Political Physics: Are You Kid-AIG-ing Me?
a blogumn by Monique King-Viehland
Are you kidding me? How in the hell is it that American International Group (AIG) was allowed to give $165 million in bonuses!
AIG has received $173 billion in U.S. bailout funds, making it the largest single recipient. AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year – the largest corporate loss in history. ??Also adding to the political complications for the Obama Administration is the revelation last week that billions of taxpayer dollars used to bailout AIG was actually funneled to Goldman Sachs and some of the some of the largest foreign banks in the world (e.g., banks, such as Societe Generale in France and Deutsche Bank of Germany, which got nearly $12 billion each). ??
In an interview on 60 Minutes, Federal Reserve Chairman Ben Bernanke said, “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG.” Bernanke continued, “Here was a company that made all kinds of unconscionable bets and then, when those bets went wrong, we had a situation where the failure of that company would have brought down the financial system. I slammed the phone more than a few times on discussing AIG. I understand why the American people are angry.”
Angry? I am way beyond angry! And I am not alone!
According to the Seattle Times, “The disclosure that AIG, which has received $170 billion in federal assistance to remain afloat and avert a cascade of failures in the financial system, is paying bonuses to its executives is the latest in a series of episodes that Obama’s aides said seemed to be feeding a resurgence of public anger.“
According to Reuters, AIG’s chairman, Edward Liddy said in a letter to Treasurer Secretary Geithner that AIG was legally obligated to make 2008 employee retention payments but had agreed to revamp its system for future bonuses after the Obama administration objected. But that does not get our $165 million or the billions they gave to other folks back.
This is an outrage!
Given that the federal government currently owns nearly 80% of AIG, President Obama has asked Treasurer Secretary Geithner to use that “leverage” to pursue every legal avenue to block these bonuses and make the American taxpayers whole.
But in the same series of interviews and news conferences, Lawrence Summers, director of the President’s National Economic Council, said that there was little if anything the government could do to stop them.
But here is a question, given your financial situation going into 2007 and how much money the company has lost, why would you even be considering retention pay and bonuses to begin with?
AIG should never have been allowed to agree to retention pay and/or bonuses (especially for the very same financial geniuses who got them into their current financial situation to begin with). Because now, if those managers are not given the bonuses, they can sue AIG for breach of contract and that only means additional financial burden for AIG.
The fact is we might be out of $165 million, but I’ll be damned if this happens again!
As discussions continue around additional bailouts, stimulus funding, etc., President Obama needs to go beyond the rhetoric about fiscal transparency and responsibility and actually put some legislation, regulations, etc. in place to ensure that we do not have another situation like AIG.
According to a New York Times/CBS News Poll in February, 83% of respondents said the government should put a cap on the amount of compensation earned by executives of companies getting federal assistance. As the national debt hits the trillions and continues to climb, people watch neighbors lose their jobs and homes, governments start enacting furloughs, wage freezes and/or layoffs; people are not going to stand for all the love going to Wall Street when they are sending out money overseas and padding their pockets.
I know that last week was the U.S. stock market’s best week in more than three months. But it is way too early to celebrate.
The unemployment rate in my community is still more than 14%; foreclosures are still skyrocketing; and in May I start a 14-month stint where my pay is reduced by almost 10% because of furloughs. And no one I know is getting hundred-thousand-dollar bonuses.
The response to the AIG bonus situation and the how the Obama Administration will move to ensure these types of things do not happen in the future, are critical for the president.
This is the difference between the public’s opinion of success or failure.