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AIG Bonuses

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Mammon
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49 members have voted

  1. 1. Should they get bonuses?

    • Yes
      25
    • No
      13
    • Don't Know
      1
    • Don't Care
      4
    • Maybe
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Now imagine him on steroids - now you know what I looked like when the hearing finished. I swear to god, I'm ready to make a few citizens arrests. Chris Dodd, Nancy Pelosi, Obama - anyone else with me? We'll try them in a citizen's court. A real court sure as hell isn't going to find them guilty.

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Its like asking whether a murderer that wasn't convicted of his crime should be allowed to get married with the judges daughter. The answer is "he should be in jail", not "Yes, of course he should, he is a free man" or "No, of course not, the judge already did him a favor - now he'd better obey him"

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It gets worse, because now Congress is in session ready to tax anyone making over $250k and who had received government bailout money at the rate of 90%! Many people also seem to be outraged that AIG sent nearly $100 billion to foreign banks, but it is my understanding that AIG was insuring certain financial instruments based upon mortgage backed securities, and the reason they almost went bankrupt was because they had to pay out billions upon billions of dollars as the agreement said they would if those securities lost value. In other words, AIG is doing their job of insuring what they insure, and yet people are angry because they are doing that. From what I've read, credit default swaps are a type of insurance, but I'm not real familiar with them. The point is that AIG was paying out claims, which is why they were in such a position of nearly going bankrupt, and they didn't cause the market crises, the government did.

I agree that they should have gone bankrupt, and most other insurers would if they had to pay our more than they had available after a disaster. Of course, being over extended might be grounds for fraud charges if you had insurance and they didn't pay up when they had to by contract. But so long as AIG is "being restored to normal business functioning" by the bailouts, then no one should complain if they continue business as usual. If you deserve a bonus because you did a certain task, why would you stick around if you won't get that bonus and if you are hated for getting that bonus? I can't think of much else that will lead AIG to really tank, and those executives ought to walk off the job.

And with all of this back peddling by our government and changing the rules as they go along, why in the world would anyone voluntarily take their money on those terms? I've heard that many banks are refusing to accept government handouts and many want to return the money forced on them due to these conditions that were not known and could not be known ahead of time.

Perhaps AIG got themselves in trouble for insuring things that maybe they shouldn't have insured, and then everyone needs to learn the lesson of not to do that, but so long as they get money to continue operations, those bonuses need to be paid out -- especially since there was a provision in the bill to exempt the bonuses from the limits.

Bankruptcy would have been a better solution. As it is, they are now under the arbitrary power of the Federal government. And the only people they are going to get to work for them are people who don't want bonuses and are not greedy enough to continue to do a good job and get well paid for it. In other words, the Feds are bringing a worse disaster by their arbitrariness.

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Many people also seem to be outraged that AIG sent nearly $100 billion to foreign banks, but it is my understanding that AIG was insuring certain financial instruments based upon mortgage backed securities, and the reason they almost went bankrupt was because they had to pay out billions upon billions of dollars as the agreement said they would if those securities lost value.

So now people are angry because AIG is living up to the terms of previous contracts? WTF? My bank, Bank of Montreal is one of the banks owed (1 billion IIRC) but somehow it should suffer because AIG was over leveraged?

This is evasion of reality on a massive scale. WTF is wrong with these people? Get angry at your government, not the company living up to its contractual obligations!

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AIG should be bankrupt, and those contracts should be automatically scrapped. But, as long as the government insists on bailing out AIG, they aren't bankrupt, so the empoyees are entitled to their contracts. A contract is a contract. Unless there's a clause that says government intervention renders the contracts null and void, I can't see a way out of 'em. I voted yes.

I hear this a lot. I'm not sure I'm convinced AIG is really the bad guy that it's being made out to be. I think that, based on what I know thus far, the problem wouldn't really be as much of a problem if:

1) The Government didn't essentially influence the mandatory use of mark to market accounting standards through the FASB - which is just another quasi Government agency funded through regulations set forth in the Sarbanes-Oxley Act which altered the Securities Exchange Act of '33 to provide for this.

While I don't think there is anything inherently wrong with this accounting method, it the market should determine if it's appropriate for the business involved. For example, this type of accounting does cause a unique problem for insurance companies and banks whose assets are typically long-term and their current market value at any given point (which really can't be determined until or unless the assets are sold) is going to be different (sometimes radically so) from what their assets will be upon maturity. This can have a crushing effect on these types of businesses if the economy slows down or goes through a contraction.

When AIG takes a hit on some speculative investments and they have to value those assets coupled with their long-term holdings according to mark to market accounting standards, then you run into a situation where their overall assets don't look very valuable or as valuable.

2) The Government didn't impose legal reserve limits

The Government requires banks and insurance companies to have a "legal reserve". The legal reserve for an insurance company though is MUCH MUCH higher than for a bank. If the company's legal reserve drops below a certain point, then the company is deemed to be "in trouble" and must raise capital to meet their reserve requirements. If they don't, they can be downgraded by rating agencies and this of course creates a lot of problems. They can also be put out of business and deemed insolvent.

When you force a company that is long-term by nature to be short term in its valuations (via mark to market accounting) and you force that company to cough up cash immediately if they drop below certain reserve limits that are calculated using this accounting method, then of course you are going to have trouble. The company won't be able to sell their blocks of money in the kind of economic environment we have - which was caused by artificially low interest rates - which they need to do to replenish their capital reserve. So, they get a "loan" from the Government. Now they are having to sell off blocks of money to pay back the Government. Same essential problem, but now you have taxpayors footing the bill. And NOW, you have outrage over bonuses being paid.

But is any of this really the company's fault? The speculation plays that AIG made may have been inappropriate. I'm not sure they would actually be bankrupt if this were a free market. Their subsidiary company - AIG financial products - probably would be. But their core business would be quite strong. In reality they have a strong cash position. However, according to the Government's arbitrary legal reserve requirements, the whole thing should be bankrupt.

Now, if there is a scare that AIG will indeed go bankrupt, that could prompt policy holders to either cash in their policies or borrow as much as they can from them, effectively creating a "run" on the insurance company. The theory is that this would have a domino effect on the rest of the industry. AIG and others would have to liquidate their holdings to meet the requests of their policy holders.

Because insurance companies are the largest buyers of corporate debt, it is thought that this would have a "freeze" effect on the bond markets. Since, savings is the real stimulus to an economy, you might see things get MUCH worse.

I think it is a pretty good scare tactic, although this could be the lesson insurance companies need to stop selling universal life-type policies (which is a whole 'nuther discussion) and move towards a whole life product line which doesn't treat cash values as a quasi demand deposit account. Of course, the company could put a moratorium on policy loans and surrenders if it is in their contract.

Of course, all of this would be seen as "unfair" by policy holders and we'd need more Government intervention to "stop the atrocities".

What about the fact that the Government caused this whole thing to begin with. :D

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Yup, the government brought down AIG.

I wonder how many other companies out there are "troubled" because they played by the governments rules...particularly with regards to accounting methods. :confused:

Ahhh yes, New York's "anti fraud statutes" AKA the Martin Act. They trap you with that one because you either comply with the initial subpoena/request for whatever documents they want and subject yourself to the near dictatorial power granted to the Governor via that Act, or you go to jail for ignoring the subpoena.

I remember when the first outrage over AIG holding a conference to encourage producers to continue selling products came about. I actually was called by one of AIG's PR people about an article I wrote about AIG. They ousted Greenberg and installed incompetent management - incompetent for running an insurance company.

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My bank, Bank of Montreal is one of the banks owed (1 billion IIRC) but somehow it should suffer because AIG was over leveraged?
Yes, if AIG is bankrupt, they should. If AIG is bankrupt, it does not have the money to pay 100% of what it owes Bank of Montreal and other creditors. Various creditors have various levels of "seniority" and various other options under the law, and they knew this when they lent money to AIG.

The primary reason the government gave AIG money was to let AIG give money to its creditors. Paulson wanted to stop what he feared might be a "domino effect": i.e. if AIG fails and cannot pay a large creditor, then that creditor might fail, etc. This was wrong: they should have let AIG fail and should have let AIG's creditors lose whatever the law said they had lost.

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Yes, if AIG is bankrupt, they should. If AIG is bankrupt, it does not have the money to pay 100% of what it owes Bank of Montreal and other creditors. Various creditors have various levels of "seniority" and various other options under the law, and they knew this when they lent money to AIG.

The primary reason the government gave AIG money was to let AIG give money to its creditors. Paulson wanted to stop what he feared might be a "domino effect": i.e. if AIG fails and cannot pay a large creditor, then that creditor might fail, etc. This was wrong: they should have let AIG fail and should have let AIG's creditors lose whatever the law said they had lost.

My point was that the money was provided to ensure it didn't go bankrupt. Not so that AIG could renege on contractual obligations and still exist.

I'd have no problem with BMO being short due to a bad investment, bad optics on the other hand is a completely different story.

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So now people are angry because AIG is living up to the terms of previous contracts? WTF? My bank, Bank of Montreal is one of the banks owed (1 billion IIRC) but somehow it should suffer because AIG was over leveraged?

This is evasion of reality on a massive scale. WTF is wrong with these people? Get angry at your government, not the company living up to its contractual obligations!

Damn straight. The really annoying part about this is if they did violate those contracts and not pay up, they would have to deal with lawsuits from the former executives anyway. So no matter what that money would be going out (UNLESS they went bankrupt...hmm...), but Geithner and Obama didn't care because all they want is yet another way to scapegoat those evil and greedy businessmen.

Fortunately though, it looks like this 90% tax farce may be unconstitutional: http://www.foxnews.com/politics/first100da...an-lawyers-say/

Edited by skap35
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Fortunately though, it looks like this 90% tax farce may be unconstitutional: http://www.foxnews.com/politics/first100da...an-lawyers-say/

Right, and here's the rub:

Two of those difficulties, lawyers say, lie in Article I of the U.S. Constitution -- a section stating Congress cannot pass any "Bill of Attainder" or "ex post facto" law. A Bill of Attainder is an act of the legislature that singles out and punishes a group or individual without trial. An ex post facto law retroactively changes the legal consequences of an act.

So, at least potentially, the arbitrary power sought by some in Congress might be curtailed by law -- and the Constitution. They also want to explicitly punish them with the tax code, which should be illegal, although that has been done with the sin taxes for quite some time (cigarettes were just taxed an additional dollar per pack -- $10 per carton!).

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My letter to my Congressman:

Mr. Hall,

I am appalled at the House's decision to tax 90% of bonuses to employees of AIG and other companies that received bailouts. This bill is such a clear violation of the Constitution (specifically ex post facto and bill of attainder), your constituents can drawn only one of two conclusions: either you and your colleagues in Congress (Democrats and Republicans) are ignorant of Constitutional law, or you passed a bill you knew was in violation of the Constitution. In either case, you have proved yourselves to be enemies of America, and of freedom. You have become petty thieves, orgiastic proponents of mob rule. Today I am ashamed to call myself an American.

--Dan Edge, Pomona

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This is my letter to Senator Gillibrand.

Dear Senator Gillibrand:

This past Thursday the House of Representatives passed a bill that would impose a 90% tax on AIG bonuses. More than almost any other bill that has been considered in the past year by Congress, this has to be one of the most unconstitutional and unamerican. It is in fact the government's fault that AIG has large amounts of tax payer money to begin with. What common, moral or legal sense does it make to now tax bonuses guaranteed via contract by 90%? This is blatant theft, spurred by recent misplaced populist outrage at bonuses.

If the United States Congress did not originally pass a bailout, and allowed AIG to go bankrupt then the contracts of certain incompetent executives would be rendered null and void. But thanks to the incompetence of Congress, they did not go bankrupt and the executives were saved. Now the House has passed a bill that is in direct opposition to very specific constitutionally forbidden acts of a proper government, bills of attainder and ex post facto law. You are retroactively punishing a select group of men, and worse, you are punishing them because of the incompetence of the government that now regulates and owns them to an extent.

I know that YOU were not responsible for the bailout plan. You have not been in congress for more than a couple of months, and you were put there under very different circumstances. I did not write Senator Schumer. I know what he will vote. I am writing you, because I hope as a newcomer and a moderate that you can ignore the consensus in your party, even in the two parties who pretty much agree on this issue, and you can vote to instead uphold the Constitution and American dignity as the world's example. It is my sincere request that you vote no on the matter of the AIG bonuses, and that you instead defend an individual's right to be free of government coercion and incompetence. You are new to this Congress game, and I hope you make the wise decision now and continue to make them.

All the best.

Signed your fellow American

-Ryan Calhoun.

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At least the GOP in the Senate is having second thoughts about passing the new law against the bonuses of the AIG leadership. They note that not only is it violating the Constitution regard ex post facto and bill of attainer, but that it also violates due process for punishments.

Maybe they are good for something, but I'm not going to hold my breath, since some are already caving in to peer pressure and political base pressure.

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One thing I've learned over the years is that if you are waiting for big business to fight these kinds of battles on principal, you'll be waiting a long time. Most businessmen are pragmatists to the core when it comes to this kind of issue. In one sense it's understandable. They are in business to make a profit for their shareholders, not to change the way the world thinks.

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Some government officials, even in the Obama administration, are beginning to have second thoughts about going after the AIG bonus receivers. They are also beginning to realize that the Obama way of running the government could bankrupt the country in the long run. So, maybe, reality is getting in there to some extent, but a lot of it comes from the anger y protests of people realizing they were violating the Constitution by going after specific people via the Federal tax code.

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I blogged about the 90% retroactive tax (and emailed Senator Voinovich)--and what do I get? A snarky anonymous comment from someone claiming to be an "Objectivist" and complaining about AIG fat cats eating caviar. So I deleted it. :P

But, really, I was expecting *something* like this to happen. The government *always* muscles in and starts dictating to people who take gov't money--it's one of the most effective means of expanding gov't power, after all, and BOTH parties DEFINITELY want to do that. (Hence how very bipartisan the bill was in the House.) From a practical politics standpoint, expressing outrage over the tax is about the only way (now) to fight the creeping fascism inherent in all this gov't interference in the economy.

Of course, we should express outrage about everything else, too.

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But, really, I was expecting *something* like this to happen. The government *always* muscles in and starts dictating to people who take gov't money--it's one of the most effective means of expanding gov't power, after all, and BOTH parties DEFINITELY want to do that.

If you noticed, the government said it was not going to interfere with the day to day operations of the companies they were bailing out. The stock they acquired in their take-overs were supposed to be non-voting stock, and they were supposed to just let the companies recover and pay them back by buying back that non-voting stock. I was wondering if they were just going to step out of the way, as that is not the typical way the government operates. Well, now we have the answer -- the government will try to govern the operations of companies that receive bail out money.

Now, if they tried to do that with, say, Federal tax return rebates, there would be such an uproar because American's by and large still don't want to be told what to do with their money; and yet, by and large they seem to want to government to run the companies they bail out. Welfare recipients even resent being told they can only buy food and not cigarettes with welfare money, so I see it as a double standard. The companies have to be told what to do, but the people receiving funds ought to be free to do whatever they want with government handouts.

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But, really, I was expecting *something* like this to happen. The government *always* muscles in and starts dictating to people who take gov't money--it's one of the most effective means of expanding gov't power, after all, and BOTH parties DEFINITELY want to do that.

I was way too innocent. I've always had a healthy mistrust in politicians, I saw Mr. Smith goes to Washington and wasn't surprised, I know there's a lot of morally awful back-room deals and in the open things the the government does which deserve outrage and disgust over. But I never, ever would have expected that our own United States government would do what it did on the day of the hearing. I feel like the kid who's just been told Santa doesn't exist. My Latin teacher, who I'm good friends with, is a very liberal person, and even he called it a lynching. I just never thought they would stoop to the level where they're holding a show trial I could have sworn was organized by Stalin.

But this is good in once sense - no one can ever, ever complain about McCarthyism. Any time anyone ever mentions this again, say "Well, how can you justify Pelosiism?" Or should we call it Frankism, after Barney Frank? Obamunism describes a political regime, so that wouldn't work... Submit your ideas!

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Obama et al are now seeking to have control over bonus packages of every financial type of business. Private property and the running of private companies is being subdued. This is definitely either socialism or fascism.

And the Secretary of the Treasury says he needs more power to take over other financial firms and insurers.

This is getting pretty scary. Had the Democrats won a very clear unstoppable majority, we would be socialized in a matter of one Presidential term ;)

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