The Economy, stupid

[southsider2k5]

Frankly, with AIG, I don't think they had a clue what they were doing, they just realized that they needed to do something.

 

Let's review the schedule here:

Friday, September 12th: Markets close with Lehman Bros. and Merrill Lynch teetering on the edge. Over the weekend, Lehman and Merrill have their books opened to the world to try to find a buyer, similar to what happened to Bear a few months beforehand. The Fed is able to convince BofA to take on Merrill's debacle, but Lehman is in worse shape and no one will take them on without a guarantee from the Fed similar to what they gave when Bear went down. Sunday night, Paulson says no.

Monday, September 15th: Markets re-open. Merrill is in BofA's hands, but Lehman files bankruptcy for the largest in corporate history. DJIA drops 504 points. AIG is hammered. Its stock drops 60% in 1 day.

Tuesday September 16th: The calamity of the Credit Default swap contracts AIG had put out covering Lehman bros has become clear to the Fed and to Paulson. They've realized their mistake. At 10:00 in the morning, the Fed rushes in with an $85 billion loan and takes an 80% stake in AIG to prevent the complete collapse of the financial system.

 

A few days later the $700 billion bailout plan was announced.

 

Just think through that. People had an inkling the week before that if Lehman went down, AIG would have problems, but the Fed and the Treasury had no idea how deep of a hole there was. Otherwise they never, ever would have let Lehman fall, they would have given it the same deal they gave Bear. Less than 36 hours pass from Paulson making the final call that they weren't going to bail out Lehman Brothers to the huge money infusion in to AIG. 1 business day. They went from basically knowing nothing about AIG's financial products to realizing the company was going down hard in less than 24 hours.

 

I doubt they had a clue about 95% of AIG's business when they nationalized it. There just wasn't anywhere close to enough time. They just knew there was a hole on the scale of hundreds of billions of dollars in AIG's books after Lehman went down, and that if they didn't do something then Barclay's, Goldman Sachs (conveniently enough Paulson's former employer), Societe Generale of France, Deutsche Bank, UBS, Citigroup, BofA, and a dozen others would have holes ranging from $5 to $10 billion suddenly appearing in their balance sheets as all of Lehman's bonds that they thought they had insured would go worthless...and God only knows how big those holes would be if all of AIG's debt went worthless as well.

 

Which has nothing to do with the rest of the bailouts that they have handed out since. They disclosed all of their expenses up front.

[Balta1701]

Personally I don't like the bonuses, but I don't buy the outrage for a second. I think Rick Santelli said it best this morning. He talked about the M's, the B's and the T's. We are more worried about the M's than we are the B's. We are also worried more about the B's than the T's. M's are millions, B's are billions, and T's are trillions.

Time for another T party.

 

Anywho, there's a bit of reason that can be applied to focusing on these bonuses, just as there's a bit of reason about why earmarks get a particular focus...in both cases, as currently structured they're an invitation to a much larger corruption problem.

 

In Congress, the ability of Congressmen to earmark funds directly to companies in exchange for "gifts" has now brought down what, 3, 4 Congressmen over the past couple years? Stevens in the Senate, Murtha's going down, Cunningham went down for that, the whole Abramoff clan, etc.

 

In business, the bonus system is set up to provide these guys maximum rewards for short-term performance. These guys get richest if they make the largest possible bets on the market. If their bets succeed, they become ridiculously wealthy. If their bets fail though, especially if they fail really, really big, they lose nothing and still are making a fairly large amount. The only one who loses in that case is the taxpayer. The compensation structure is a key factor in driving Wall Street to ignore its long term risks at the expense of short term gains during positive market movements.

 

Both cases suggest substantial need for reform. The big difference is that earmark corruption is still pretty far from destroying civilization as we know it. Wall Street corruption is not.

[Balta1701]

Which has nothing to do with the rest of the bailouts that they have handed out since. They disclosed all of their expenses up front.

And yet, they disclosed all their expenses up front, but they still wound up needing another $30 billion just 2 weeks ago.

[NorthSideSox72]

No, it's the message that is being sent. Obama complicitly authorized that the earmarks were ok - many Dems even said that it was so small that it didn't matter. But this AIG money, which is essentially "earmarks", if you think if it that way, WE GOT TO GET THAT MONEY BACK! OUTRAGE!

 

You know what this is? Two things.

 

#1 - it's class warfare. They are going to get those rich f***ers. Just for you little people!

 

#2 - who are rich people? White men, by in large. This resonates really well with "minorities", who taken as a whole, are the "majority" of the voting block.

 

The is brilliant, seriously. The Democrats are playing people like a fiddle, and right now it's working like a charm.

There will always be some people who are falling into whatever B.S. the government may try shovelling. However, I really think its interesting that you are willing to look the other way on this piece of government waste, but are so upset about other pieces of it on a similar scale (many of the earmarks). If that means I am being played like a fiddle, then I suppose you are being played by the conservatives.

 

Now, if Obama wants to go after this and use it politically, I have zero issue with that. He wants to use a good idea, to also generate him some politcal capital. Fine by me.

 

But for me, its really simple. Government waste, either way, and its bad, either way. Not because Obama says so, but because its wrong.

 

[mr_genius]

Why did Dodd put in the clause exempting bonuses? They knew damn well what was going on across the financial industry.

 

 

^^^

 

[StrangeSox]

^^^

I think CKnolls had a post detailing all of the campaign contributions Dodd got from them...

[mr_genius]

I think CKnolls had a post detailing all of the campaign contributions Dodd got from them...

 

yea i saw that. Dodd's outrage is the fakest of them all

[kapkomet]

There will always be some people who are falling into whatever B.S. the government may try shovelling. However, I really think its interesting that you are willing to look the other way on this piece of government waste, but are so upset about other pieces of it on a similar scale (many of the earmarks). If that means I am being played like a fiddle, then I suppose you are being played by the conservatives.

 

Now, if Obama wants to go after this and use it politically, I have zero issue with that. He wants to use a good idea, to also generate him some politcal capital. Fine by me.

 

But for me, its really simple. Government waste, either way, and its bad, either way. Not because Obama says so, but because its wrong.

Here's the difference, NSS. The government is our money. We the people. These bonuses are individual people's... they earned it, right or wrong.

 

Allow me to put it this way. I just got fired so that my old manager could get his fat ass bonus. That's wrong. But contractually, he got his because HE made the numbers.

 

Look, I don't like the bonuses either. But it's a different issue, and it was known, and now they are using it to prove that the rich people can't get away with this! That makes it doubly wrong in my book.

 

[southsider2k5]

Time for another T party.

 

Anywho, there's a bit of reason that can be applied to focusing on these bonuses, just as there's a bit of reason about why earmarks get a particular focus...in both cases, as currently structured they're an invitation to a much larger corruption problem.

 

In Congress, the ability of Congressmen to earmark funds directly to companies in exchange for "gifts" has now brought down what, 3, 4 Congressmen over the past couple years? Stevens in the Senate, Murtha's going down, Cunningham went down for that, the whole Abramoff clan, etc.

 

In business, the bonus system is set up to provide these guys maximum rewards for short-term performance. These guys get richest if they make the largest possible bets on the market. If their bets succeed, they become ridiculously wealthy. If their bets fail though, especially if they fail really, really big, they lose nothing and still are making a fairly large amount. The only one who loses in that case is the taxpayer. The compensation structure is a key factor in driving Wall Street to ignore its long term risks at the expense of short term gains during positive market movements.

 

Both cases suggest substantial need for reform. The big difference is that earmark corruption is still pretty far from destroying civilization as we know it. Wall Street corruption is not.

 

And mark to market accounting is at the front of the line for destroying Wall Street.

[StrangeSox]

It's from the Huff Post, so consider the source, but...

 

 

http://www.huffingtonpost.com/2009/03/17/c...f_n_175865.html

Cuomo Reveals AIG Details: 73 Employees Got Multi-Million-Dollar Bonuses

AIG's assertion that it had no choice but to make multi-million dollar bonus payments was undercut this afternoon by New York Attorney General Andrew Cuomo, who revealed new details about the now-infamous pay packages.

 

Cuomo reveals that 73 individuals received bonuses of $1 million or more, with one recipient getting a bonus of more than $6.4 million.

 

In particular, Cuomo takes aim at AIG's rationale for distributing more than $160 million in retention payments to members of its Financial Products subsidiary, "the unit of AIG that was principally responsible for the firm's meltdown," according to a letter sent by Cuomo to Barney Frank, chairman of the House Committee on Financial Services.

 

Though AIG has stressed that payments were essential to retain individuals at Financial Products vital to unwinding the subsidiary business, Cuomo notes that "numerous individuals who received large 'retention' bonuses are no longer at the firm."

 

Cuomo's office also learned more details about the bonuses:

 

• The top recipient received more than $6.4 million;

• The top seven bonus recipients received more than $4 million each;

• The top ten bonus recipients received a combined $42 million;

• 22 individuals received bonuses of $2 million or more, and combined they

received more than $72 million;

• 73 individuals received bonuses of $1 million or more; and

• Eleven of the individuals who received "retention" bonuses of $1 million

or more are no longer working at AIG, including one who received $4.6

million;

 

Again, these payments were all made to individuals in the subsidiary whose performance

led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73

millionaires in the unit which lost so much money that it brought the firm to its knees, forcing taxpayer bailout. Something is deeply wrong with this outcome. I hope the Committee will

address it head on.

 

We have also now obtained the contracts under which AIG decided to make these

payments. The contracts shockingly contain a provision that required most individuals' bonuses to be 100% of their 2007 bonuses. Thus, in the Spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My Office has thus begun to closely examine the circumstances under which the plan was created.

 

 

Again, these are retention bonuses, not performance bonuses. And now some of them aren't with the firm. Makes perfect sense.

 

This is some sort of bizarro-world socialism: transfer of wealth from the middle class and poor to a wealthy elite via taxation. I'm liking Grassley's idea that they resign or commit suicide more and more.

Edited March 17, 2009 by StrangeSox

[Rex Kickass]

Here's the difference, NSS. The government is our money. We the people. These bonuses are individual people's... they earned it, right or wrong.

 

Allow me to put it this way. I just got fired so that my old manager could get his fat ass bonus. That's wrong. But contractually, he got his because HE made the numbers.

 

Look, I don't like the bonuses either. But it's a different issue, and it was known, and now they are using it to prove that the rich people can't get away with this! That makes it doubly wrong in my book.

 

So mortgage bailouts for people on 200k houses they couldn't afford is outrageous to the same people who have no problem accepting a company making 73 millionaires from 2008 bonuses rewarding a 160 billion dollar loss essentially being paid for by government money.

 

I don't pretend to know anything about finance or economy. I'm barely able to keep my own accounts in check. But I think its pretty crazy that so many of the same people who were outraged about a small percentage of bailout money going to help a wide swath of people who own homes and could lose them are now covering ass for AIG rewarding failure to the tune of up to 4.6 million dollars.

 

We get upset about the idea of teachers not getting raises based on merit, but these same people quickly shrug their shoulders when it comes to treasury backed Wall Street bonuses. There probably should be some outrage here.

 

And the truth is the federal government should take AIG through a managed bankruptcy. This way, AIG can shed these horrible contracts for its employees and release themselves the burden of rewarding failure. That way these contracts can be voided and new more reasonable ones drafted to the bottom line. So many people talk about organized labor bringing business to their knees. Their demands were relatively simple. Decent medical care, a retirement plan, profit sharing, some degree of temporary security during lay-off periods. So many of those benefits have been systematically stripped away during bankruptcy after bankruptcy.

 

If its good enough for a steelworker, it oughta be good enough for a moneypusher.

 

[kapkomet]

So mortgage bailouts for people on 200k houses they couldn't afford is outrageous to the same people who have no problem accepting a company making 73 millionaires from 2008 bonuses rewarding a 160 billion dollar loss essentially being paid for by government money.

 

I don't pretend to know anything about finance or economy. I'm barely able to keep my own accounts in check. But I think its pretty crazy that so many of the same people who were outraged about a small percentage of bailout money going to help a wide swath of people who own homes and could lose them are now covering ass for AIG rewarding failure to the tune of up to 4.6 million dollars.

 

We get upset about the idea of teachers not getting raises based on merit, but these same people quickly shrug their shoulders when it comes to treasury backed Wall Street bonuses. There probably should be some outrage here.

 

And the truth is the federal government should take AIG through a managed bankruptcy. This way, AIG can shed these horrible contracts for its employees and release themselves the burden of rewarding failure. That way these contracts can be voided and new more reasonable ones drafted to the bottom line. So many people talk about organized labor bringing business to their knees. Their demands were relatively simple. Decent medical care, a retirement plan, profit sharing, some degree of temporary security during lay-off periods. So many of those benefits have been systematically stripped away during bankruptcy after bankruptcy.

 

If its good enough for a steelworker, it oughta be good enough for a moneypusher.

It's too late for a bankruptcy for AIG. The reason it wasn't done was just disclosed this weekend. AIG paid $90+ billion to banks all over the world. Now we know why they were "too big to fail". What, no outrage on this? That's why all this is amazing, and the FAKE outrage from Congress and Obama. They know this, they knew this, and now they're playing with smokescreen tactics.

 

Personal responsibilty is the theme here. Those who lie on mortgages don't deserve it, and frankly if you don't know what you were signing, you don't deserve a bailout. No one does. Most of us were/are against bailouts. But they did it and now we're stuck with the consequences.

 

We have to be careful what is merit. If teachers get "merit" increases, did they do the job? If so, PAY THEM. If not, goodbye. Same with these contracts. Did they do what was required? Then they get paid. Simple as that.

[NorthSideSox72]

Here's the difference, NSS. The government is our money. We the people. These bonuses are individual people's... they earned it, right or wrong.

 

Allow me to put it this way. I just got fired so that my old manager could get his fat ass bonus. That's wrong. But contractually, he got his because HE made the numbers.

 

Look, I don't like the bonuses either. But it's a different issue, and it was known, and now they are using it to prove that the rich people can't get away with this! That makes it doubly wrong in my book.

And I wouldn't say the government needs to target your fat ass boss either, because the taxpayers don't own that company. But for all useful purposes, AIG is now a government interest. So AIG wasting away my money, to me, is no different from earmarks wasting away my money.

 

Now, legally, it seems there is little that can be done to undo the bonuses. But I am all for taxing them back to the government, just as I'd be in favor of taking back earmark money in any way that I could.

 

[kapkomet]

And I wouldn't say the government needs to target your fat ass boss either, because the taxpayers don't own that company. But for all useful purposes, AIG is now a government interest. So AIG wasting away my money, to me, is no different from earmarks wasting away my money.

 

Now, legally, it seems there is little that can be done to undo the bonuses. But I am all for taxing them back to the government, just as I'd be in favor of taking back earmark money in any way that I could.

Fundamentals are the same.

 

Do you think that the government would EVER take back their money?

[NorthSideSox72]

Fundamentals are the same.

 

Do you think that the government would EVER take bake their money?

They can bake it or fry it or barbecue it for all I care, no different than wasting it on s*** that the federal government shouldn't be funding.

 

[kapkomet]

They can bake it or fry it or barbecue it for all I care, no different than wasting it on s*** that the federal government shouldn't be funding.

I hear you.

 

[Rex Kickass]

It's too late for a bankruptcy for AIG. The reason it wasn't done was just disclosed this weekend. AIG paid $90+ billion to banks all over the world. Now we know why they were "too big to fail". What, no outrage on this? That's why all this is amazing, and the FAKE outrage from Congress and Obama. They know this, they knew this, and now they're playing with smokescreen tactics.

 

Personal responsibilty is the theme here. Those who lie on mortgages don't deserve it, and frankly if you don't know what you were signing, you don't deserve a bailout. No one does. Most of us were/are against bailouts. But they did it and now we're stuck with the consequences.

 

We have to be careful what is merit. If teachers get "merit" increases, did they do the job? If so, PAY THEM. If not, goodbye. Same with these contracts. Did they do what was required? Then they get paid. Simple as that.

 

I don't think its too late for a bankruptcy at all. Our bailout is a loan, the US is not just an owner, its a creditor.

 

Look, I'm not saying we shouldn't honor the contracts. But we should also do whats smart for the company we own. How many of these retention bonuses were paid to people who since jumped ship? We are in a bad labor contract with these workers. We should do what many of the same executives think should happen with GM Ford and Chrysler. File for bankruptcy, that way these horrible contracts can be voided and more reasonable rates of pay can be established.

[Balta1701]

I don't think its too late for a bankruptcy at all. Our bailout is a loan, the US is not just an owner, its a creditor.

 

Look, I'm not saying we shouldn't honor the contracts. But we should also do whats smart for the company we own. How many of these retention bonuses were paid to people who since jumped ship? We are in a bad labor contract with these workers. We should do what many of the same executives think should happen with GM Ford and Chrysler. File for bankruptcy, that way these horrible contracts can be voided and more reasonable rates of pay can be established.

The worry there is that if AIG files for bankruptcy, you could get a run on AIG where all these people holding those trillions of dollars worth of contracts come rushing in at the same time trying to get whatever slice they can get. It could blow the whole thing up. AIG has its tentacles attached to so many places in so many other companies that anything rash risks bringing them all down.

[bmags]

But we should also do whats smart for the company we own. How many of these retention bonuses were paid to people who since jumped ship?

 

11

[Rex Kickass]

The worry there is that if AIG files for bankruptcy, you could get a run on AIG where all these people holding those trillions of dollars worth of contracts come rushing in at the same time trying to get whatever slice they can get. It could blow the whole thing up. AIG has its tentacles attached to so many places in so many other companies that anything rash risks bringing them all down.

 

Look if we just get the CEO to go on CNBC and say its just a managed bankruptcy, just looking to get all this labor off our books so we can focus on our core products and so on, I don't think it would be a problem.

[kapkomet]

Look if we just get the CEO to go on CNBC and say its just a managed bankruptcy, just looking to get all this labor off our books so we can focus on our core products and so on, I don't think it would be a problem.

Labor is not the problem.

 

Our smartest Treasury Secretary EVA needs to get off his ass and get the markets set up for these assets.

[NorthSideSox72]

Labor is not the problem.

 

Our smartest Treasury Secretary EVA needs to get off his ass and get the markets set up for these assets.

He's too busy avoiding his taxes.

 

Jeez, I'm turning into Kap.

 

[Balta1701]

So, FWIW, I'm going to chime in here and back Chris Dodd a little bit...(Flying Monkeys, fear not, you'll like who I'm shifting the blame on to!)

 

If you go back to the during-the-stimulus-debate discussion, the actual executive compensation clause that Dodd wrote, inserted, and got passed in the stimulus bill was actually quite a bit stronger than the one in the final version. It specifically was retroactive, requiring rewriting of contracts that had been reached long before the bailout. The problem is...it was weakened substantially during the conference discussion, such that it would no longer apply retroactively. And the reason it was weakened appears to be...Summers and Geithner wanted it weakened. That one is on the President.

 

[Rex Kickass]

I'm liking the idea of the 90% tax on TARP retention bonuses after the first 100k. If we are legally bound to pay the retention bonuses to people who aren't even worth retaining, we ought to find a way to retain those earnings.

[kapkomet]

I wonder if they will get a separate stimulus bill to give back to New York City after they steal all this money away from them...