The announcement of bonuses at AIG has triggered a firestorm of protest, and brought a strong condemnation from President Obama. From the Wall Street Journal;
“This is a corporation that finds itself in financial distress due to recklessness and greed,” Mr. Obama said Monday, his voice rising in anger. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay.”
Despite the President’s anger his Administration has sent mixed signals on this issue, with Larry Summers over the weekend telling us that the sanctity of a contract prevented any government move to block the bonuses. I believe Larry Summers is a brilliant guy, but the line of nonsense he put out Sunday was appalling. When you drop the billions in that the U.S. government has dropped in you can do anything in this area that you need to, including telling the company that those contractual obligations must go as part of the bailout.
And despite the Administrations position these bonuses will be paid, with the government now saying that it will recoup bonus money in the future by leveraging additional bailout money.
Instead, the administration said it will use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear on AIG. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG’s contract to ensure no government money goes toward paying financial-products division bonuses. The cost of bonuses already paid would be recouped for the taxpayer.
Both sides of the aisle expressed opposition to the bonus payments.
The Senate Banking Committee’s top Republican, Richard Shelby, said the government’s handling of AIG is compounding the negative sentiment toward more rescue money. “There’s been no accountability, no transparency to speak of,” he said in an interview. “Whatever we’ve gotten…we’ve had to extract it piece by piece, little by little. There’s too much secrecy.”
House Democrats also responded.
On Monday, nearly 80 House Democrats wrote Mr. Obama to say they were pleased that he intended to block the bonuses, and hinted that a failure to do so would have consequences. “For the sake of the President’s ability to continue to take the steps that may be necessary to rebuild our economy, there must be a stronger response than simply decrying this development,” the lawmakers wrote.
The Administration is clearly worried about a brain drain, but just does not want to say that because of the outrage over these bonuses.
But administration officials also worry that taking too hard a line with AIG and other companies could discourage top financial experts and institutions from joining the government efforts to fix the financial system. That’s one argument that AIG itself has used to justify the bonus payments: that if certain executives leave at this point, their departures would complicate efforts to wind down the financial-products division.
The unit’s books contain many transactions that are “difficult to understand and manage,” according to an AIG document explaining the retention plan the company submitted with the Saturday letter to Mr. Geithner. “This is one reason replacing key traders and risk managers would not be practical on a large scale,” the document continued.
There is some validity to that concern, but it still does not justify these bonuses. Once again a tin ear to public concerns over taxpayer monies being used inappropriately has come back to bite. Tim Geithner better sharpen his game.
Bill Manzi.com 
Your Honor,
Are you outraged? I’m outraged.
I’m outraged that this amatuer President has been handing out billions of dollars without a clue, and got taken to the cleaners by AIG.
I’m outraged that the only person among a population of 340 million people who could be Secretary of the Treasurer (tax cheat) could not do due diligence before delivering billions of dollars to AIG.
I’m outraged that Barney “the coward” Frank could not write legislation that sets conditions for AIG to receive billions of dollars.
The is not the first time one of these financial companies has handled it’s bailout money badly.
This President hasn’t shown he has the stuff, and the best is yet to come.
You did some it up nicely in the last sentence, “Once again a tin ear to public concerns over taxpayer monies being used inappropriately has come back to bite. Tim Geithner better sharpen his game.”
Jules
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Jules,
You’ve expressed more outrage in the past 56 days than I’m betting was expressed by you in all of the preceding eight years. Coincidence?! 😉
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Jules,
A couple of points.
1)As you see I am willing to criticize a Democrat. That is in stark contrast to your unwillingness to admit the slightest error on the part of Republicans.
2) In this case I think Geithner did not serve the President well, because he should have known about the bonuses and worked to stop them. But lets be clear here. The first two big loads of money were delivered to AIG in November and December of last year, under George W. Bush and Hank Paulson. It was the Bush Administration and the Bush Fed that devised the “rules of the road” governing how this money could be used. So I feel safe in being somewhat critical of Geithner, but I absolutely condemn the Bush economic stewardship, which you have continually defended, and the Bush application of TARP I. His incompetence knew no bounds.
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Jim,
Was that you who slammed the phone down on Todd Feinberg? The captured that one and use it daily.
You sounded outrage that day.
Jules.
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Your Honor,
1. Once again you are wrong. How many times have I said we got our comeuppance in the last election and deserved it. I said that many times in this blog. I do respond to your consistent criticism even when they are out of office.
If you don’t believe me, I will search the blog and pile all the self criticisms into one entry. Just let me know.
2. Now you are trying to slither out of this. Absolutely nobody agrees with you as to Bush’s culpability. All the sympathetic media lays the blame at Obama’s management of the dispersal.
I stand by my statement above. After all Obama gave the extra bailout just a short time ago.
Jules
I still believe your guy hasn’t a clue.
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Jules,
As a conservative Republican I know that you hate to let the facts get in the way of a good political opportunity but you did not address my main point that the first two loads of money were delivered to AIG during the Bush Presidency. You further ignore the point that Hank Paulson devised the rules of the road governing what could and could not be done with the money. Instead of agreeing with my criticism of Geithner and adding your own criticism of the Bush bungling of TARP you just try to make it partisan. That is why despite your protestations that you criticize Republicans you never really do so without saying the Dems are worse. The criticism always has a catch.
Bill
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Mr. Mayor:
Remember your audience: it’s unfortunate, but Republicans for the last, oh, let’s say 15 years or so have only really spoken to the political side of an argument, the policy arm is non-existent (Read Scott McClellan’s book if you don’t believe me). It’s not about being correct, it’s about winning. There’s a not so subtle difference.
In fact, if Jules were consistent to conservative principle, you would have expected him to defend the free market and no government intervention, especially in the salary terms of an employment contract, otherwise, he’d be advocating socialism and government controlled wages. I know I did.
I, on the contrary, defend the payment of the bonuses as long as they were made legally: if their employment contracts say they’ve earned that amount of money, then by all legal rights, they’ve earned it. The government hasn’t taken over AIG, it’s merely loaned them (a whole pile) of our money. If AIG collapses, then we can zero out our investment and there will be no stopping the collapse of the world’s financial markets. If they survive, then our loan gets repaid, with interest.
What they were engaged in is understood by very few, and most of them sit within the walls of AIG itself, so the better part of valor would be to leave those people in place to unwind the damage they caused. When they are done, then start putting together banking regulations so that it doesn’t happen again. You may be outraged that millions of dollars of bonus payments are being made, but I haven’t yet heard that what they’ve done isn’t legal (I’ll change my mind only if I hear this).
Compare it to the tens of trillions that will be lost if the markets fail, and it doesn’t look so bad after all. I think we need to hold our collective noses and get over it. I don’t think we are anywhere near the bottom of this recession/depression thing, the past week of Dow results notwithstanding.
The administration has twice made this mistake of going populist when a simpler, more direct, more measured solution is available: if you want to reduce the level of executive pay in this country, then use tax policy and reinstitute higher tax brackets. Voila, problem solved, no muss (but I’m sure loads of fuss). I’d like to think that the administration is stoking anger to get the country in the mood for these changes, but I won’t hold my breath (stunningly well played if true, though).
I just listened to Chuck Grassley of all people suggesting that executives at AIG commit hari-kari, and take responsibility just like the Japanese might. I couldn’t help but burst out laughing: a Japanese executive makes 20x the average workers salary, where in the US, they make over 340x average. Spare me, please. Responsibility to what, or to whom, exactly, Chuck? The morality argument left the building when capitalism went global. Maybe now people will wake up. Still not holding my breath.
-FM
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Your Honor,
I say the Democrats are worse because it’s a fact. How can you dispute that.
A little AIG facts.
1. You are right about TARP I, Bush, Paulson, et. al. I did not approve of the bailout in TARP I nor the panic mode exhibited by Paulson
2. Addressing the AIG “outrage” issue, the money was approve in February and release in early March by Geitner. Geitner knew the bonus rules in February. As I understand it, Chriss (I got a wet kiss from AIG on my mortgage) Dodd put a proviso that protected any bonuses in force for this 30 billion dollar bailout transfusion. His protestations are hypocrtical.
This is just real incompetent management by the OBAMA (I got $150,000 from AIG) team.
At this point the Republicans are left standing on the sidelines, just like in Massachusetts.
I got one question, are you satisfied with the competence of President Obama and his team? Are you satisfied with the performance of the Democratic elected senators and congressmen? Is the country now going in the proper direction?
Jules
Jules
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Jules,
You keep confusing me with somebody who has the time (and desire) to sit around listening and dialing in to talk radio all day.
Outrageously, I don’t. Hopefully you’re not too disappointed… 😦
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Jim,
Your not Jim from Methuen?
Jules
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Your Honor,
Here’s the word:
In a late night meeting behind closed doors, The President, Senate and Congress stripped the bonus elimination prevision and replaced it with the Management pay limits. The Obama Administration blew it.
Check it out.
Jules
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Your Honor,
This Libby hearing is looking like a McCarthy hearing. The congress is abusive.
Good show.
Jules
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“Washington is all in a tizzy and everybody is pointing fingers at each other and saying it’s their fault, the Democrats’ fault, the Republicans’ fault,” he said at a town hall meeting Wednesday. “Listen, I’ll take responsibility. I’m the President.”
A leader not afraid to take blame. How refreshing!
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Jim,
It is admirable that the President Obama accepts the blame. However, in just 3 months into a 4 year he has taken the blame too much.
When is he going to get it right? After all he is the agent of change sent from heaven to save us.
Is he an Apprentice President?
Jules
Jules
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Well Jules, I suppose rather than taking the blame for his administration missteps, he could try to deflect it first by commending Geithner on “…doing a heck of a job” (ala Katrina) before then firing his ass…
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Well, Jim,
I see you jumped right into BDS. This time it’s going to backfire. You see Barack Obama has already said he has “complete faith in Geithner” before getting on a plane to fly to the Jay Leno show where he will say, the buck stops here.
By the way, “complete faith” is a term presidents use before firing someone’s butt.
No matter how many times you try to deflect the conversation, your guy is still an amateur screw up.
This is bad when he is trying to mimic FDR.
Jules
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Jim:
Completely off topic, but how did the job fair work out?
-FM
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Fred,
Thanks for asking, that worked out to be long lines for some quick face time with HR guys/gals who took little more information than your resume.
HOWEVER!!! I had an interview at a defense company prior to that fair, and a 2nd interview the week of that fair for which I had a job offer extended to me and that I should be starting at on 3/30 assuming drug screening, consumer background and security clearance checks all work out OK. I’m not sure if I might be on the terrorist watch list for my liberal (socialist) leanings…other than that, it should work out OK. 😉
Salary wise only 5% less salary than I made at my last job!! Believe me when I say how lucky I feel after only three months out to land a comparable job but in a field at which I have minimal expertise…the gods were with me.
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Oh, my, what have we here Jules?! Is it any wonder now, why bush is mso silent?
“President George W. Bush’s administration “specifically contemplated” paying bonuses to American International Group Inc. employees in its November agreement to provide federal bailout funds to the insurance giant, the inspector general for the Troubled Asset Relief Program said today. ”
http://www.bloomberg.com/apps/news?pid=20601110&sid=aBwUb_K6GQ7s
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Jim,
I’m glad for you. If you want a reference have some call me. After all, it isn’t against the law to be a socialist.
Good luck.
Jules
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Jim:
Well done, my friend … good luck on the new job!
-FM
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Thanks guys. I’m looking forward to once again becoming a gainfully re-employed liberal ‘socialist’. 🙂
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Jim:
You bet! Someone has to pay for Jules’ Social(ist) Security!
-FM
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