AIG: "Reccession? What Reccession?"

[Sionnach Glic]

WASHINGTON - Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.
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An official in the Obama administration said Saturday that Treasury Secretary Timothy F. Geithner had called A.I.G.'s government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.

Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company's chief executive said A.I.G. was contractually obligated to pay them.

In a letter to Mr. Geithner, Mr. Liddy wrote: "Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them."

The bonuses will be paid to executives at American International Group's Financial Products division, the unit that wrote trillions of dollars' worth of credit-default swaps that protected investors from defaults on bond backed by subprime mortgages.

An A.I.G. spokeswoman said the company had no comment beyond the text of the letter.

In his letter to the Treasury, Mr. Liddy said A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the Financial Products division had also agreed to reduce their salary for the rest of 2009 to $1.

But Mr. Liddy defended the need to continue paying bonuses if A.I.G. was going to unwind the rest of its disastrous mortgage-related business at the lowest possible cost to taxpayers.

"We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses - which are now being operated principally on behalf of American taxpayers - if employees believe their compensation is subject to continued arbitrary adjustment by the U.S. Treasury," he wrote Mr. Geithner. The government owns nearly 80 percent of the company.

The bonuses were first reported by The Washington Post.

Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.

Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and "retention pay" had been agreed to in early 2008 and were for the most part legally required.

The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.

The second group of bonuses cover some 2008 retention payments from contracts entered into before government involvement in A.I.G. that the company says it is legally obligated to fulfill. The official said Treasury concluded that those contracts could not be broken.

Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

A.I.G. did cut other bonuses, he explained in the letter, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives.

Ever since it was to be bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused what might be the biggest financial crisis in American history.

A.I.G.'s main business is insurance, but it had a unit called A.I.G. Financial Products that sold hundreds of billions of dollars' worth of derivatives - the notorious credit-default swaps that nearly toppled the entire company last fall.

In his letter to the Treasury, Mr. Liddy said that A.I.G. was required to pay about $165 million in bonuses on or before March 15. The company had already paid $55 million in December, but the rest was about to come due.

The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. About seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.

Under a deal reached this week, A.I.G. agreed that the top 50 executives in the financial products division would get half of the $9.6 million they were supposed to get by March 15. The second of their bonuses would be paid out in two installments in July in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.

A.I.G. had set up a special bonus pool for the financial products unit early in 2008, before the company's near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit and prepared to pay it in a series of installments, to encourage people to stay.

Only part of the payments had been made by last fall, when A.I.G. nearly collapsed. Another installment is due this month - to people who, it is now clear, were at the very heart of A.I.G.'s worldwide conflagration. The financial products unit is now being painstakingly wound down.

[Aaron]

Now this is just a thought but maybe....the feds should have stipulated that the bailout cash couldn't be used for this. I know...I'm crazy and a damned liberal.

[Nickswitz]

Now this is just a thought but maybe....the feds should have stipulated that the bailout cash couldn't be used for this. I know...I'm crazy and a damned liberal.

That would probably be smart of them actually, and I don't even know where I stand politically.

[Monroe]

AIG should just be taken over by the government, have its entire senior staff scraped, then broken up into smaller companies and sold off. I think taking out AIG is something both liberals and conservatives could agree on.

And hell we should learn a lesson from the Chinese and execute people for serious financial crimes.

[Nickswitz]

Especially when they kill the economy.

or help kill it at least

[Monroe]

Especially when they kill the economy.

or help kill it at least

Yeah really.

You kill one person you can be executed (I totally agree with).
But you ruin the lives of thousands or millions of people and you get 6 years in prison max. More often than not you get a bonus. Its bullshit.

[Captain Picard's Hair]

AIG should just be taken over by the government, have its entire senior staff scraped, then broken up into smaller companies and sold off. I think taking out AIG is something both liberals and conservatives could agree on.

And hell we should learn a lesson from the Chinese and execute people for serious financial crimes.

It is already effectively owned by the US Government (they own 80% stake), remember? At least in compensation, some execs did agree to reduce their salary for the remainder of 2009 to $1.

---

Though I know these guys just got million-dollar bonuses, there's something I find hilarious about the idea of a $1 salary.

[Nickswitz]

But the scary thing is, it probably wasn't the ones that got the bonuses that offered to have $1 salaries.

[Captain Picard's Hair]

But the scary thing is, it probably wasn't the ones that got the bonuses that offered to have $1 salaries.

The article does state that those who'd offered to take $1 salaries are executives in the division in question, so they probably did have something to do with the collapse; common sense says they must have some significant means already to be able to accept such a "salary" in the first place.