have yet to provide this information. Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system.
    In addition, we also now request a description of each individual's job description and performance at AIG Financial Products. Please also provide whatever contracts you now claim obligate you to make these payments. Moreover, you should immediately provide us with a list of who negotiated these contracts and who developed this retention plan so we can begin to investigate the circumstances surrounding these questionable bonus arrangements. Finally, we demand an immediate status report as to whether the payments under the retention plan have been made.
    We need this information immediately in order to investigate and determine:
    (l) whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout;
    (2) whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions;
    (3) whether such contracts may be unenforceable for fraud or other reasons; and
    (4) whether any of the retention payments may be considered fraudulent conveyances under New York law.
    Taxpayers of this country are now supporting AIG, and they deserve at the very least to know how their money is being spent. And we owe it to the taxpayers to take every possible action to stop unwarranted bonus payments to those who caused the AIG meltdown in the first place.
    If you do not provide this information by 4:00 p.m. today, we will issue subpoenas and seek, if necessary, to enforce compliance in court.
    Andrew M. Cuomo
    Attorney General of the State of New York
    cc: AIG Board of Directors

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    Elite Member Fluffy's Avatar
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    On the NewsHour tonight, Barney Frank made the point that the government owns 80% of AIG and as owner should have say in whether or not employees merit bonus pay.

    REP. BARNEY FRANK (D), Massachusetts: Well, Judy, I'm trying to get over my surprise that he didn't accept your invitation, so I may be a little flustered.

    But the answer is, I don't know, and we're going to look into this. We have been aware, obviously, of this problem.

    The Committee on Financial Services has had a hearing scheduled with Mr. Liddy as a witness for some time. It's going to be Wednesday morning, our Committee on Capital Markets. Mr. Garrett is the senior Republican, I believe, on that subcommittee. And we're going to be pressing that. The staff that I have and others are now looking at this.

    And I think one of the things we have to be clear, you know, there were two possible ways in which the federal government could cancel the bonuses. In the recovery legislation that we passed, my colleague, Sen. Dodd, put some very tough rules in there to prevent this kind of thing from happening in the future. He said anybody who takes this kind of money in the future can't do these things, but that wasn't in there in the past, partly, by the way, because this grant did not come from any congressional vote, or at least not one for 75 years. This came under authority that the Federal Reserve had without congressional voting on the asset relief program back in 1932.

    But people are looking, well, can the federal government, as the regulator, in effect, cancel this? But there's another theory where I think we have more rights. We're the owners of that company, de facto, and probably legally. We have 80 percent of the equity.

    So I do believe the federal government as the -- effect, as the owner can say, "These bonuses may have been promised for performance, but I think we can look at the performance," as the president was quoted in the show was saying, it's hard to argue that this is pay for performance.

    And when Mr. Liddy says partly it's legally binding, partly it's to retain people, looking at the record, these do not sound like people I would be that eager to retain.
    Obama, Congress Blast AIG Plans for Employee Bonuses | Online NewsHour | March 16, 2009 | PBS

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    Silver Member betagrl's Avatar
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    Quote Originally Posted by Little Wombat View Post
    ^ So is the point that the gov't didn't oblige AIG to renegotiate employee contract negotiations when it bailed them out? I mean, in the auto example, the government stipulated that GM & Chrysler had to basically renegotiate the contracts, but I guess they didn't do that with the financials being bailed out by the TARP? I thought the Dems or at least Chris Dodd had angled to have something in there about salaries/bonuses, but maybe those were just going forward (i.e., new contracts)? And they didn't think to put in anything about current contracts? Or maybe renegotiation/concessions came quicker to mind for the automakers because of the unions??
    I was wondering the same thing. Of course the Republicans whine about unions all the time, yet they could care less if a bunch of overpaid paper-pushers make obscene amounts of money on the taxpayers dime??

    BTW, I think the AIG plan was crafted under Paulson/Bush. What a shock, huh?!

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