AIG: The Populist Outrage Wave Breaks On The Shore
The long-building wave of “populist outrage” over craven capitalist elites with a suffocating sense of privilege has broken on the shore with the AIG bonus scandal.
Having spent the last few days on the road, I come late to the story of the moment. Nevertheless, the more complicated it becomes the simpler it is:
The U.S.’s largest insurance company tanked in part because of the unprofessional and possibly criminal conduct of its derivatives traders. Finding itself foundering, AIG asked the government — that is to say American taxpayers — for a bailout. Three more bailouts followed for a total of $170 billion in mad money that is being pumped into the insurance giant to try to prevent a global economic collapse.
As a consequence, the government — that is to say those taxpayers — are the majority shareholders in AIG. Yet until last weekend the company refused to say where the bailout money went. Turns out a big chunk went to financial institutions that are separately getting bailout money, a situation that gives new meaning to the term “double dipping.”
New York state Attorney General Andrew Cuomo has been far more aggressive at trying to get to the bottom of the AIG rot than the Bush or Obama administrations, some $30 billion of the bailout money remains unaccounted for and AIG’s answers about the rest smell like fetid Swiss cheese.
We now learn that the very derivatives traders who shat in AIG’s hat, including some who have subsequently decided to spend more time with their families, received $165 million in bonuses to which they were “contractually obligated.”
AIG bigs wring their hankies and semi-apologetically note that a contract is a contract and the money cannot be returned.
Congressional Democrats and Republicans, trying to outdo each other in outrage, are demanding that the bonus money be returned, and one idiotic proposal would somehow tax every last cent of it. Also idiotic are congressional Republicans who worked with the oversight-averse Bush administration in setting the terms of the bailout who are now blaming the Obama administration for . . . what’s the term? Lax oversight. One Republican shot the moon by suggesting that AIG execs commit suicide.
President Obama is belatedly acting outraged himself while some of his key economic advisers are siding with AIG on the “a contract is a contract” assertion.
Yes, the bonuses represent only about one-tenth of 1 percent of the bailout dough. Yes, they are not bonuses in the traditional “you done good” sense but rather guarantees of minimum pay levels no matter what the market does, although some of these bonus babies moved on anyhow. And, yes, the hoary principle of honoring contracts is to be upheld under ordinary circumstances.
But these circumstances are anything but ordinary, and as majority shareholders in a company that is bankrupt in all but name, our agents in the form of the government must demand the return of all bonus money. Or alternately have that amount subtracted from the latest bailout, as Treasury Secretary Timothy “We Wuz Caught Off Guard” Geithner has proposed, as well as a full accounting of where all bailout money went.
Like I said, it’s pretty simple.
Shaun Mullen is a former The Moderate Voice columnist. Over a long career with newspapers, this award-winning editor and reporter covered the Vietnam War, O.J. Simpson trials, Clinton impeachment circus and coming of Osama bin Laden, among many other big stories. He blogs at Kiko’s House.
26 Responses to “AIG: The Populist Outrage Wave Breaks On The Shore”
You have to love the hypocrisy of the administration, the way they are screaming about the very bonuses that they helped protect, throwing Sen. Chris Dodd under the bus to do so.
Read this Glenn Greenwald piece and see just what the administration officials are doing:in an effort to throw attention off of their own actions:
http://www.salon.com/opinion/greenwald/2009/03/…
Then look at the fact that while this 165 million in bonuses is something that we might be outraged about, but what about the nearly $58 Billion used to bail out foreign banks. Thats 57% of the AIG bailout money.
http://www.businessweek.com/the_thread/economic…
So how does the administration fare when tougher questions are asked? No so well like this exchange between Jack Tapper and Press Secrtary Gibbs.
TAPPER: You guys first found about these bonuses last week?
GIBBS: I think that's true, based on what I read in the newspaper.
TAPPER: But you gave money to AIG two or three weeks ago?
GIBBS: Um-hmm.
TAPPER: How could you not know that they have these millions — hundreds of millions dollars…
GIBBS: Well, again, there's — there's — according to the news reports, there's existing contracts, some of which the — or of which the president has asked the secretary to examine going forward. I think you also heard the president speak today about having a resolution authority that gives the government and taxpayers far more flexibility in dealing with the disposition of AIG in a way that gives taxpayers protection and flexibility — disposition that we don't currently have, but steps that we would like to see taken in order to deal with AIG as a whole.
TAPPER: Why didn't you attach it to the $30 billion you gave a couple weeks ago?
GIBBS: Again, Jake, the…
TAPPER: You're looking to retroactively attached it to the new $30 billion.
GIBBS: Well, they're looking through contracts to see what can be done to wrest these bonuses from their recipients.
TAPPER: I'm sorry, just — I don't understand, so maybe I'm just not understanding, but President Obama said in early February, right when he gave his speech on executive compensation, “these kinds of compensation packages in the midst of this economic crisis isn't just bad taste, it's bad strategy, and I will not tolerate it as president. We're going to be demanding some restraint in exchange for federal aid.” Since that time, he gave tens of billions of dollars in federal aid to AIG without demanding restraint.
GIBBS: Well again, Jake, we've got existing relationships, contracts, as I just mentioned, that were negotiated a year ago, assistance that was granted outside of the legal authority prior to the creation of the troubled asset relief program. The president has asked the administration to go back and look at what remedies are possible to block those bonuses.
TAPPER: But why didn't he do that before?
GIBBS: Well, again, the excessive compensation rules that you'd noted, and I think somebody asked this at the background briefing that we had, obviously are prospective based on some limitations that we have in looking backwards. The president has asked Secretary Geithner and members of the administration to exhaust all legal remedies in looking backwards to see what steps could be taken to block these bonuses.
TAPPER: No, but since — and I'm sorry to belabor this point — but since President Obama gave the speech, you guys gave more money to AIG. Why wasn't it attached…
GIBBS: Again, this is…
TAPPER: … to the new money?
GIBBS: Because it's, again, it's part of the…
TAPPER: Part of the old contracts.
GIBBS: Right. It's part of…
TAPPER: But you're looking to now retroactively see if you can attach something to that old money.
GIBBS: That's what we're looking at.
TAPPER: But why didn't you do it at the time, if you're looking to retroactively do it.
GIBBS: The administration is taking the steps today to go back and see what can be done…to claw those bonuses back.
LOL, I think Gibbs should get some kind of award for the mastery of doublespeak with this particular sentence:
The rules are prospective based on looking backward. Obviously.
While I think the administration should just man up and admit it made a mistake in pushing for freedom for these bailed out companies, we should also recall that when executive pay limitations were brought up a few weeks ago, everyone was crying “socialism” at the top of their lungs. We can't have it both ways.
Well, my opinion is that the administration can't have it both ways. Had they limited the exec compensation, I wouldn't necessarily have agreed with that (it would depend on where, when and how the limits were placed) but they would then have had a beef with the execs if they pushed back against the limits. But as it is, it's the height of hypocrisy and political gamemanship to deliberately enable the very behavior that they're now driving up public outrage over.
But yeah, there's certainly hypocrisy to go around. Anyone that approves of the bailouts themselves but then claims that it's beyond the pale for the government to set limits is being disingenuous as well; as soon as you admit that the free market principles failed to support a sustainable finance industry and government bailout is necessary, you give up the right to argue against the specific forms of government intervention on the basis of those interventions being anti-capitalist.
The problem is Obama's in that it his Treasury dept that failed to disclose its fingers in the bonus allowance. Bad politics no doubt.
The question I have is simple. Who do we replace these guys with? Anyone have a name of someone who is “sufficiently astute” enough to handle this mess, AND who is NOT a past member of the elites who allowed this to occur?
Geithner? NY who took part or at least stood by under Bush's intial bailout.
Summers? “Summers has recently come under fire for accepting perks from Citigroup.”
Who do we have that isn't tainted by their intimate relationship with WS?
I honestly believe Obama's anger the other day was as much directed at Geithner as AIG.
Obama picked the guy that all the experts said was his best choice because WS could trust him. Geithner, Summers, Phil Graham, it doesn't matter.
These guys can't see their own subjectivity in the matter. They all come from that corporate top-down solution school of “overseeing” the economy where CEO s are never suspected of short sightedness and share a tacit mutual understanding that maximizing profits is an a priori to business.
Step right up, submit the name, and I'll back it completely.
The only other name I've heard floating around as a rumored replacement is Steve Rattner, but I don't know much about him.
I think CStanley is about right.
I also think ChrisWWW is right: The administration ought to “man up” about some mistakes.
I think CStanley is about right.
I think that's a first, George!
Maybe Obama really has ushered in a new era of postpartisanship, though I doubt this is the manner in which his supporters would have envisioned it.
George and CS
As much as anyone, I would like to see someone “man up” about the bonuses too; but tell me how politically you do that. Doesn't it come down to who knew what when?
Consider the possibilities:
1. Obama knew the bonuses were going through from the beginning and so did Geithner.
2. Obama didn't know, but Geithner did.
3. Obama didn't know, and Geithner didn't either.
Possible outcomes.
If 1. is true, then Obama is a better liar than we've ever seen and his public anger is pure BS.
If 2. is true, Obama is mad at Geithner's duplicity, and he is now looking for another Sec of Treasury.
If 3. is true, Obama's wrath is squarely aimed at WS and Geithner now knows he was had by his buddies at WS.
Politically, Obama's options are bad and worse.
I tend to discard 1. out of hand, but if true, watch for more bonuses we can do nothing about.
If Geithner is in on the fix, 2., I see Liddy and Geithner moving on in the next six weeks and criminal investigations to begin this summer.
If 3. is the situation, look for Geithner to start making life for AIG very hard and Liddy becoming person non grata in the process.
In any of these cases, Obama can't actually tell the public what is really going on, or he runs the risk of the stock market doing the mother of all nose dives as all confidence is lost.
Sorry for the logic problem, it's a curse of my profession.
I'm putting my monet on number 3.
Obama seeks greater rein on financial institutions
http://apnews.excite.com/article/20090318/D970J…
Oh, I don't disagree, Hemm- I don't think it's politically possible for Obama to 'man up' about this now. He's had Gibbs out in front of the cameras talking about when the administration knew about this already- he can't change his story and admit he knew it back when it all first went down.
I also don't think it's politically feasible for him to replace Geithner, but I suppose if the backlash gets bad enough he'll go. But as disappointing as he's been, I think that replacing him would send shockwaves too. If I were in Obama's shoes I suppose I'd just try to get the #2-#5 slots (or whatever- the next tier) filled quickly with people who are both competent and politically savvy to be able to put a better face on all of this.
As far as when Obama knew, I hate to say it but it seems to me that at the very least he's committing a Clintonian lie (“depends on the meaning of the word 'knew'”)
This article makes it clear that Obama was engaged in discussions back and forth with Dodd over the aggressiveness of the pay caps, and on retroactivity. Obama may not have known about the individual contracts that would pay out if not limited by the legislation (which I suspect is what he's having Gibbs use as the metric for 'when he knew'), but he obviously knew about the general existence of the bonuses in contracts.
To me it's almost worse if he didn't know because that suggests a level of incompetence and suggests that Geithner and Summers were loose cannons. But again, I don't see how that's possible because those two wouldn't have been present at the negotiations to reconcile the final bill, so Obama's hand had to be on that.
And finally- one additional reason I think it's better to think he knew, is that the article also explains that the concern about not being too aggressive was because they feared that the firms would back out of the program altogether if too many strings were attached. That may not be a rationale that is easy to sell to the public, but it's a far sight better than a corrupt motive of trying to guarantee payola to buddies on Wall Street.
In all likelihood, Geithner made the compensation argument with Obama's blessing (either way Obama is responsible for having hired Geithner). That doesn't mean that Obama or Geithner were aware or ready to endorse millions of dollars worth of bonuses for AIG. The bill itself was targeted at a wide range of institutions besides AIG that took federal money.
I really think most of this was caused by the possibility, or perceived possibility, that the public would freak out if these companies were properly nationalized. By not taking that step, and wiping out shareholders, nullifying labor contracts, and replacing the executives at these companies, we've created an extreme moral hazard. Obama, Bush, Geithner, Paulson and Bernanke share the blame for this sorry state of affairs.
It looks like Obama agrees with me that he has to stick with Geithner.
(And I'll admit it was my guilty pleasure to grin at the first comment on that post: “Heckuva job, Brownie!”)
CS
Parse that news article closely:
The Obama plan, announced before the stimulus passed, would cap the entire compensation at $500,000 — with anything above that coming from restricted stock. The language that Dodd put in the stimulus bill goes further by limiting executive bonuses on banks that receive funds from the government's $700 billion financial rescue package.
Administration officials fear that the congressional provision will still allow multi-million dollar paychecks, as long as they aren’t called bonuses, because it has no limit on base pay.
Neither Obama's or Dodd's plan called for retroactivity, they quibbled over total compensation. That's the $64 question, who made that addition in private when the bill was reconciled?
As far as Obama's part, do you think he actually took part in those negotiations? Geithner and Summers, yes probably, but not Obama. That doesn't mean he doesn't have a real problem, but him calling for retroactivity is a stretch.
You may be right Chris, but when Paulson first came running, the risk of a global melt down was much more imminent.(or appeared so) Breaking up AIG without first shoring up European banks through owed payouts could well have started a global tidal wave. There's been a lot more of that behind the scenes since then.
The credit disintegration caused by AIG had to be arrested first. It's a matter of time before its broken into straight insurance and investment banking. Doing that first would have scared world markets holding AIG's trash.
In my opinion, the main mistake has been lack of transparency. Followed by lack of accountability. Then by lack of sensible explanations about what's going on.
I also think it's obvious that there are problems. One of George W. Bush's mistakes was his unwillingness to admit error. For Obama to admit the obvious–that there are problems–would, I think, enhance his credibilty.
Neither Obama's or Dodd's plan called for retroactivity, they quibbled over total compensation. That's the $64 question, who made that addition in private when the bill was reconciled?
What appears to have happened in the final reconciliation of the bill is that the clause was added that exempts the preexisting contracts from being touched. That's what I meant about retroactivity. And although we obviously don't know everything that went down in that meeting, we do know that Treasury wanted the restrictions to be loosened, and Obama knew this, and then the meeting between House and Senate leaders led to the change being made (Treasury wouldn't have been part of those negotiations but Obama would have.)
CS
Neither Obama nor Dodd wanted retroactivity.
“Administration officials fear that the congressional provision will still allow multi-million dollar paychecks, as long as they aren’t called bonuses, because it has no limit on base pay.”
You can't assume either made this request. I'd look for someone like Frank, or a republican to make that change. I do know the reconciliation of house and senate bills do not have presidents sitting in on them. It would make the news.
If you believe Obama did it, then you choose option 1 above, and Obama is the biggest liar we've ever had.
Remember how my paranoia runs, lobbyists make laws, politicians take credit for them
It seems our media have risen from their long naps to try to hold a president accountable. I wasn't sure they had it in them. Focusing on the issue of bonuses does miss other important issues, including why is credit still so tight if the TARP funds were meant to free up credit, etc. The bonuses are galling, but a drop in the bucket compared to all the money that has been poured into AIG and its counterparts.
What do you think would have happened if we had had the same level of scrutiny over the claims about Saddam and his nuclear program, you know, “we don't want the smoking gun to be a mushroom cloud!” Maybe they could have saved us a few bucks had they wondered if another president and his administration were telling us the truth.
George
It like jack Nicholson said “Truth, you can't handle the truth.” If Bush/Paulson had leveled with the American people, we'd all be broke. The world credit market is / was hanging by a thread. AIG's trash had infiltrated every major bank in the world.
You can tell that this is true because market fundamentals are nowhere to be seen. As example, why is it that even though the US has been printing money like wall paper, world interest rates are still the lowest in memory?
Why hasn't the value of the dollar shrunk to nothing even though our spending is impossibly high?
How can you tell people that current economic world policy is blown up? So much for transparency.
denisedh:
I look at it the other way around. Our consummate politician president is using the AIG debacle to hold Wall Street accountable.
Systemic reform, which beyond pulling the U.S. out of recession has to be the other major result of the Obama administration's machinations, will never occur if left to Congress alone, so the genuine populist outrage — as opposed to the faux outrage on Capitol Hill — needs to be harnessed by the White House.
Well, you may be right that I'm assuming too much about Obama's involvement but I'm putting together the fact that he sided with Treasury in wanting to loosen the restrictions, Dodd apparently argued against that loosening, and wrote an amendment which put in place some restrictions without specifying retroactivity one way or the other (which at least may have made it possible to impose it later), and then the final bill came out of negotiations looking more like what the Treasury/WH side wanted.
Certainly other Congresscritters may have pushed in that direction.
There's also some conflicting reports about another amendment by Snowe and Wyden that got stripped out too:
The Senate passed a bipartisan amendment proposed by Sen. Olympia Snowe, R- Maine, and Sen. Ron Wyden, D-Oregon, that would have taxed bonuses on any company getting federal bailout dollars, if the company didn't pay back the bonus money to the government. Watch congressional reaction to AIG bonuses »
But the idea was stripped from the stimulus bill during hurried, closed-door negotiations with the White House and House of Representatives.
I don't even care that much about the bonuses one way or another, but there's a lot inthe process here that doesn't pass the sniff test.
CS
Agreed and seconded.
Shaun
That's been my hope all along. Systemic change is definitely required, and only when the old system is seen for what it has always been, a corporate ruling class ruling through bribery, can a new regulated economy emerge.
I honestly believe that is what Obama and Emmanuel meant by not wasting a good crisis. It's also why we're hearing so much squealing from the elite. Regulations have been methodically removed; it's time we become a nation of laws once again.
I agree with you there. People are really angry about this–I can't go anywhere and not hear about it. I am not sure what to think about all this. Will history look back on these weeks as the “Bonus Army” of the 2000's? I realize the first Bonus Army was a totally different situation, but the controversies of bonus payments (in the 1930's over bonus payments to WWI vets and now over bonus payments to corporate failures) is an interesting parallel.
AIG seems like the ultimate corporate welfare queen and it's more galling to think about those guys getting million dollar bonuses when people who have invested in stocks and worked all their lives to amass wealth of less than that will lose so much and have no one to bail them out. They will have to rely on Social Security and whatever remains of their 401k and pension plans.
Lost in all this is the simple fact that this stimulus bill was rushed thru congress without anyone reading it.
Now they are paying for that stupidity. Lets hope they learn from this.