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AIG bonuses are salt in taxpayers’ wounds
TweetNo one should be surprised that members of Congress from both parties are calling for executives of American International Group Inc. to be tarred and feathered over the $165 million in bonuses paid to individuals largely responsible for bringing the insurance giant to its financial knees. Another $230 billion in bonuses is to be paid in 2010, according to The Hill newspaper, which covers Congress.
The federal government (read that taxpayers) has pumped in $182 billion to keep the company from going under. That translates into an 80 percent ownership of AIG. The first $80 billion or so loan came six months ago from the Federal Reserve, without involvement of Congress. The rest is through the Treasury Department from government funds Congress established to bailout financial institutions.
As U.S. Rep. Tim Ryan of Niles, D-17th, put it, in cosponsoring a bill that would tax at 100 percent bonuses over $100,000 paid by companies that received federal bailout money, “There is absolutely no way that AIG executives deserve to receive their bonuses while I’ve got constituents back in my district who are losing their jobs and can’t afford to put food on the table. They can talk all day about how that money is due to them because it’s in their contract; tell that to the Amweld retiree in Warren, Ohio, who just had his health care benefits stripped and didn’t even receive so much as a written notification.”
If this sounds like political demagoguery, there is ample justification for it. Ryan and his colleagues on Capitol Hill are well aware that the mere mention of the word bonus can trigger an uprising on Main Street, where long lines of the unemployed have become common place.
There is absolutely no way AIG can justify the bonuses of $1 million or more paid to 73 individuals, or the $6.4 million that one individual received.
Millionaires
The top seven bonus recipients received more than $4 million each; the top 10 received a combined $42 million; 22 individuals received bonuses of $2 million or more.
The argument put forth by AIG that the bonuses were agreed to contractually almost a year ago and, therefore, would result in lawsuits if they weren’t paid is fallacious, at best.
As New York Attorney General Andrew Cuomo, who is investigating the bonus payments and has subpoenaed documents from AIG, contended, “You could argue that if taxpayers hadn’t bailed out AIG, the contracts wouldn’t be worth the paper they were signed on.”
Congressman Ryan and his colleagues who are demanding a pound of flesh on behalf of the taxpayers are absolutely right in taking such a strong stand. With hundreds of billions of public dollars flowing into financial institutions big and small around the country, the word needs to go out that business-as-usual is not acceptable behavior.
Just because we can’t afford to let companies like AIG fail, does not mean we should be played for suckers.
As for who in the federal government should shoulder the blame for this blatant greed on the part of individuals who by their acts of commission brought AIG to its knees, there are facts that cannot be challenged.
It is a fact that the bonus contracts were entered into last year, when President Bush was in office. It is also a fact that last year, the White House orchestrated the payment of $350 billion to bailout financial institutions (the Democratic Congress went along) with no regulations governing the expenditure of the funds.
And it is a fact that when AIG was holding out its hand for taxpayer dollars, company executives did not reveal the existence of the bonus contracts.
There is a lot of blame to go around. But that’s not important. President Obama and Congress should make it clear to any company that has received or is seeking a bailout: Forget bonuses, golden parachutes and exorbitant salaries.
Comments
This discussion on AIG bonuses by Congress is political opportunism at its finest.
1) The bonuses, whether you like it or not, are contractual obligations of the company. Were they poorly conceived? Probably. But they are contracts nonetheless. When the U.S. government starts getting into the role of cherry picking what obligations to honor, then we become no different than a Hugo Chavez, who decides when rule of law should be applied.
2) Congress is expressing an outrage that the AIG bailout money went to other foreign banks, hedge funds, etc. What did they expect?? This is what the money was always intended to do, to be a natural unwinding of counterparty exposure. They knew they had to do this when Lehman Bros's failure almost completely brought down the financial system (I dont think people appreciate how close we were to a complete global meltdown). Further, the money also went to counterparties that included local, state govts. That in itself is money being successfully injected to stablize the economy. I dont know what scares me more - this ridiculous diversionay posturing by Congress, or the fact that they are supposed to be educated about how the world works yet they plead ignorance.
3) As for Tim Ryan's bill, I am disappointed in this posturing. First, there are many insitutions that were forced to take on TARP funds that didnt need it b/c Paulson (understandably) didnt want to single out whose really in bad shape. So based on his bill, people who have done things right will still get penalized. Second, all this does is to penalize talent at US institutions and to move that talent to foreign institutions. You want to save Citi and BofA? Well they will only be in a capacity to repay TARP by generating business activity that can quickly generate fee income. When recessions bottom out is when the best deals occur in the market. If you penalize the talent, you penalize the banks, and thus that TARP money is outstanding that much longer. So who then pays the price?? The taxpayer.
Yes, Wall Street lost it and went too far. And so did Main Street. So now the flavor of the day in Washington is to help Main Street by creating a floor for people to not fall farther (admirable in concept but we all know those who overextended themselves will benefit). And the other flavor is to create a cap on Wall Street, so as to not let people thrive. A floor and a cap combined is called a collar. We are slowly putting the American Dream on a leash, and that starts to smack of a European model of society, and I dont know if thats something we really want.
One more thing. Those Amweld retirees deserve to have the full force of justice go after those that screwed them over. Its LTV all over again. And I commend Ryan for taking up their cause. But using that as bait for this bill is just bad. Its creating class warfare. We're not India, for god's sakes.
Erplane your comments were not only 100% correct but very well relayed.
I would also like to add acouple points:
"Another $230 billion in bonuses is to be paid in 2010, according to The Hill newspaper"
I'm pretty sure this is totally fabricated numbers or simply a misprint. $230 Billion would make every employee of the company a millionaire several times over.
Senator Dodd added verbage to the $787 Billion stimulus that effectively said any bonuses agreed upon prior to Feb. 11, 2009 would not be effected by the bailout funds - essentially reverting the blame of misuse of funds back to the good-ole-boys in Washington.
I'm not sure what President Bush being in office when the contacts for bonuses was approved. Did the writer of this article also chastise Clinton for the DotCom and Enron collapses in the 90s?
Finally, Mr. Ryan;
“There is absolutely no way that AIG executives deserve to receive their bonuses while I’ve got constituents back in my district who are losing their jobs and can’t afford to put food on the table."
Mr. Ryan have YOU offered to take a pay cut to help the poor constituents in the valley?
DIDN'T THINK SO!!!
Considering that quite a few members of the Congress are very very much to blame for this ghastly mess, chastising AIG seems silly. When I see Chuck Schumer, Barney Frank, Maxine Waters, Chris Dodd, Ted Kennedy and several others doing a 'perp walk' in orange jumpsuits, then perhaps we can jump on AIG. Perhaps we might also go after the members of the Congress who voted for the repeal of Glass-Steagall. Or who voted either for the original Community Reinvestment Act. Or its 1994 update. Or Hank Paulson who pushed the waivers of capital requirements. Or.....
The clowns and knaves in the Congress who engaged in this garbage, and who now are pushing what sounds all too much like an (unconstitutional) Bill of Attainder, make one think warmly of tar, feathers, and split rails.
By the way, if we are talking about pay for performance, why are members of the Congress, Mr. Ryan included, being paid at all??
can anyone say CORP.WELLFARE!!!!. i mean common u got these big time insurance co,s crying that they got to give people who were laid off a discount. but here they are taking taking and taking.
I am going to post comments sent to me talking about an IMF study on the impact of the House bill to reign in bonuses.
"The House recently passed H.R. 1586 which would limit compensation at financial institutions receiving more than $5 billion in TARP funds. Because the limits would put those institutions at a severe competitive advantage for talent relative to foreign banks which have not received such funds, the TARP recipient institutions would have a very strong incentive to return the funds. The resulting deleveraging could adversely impact credit formation and the prospects for the economy more broadly. To assess the significance of these effects, we employ some rules used at policymaking institutions such as the IMF and CEA.
"In a study of the economic impacts of an adverse shock to bank capital, IMF researchers Bayoumi and Melander estimate that in the US a 1% point fall in Tier 1 risk-weighted capital ratios reduces real GDP by 1.5%. This empirical result is consistent with the experience over the past year that a reduction in bank capital will restrain credit formation and harm economic activity. Of those institutions which received more than $5 billion in TARP funds, we assume those firms which have had to access Treasury capital more than once do not have the means to return TARP funds even if they so desired. The remaining institutions that have received $5 billion or more have $76.6 billion in TARP funds. The aggregate Tier 1 risk-weighted ratio for the US banking system would decline from 10.12 to 9.44 if these funds were paid off, a reduction of 0.68% points. Using the IMF result, the hit to credit formation would lower GDP by almost exactly 1%. In recent research, the Chair of the CEA, Christina Romer, found that a 1% reduction in GDP reduces employment by 0.7%, or just about one million jobs. Thus, using the IMF and CEA findings, the economic impact of H.R. 1586 would be a decline in GDP of 1% and a loss in employment of just about one million jobs. "
Its not that I am against reigning in extreme bonuses that helped get us into this mess, but the way these bills are written, people who are the workers on Wall St, who actually create economic good, are the ones who get penalized.