Opinion

The Great Debate

A show trial for AIG?

March 19, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

Republicans and Democrats in Congress, along with President Obama and Treasury Secretary Geithner, have been raking AIG over the coals in hearings and speeches for paying employees bonuses totaling $165 million. But today’s Los Angeles Times reports that the Treasury Department specifically agreed to the bonuses in a 586-page agreement signed on November 25. The deal allows AIG to pay out bonuses for the 2009 year that equal bonuses paid for 2007.

It stands to reason that the contracts to pay bonuses would have been known to Treasury officials a half-year ago, when they reviewed AIG’s financial position before funneling $85 billion into the firm to prevent its collapse. Basic due-diligence scrutiny of the firm’s books would have revealed the contractual obligations to make bonus payments to retain talented staff. What is puzzling is why the administration pretends not to know.

According to documents from AIG, the bonuses are compensation owed to employees under Connecticut law. Under the Connecticut Wage Act, the company said, if the bonuses are not paid, AIG becomes liable for legal costs of employees who try to collect, as well as penalties that could equal twice the bonuses owed. AIG might also leave itself liable to shareholder suits.

Despite the show trial in Congress and the sense of public outrage, it would be unwise for the government to go back on the contracts and sue to recover the money, especially when they agreed to it in November. This could make America resemble Russia, where trumped-up charges are used to prosecute companies that fall out of favor with the ruling elite.

Members of Congress are also discussing emergency legislation to tax away part or all of the bonus. This would set a precedent—corrupting if not unlawful—of using the IRS and the tax code as weapons of the state to go after individuals whom the administration and Congress want to punish. Such sanctions might amount to ex post facto punishment, legislation that makes unlawful behavior that was lawful when it occurred. The Constitution prohibits such legislation. Even President Nixon, who had an enemies list, never dreamed of this.

The wave of public sentiment against the AIG bonuses presents the government with a choice. It can try to run companies that receive bailout funding in a way calculated to win public approval, micromanaging every detail. This is impossible, because the government cannot even manage its own federal agencies efficiently, with episodes of wasted resources surfacing regularly.

Better, the government should get out of the business of rescuing ailing companies. The bailouts have won little support among Americans. In a CBS poll published on March 16, 53 percent of Americans disapprove of the government giving money to banks and financial institutions even as a way to help the economy and only 37 percent approve.

When TARP began in early October, it was supposed to resolve the problems of the financial sector and avert an economic slump. In late September, President Bush warned that if a bailout bill did not pass: “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. “

Even though TARP passed, 28 more banks have failed, the stock market has dropped by almost one-third, and median home prices have declined by 9 percent. It’s natural that Americans have become disillusioned.

The attack on AIG is being used by the administration and Congress to bolster sinking approval ratings and hide the failures to date of the $700 billion TARP and the $787 billion stimulus package, as well as their lavish future spending plans: the $275 billion housing bailout plan, the $634 billion health fund, and higher individual and carbon tax increases. The outrage would be put to better use abandoning bailouts altogether.

Comments
60 comments so far | RSS Comments RSS

Bush and his croonies put us in this mess. Now President Obama has got to find a way out of this mess. My suggestion. Individuals who make less than $ 50,000 a year pay no taxs on anything. People making more than $50,001 pay a gradually taxs of 10% and increments of $50,000 takes you to 10% more until 50% tax rate is reached at those making above $250,000 per year. Instead of giving the banks the money give the people that lost their money through these fraudlent schemes there money back by taking it away from those who have committed the acts. Also lift the rules of investments because individual don’t control what or how they invest. They have to go through some investment firm whether it’s local or internet based. Oh yea get rid of the people who put the company, bank, or etc. In the situation they are in anyway because it they did not manage it correctly the first time what makes you think they will do it the second time around???

Posted by Annette Rusher | Report as abusive
 

How refreshing to read something truthful and sensible in the printed media!
The “side-show” should start examining their own hypocrisy and get back to the
business of representing THE PEOPLE! Thanks you, Diana!

 

I see nothing in the panoply of bailout measures taken to date and yesterdays FED’s decision to pump another $Trillion or so into the credit pipeline that will do anything to restructure the economy. These steps are all pallative, designed to get the Americans spending again — i.e; continuing our addiction to cheap credit and cheap imported goods. When was the last time, my fellow pilgrims, when you bought anything serious Made in America or Made by Americans? Our political leadership is bereft of new economic thinking, our business and financial community spoiled, lazy and corrupt. We’re headed for a prolonged world depression because we can’t stop repesting our self destructive behavior.

Posted by ron nicholson | Report as abusive
 

You blame the administration in this day and age when roughly a year ago, yet the Republican administration also gave them a federal bailout with no strings attached.

It’s funny how your argument consists of this quoted from you:

“Better, the government should get out of the business of rescuing ailing companies. The bailouts have won little support among Americans.”

I would agree to that, but where was the public outcry in this a while ago when the bailouts also happened in the previous administration?

Posted by J. Adamson | Report as abusive
 

But there is one problem with this argument. Didn’t many auto workers agree to a contract last year, and were later forced to have that contract amended once their corporation accepted emergency federal loans? Why is there a double standard between blue collar workers and white collar traders?

So this ‘it would be unwise for the government to go back on the contracts’ is pure bullshit.

 

While the Congress is “Fuming” over bonuses it “didn’t know about” from a partly private company, Fannie and Freddie are getting an apparent free pass to provide the same type of bonuses and even telling us about this upfront. There is no truly private portion of either of these 2 companies which, amazingly enough, have been even greater failures than AIG. This just goes to show that the show trial is exactly that. If the public ever gets angry about Fannie and Freddie in mass, then we should see some more outrage by congress over these bonuses that will come as a “complete surprise.” When Congress gets off its spending high, maybe we can see some real economic improvements.

Posted by Thomas L | Report as abusive
 

The writer is affliated not only with the past neo-conservative government but also with the Hudson Institute. Both are known for their laisse-faire “markets are free” ideology.

Unfortunately the markets are not free, nor they have ever been. Also, Diana has carefully avoided the word “executive” in her writing.

This is not a rational article that presents why the Executives should get the bonuses. It also presents Congress intervention in this lunacy as “micro-management”. A bonus as the rest of us understand is awarded when you are successfull at your job, not when you sink the company to the ground. Since there is no success, and since this money is coming out of taxpayers pocket, there is no “bonus”.

The issue at hand here is disciplining the “Executive Class”. The executives have created for themselves an alternate world, seperate from the rest of the economy. Which would have been fine, but like a parasite they require the rest of the economy to survive.

In no other job would you be utterly incompetent and still get a bonus as stipulated by your contract. While the rest of us are in constant danger of loosing our jobs due to the incompetence of the Executive Class, the Executive Class runs no risk in anything. Who else in our present economic environment can get to make such contracts?.

There has been a regime change, and these guys are going to learn to live the economy as we live it. Wellcome to your new life Diana. Just like the rest of us, you can get fired, jailed or have your income taken away.

No more immunity for the Executive Class, welcome to our world.

Posted by Ron | Report as abusive
 

It is obvious that the last administration left some landmines for the current administration and AIG bonuses is probably just the first one. When we look at the AIG payouts I think we will see the next one. Contracts can be modified. But, I tend to go along with those that say we should not give out anymore bail out money to corporations. As 80% owner of AIG I think the President has the power to fire and hire and restructure the corporation into many smaller entities. It is in an oligopoly, I mean it is a TBTF. And the government has broken up companies before. AIG, even if we allow the bonuses, is still in serious trouble if this administration wants to deal it out.

You know, it would have been easier to swallow if the Corporate Aristocracy would have come out and publicly apologized and admitted they screwed up. But these arrogant corporate executives honestly believe they still deserve compensation for their continued roll in this debacle.

Granted I disagreed with the TARP proposal and I didn’t like the stimulus package which gave to little to the people and created way to few new jobs. I am of the idea that it will take consumer spending to turn us around and that using tax money to temporarily build up the safety nets, create a WPA style of jobs for the unemployed, and make sure people have a place to live other than tents on the outskirts of cities, would have put more money into consumer hands than TARP ever could. Let’s face it business comes and goes. As big business fails, secure wealth buys up the assets and continues on. People, in the meantime starve. Let’s hope this administration stops the show and starts focusing on the People.

Posted by B.Free | Report as abusive
 

We are giving treasury officials too much credit – hah – on their knowledge relating to many issues. AIG demonstrated tremendous audacity approving these bonuses. I want to know which government officials will receive kick backs so these bonuses will go through. I want to know where the pipeline of cash is between the treasury and all of these committees. There is a big pool of cash. The likelihood of abuse is almost 100 percent. So which guy in a suit should be sentenced first. Haul away their friends and family, put them on an island, and let them eat their own offspring. If that is too extreme, fine just take away their bonuses.

Posted by Don | Report as abusive
 

Thoughts:

1. The gov’t needs to keep its word to the AIG folks (including, quash the politico grandstanding just to get the spotlight – and calling for folks to commit suicide – since when is that appropriate??). This practice of going back to punish/reneg on agreements without any regard to legal contracts will only create instabilty in the markets since no one will have any ability to measure the risk of where they put their efforts and assets. The result being everything halts.

2. I have no idea why the popular thought is everyone who is rich caused this and needs to pay. Basically, if the millions of folks who signed documents promising to repay loans for the houses they bought, we would not be in this mess. Both the lenders and the borrowers were off the reservation thinking that housing would go up 10% a year (which it never had) indefinitely (which it never has) – and the unfair result is that everyone who DID NOT partake in the housing market is now being punished for no reason. Agreed however, that the tax system is highly skewed to favor the rich and super-rich and needs to be reformed so its clear (as it was when income tax was first insituted) that the taxes are coming from what can reasonably be deemed amounts folks dont otherwise need to ensure for themselves and their families but can allow for investments which are a benefit for the country as a whole (public free quality schooling for all perhaps???).

3. Pretty sure the auto workers had to change their contracts in order to get the rescue funds in the first place – not that they had to change them after the funds were already given and utilized by auto companies.

Posted by rbsjr | Report as abusive
 

A retroactive breach of a contract is a terrible practice for Congress to endorse. The retention contracts have been public knowledge via SEC filings and the Fed’s status on the AIG Board on compensation committees for almost a year. It is hard to agree with the payments, but much worse to let Congress run grandstand to deflect its lack of oversight. Who believes anyone in Congress actually reads the legislation it votes on?

Posted by rb | Report as abusive
 

You say that we should not appear to be like Russia. Well the hell with that. What has been happening lately across the board is what eventually leads to a government’s demise. It has been said that we are a country of laws. Well I’m sorry, but the hell with that too. It is all of you complacent rule followers that helped to get us into this mess in the first place, by being constantly “nice” and “politically appropriate” with people. It allows “criminals in their coats and ties”(to quote an old Bob Dylan song) to do whatever they want. What this country may end up eventually needing is a dictator. Some of you people need to read your history books.

Posted by Juan R | Report as abusive
 

“But there is one problem with this argument. Didn’t many auto workers agree to a contract last year, and were later forced to have that contract amended once their corporation accepted emergency federal loans? Why is there a double standard between blue collar workers and white collar traders?

So this ‘it would be unwise for the government to go back on the contracts’ is pure bull$#1t.”

Posted by Dhalgren
_____________________________

It’s not double standard, it’s different circumstances.
The UAW contract modification was one of preconditions of the bailout. The alternative was Chapter 11 and, inevitably, the whole contract being completely thrown out by the bankruptcy court. And the bailout was provided in form of a loan as opposed to the government taking an equity stake.
AIG is not in bankruptcy, and evidently no one in the government wants it to go that way, not when the government already owns 80% of its equity and an unsecured loan on top of that. So there’s no legal way for AIG to renege on contractual responsibility to pay the bonuses (please read Diana Furchtgott-Roth’s post again, and carefully, if you didn’t get it), no matter how preposterous these payments look from ethical point of view. Or there wasn’t until the Congress enacted this legislation, to be applied retroactively, and targeting these particular payments. I thought that only the Soviet Communists were capable of such a feat (not even Putin! – he still has to make sure his actions at least on the surface look legit). Doesn’t Congress have anything else to do? And if they legislated this retroactive tax, why don’t they legislate that all bonus recipients must commit Hara-Kiri, as one Senator suggested?

Posted by Anonymous | Report as abusive
 

I wonder how many people in that 53% who do not approve of bailouts took out ‘liar-loan’ mortgages where the house they bought could not possibly be supported by the real income.

I noticed that AIG is still shilling (advertising) it’s insurance products. Perhaps some of the big brains at AIG could have figured out that giving bonuses to people who bankrupted the company is not a good way to inspire confidence among its customers. A contract can be voided if the assumptions underlying it prove to be false, or a material change in the business (i.e. bankrupt status but propped up by government money).

The bonuses were a contract between AIG and its employees. Even the historically myopic UAW is seeing the light and displays a willingness to save something by offering post-contract concessions to the automakers. The bonuses at AIG should be seen in the same light.

I love the 90% tax on bonuses given by companies that receive bailout funds is really going to hurt those guys at Goldman.

Posted by Robert | Report as abusive
 

I think it’s time to systematically go through the list of AIG executives, start freezing their assets and sentencing them for negligence. They can discuss their bonuses after they get out of jail for wonton lack of fiduciary responsibility, improper disclosure of material evidence and conspiracy to commit an organized crime.

Posted by Don | Report as abusive
 

Dhalgren-

Your point is uninformed. The auto worker unions were not forced to renegotiate there loans. The basic premise was the auto companies were told they have to have a viable business plan in order to get $. The companies then went to the unions and said “you gotta help us out, and renegotiate the contract”. They did – but they didn’t have to, the unions just didn’t like the alternative, which is the company goes bankrupt and then the contract is subject to change under bankruptcy laws – a much more painful situation for a union.

I don’t know if there is a double standard, but congress could have put any limitations on “future” bonuses they wanted to, but specifically didn’t – and now is running around like a chicken with it’s head cut off. Congress can pass any law they want, and it seems likely they will with this one – but it doesn’t make it constitutional, and in the end even a liberal court will overturn there purely emotional but pointless legislation on this one… at the cost of our taxpayer dollars…

And, B. Free – this is no leftover from Bush days in any way, as much as that refrain keeps coming up (and won’t wear out any time soon I’m sure)- it’s a home grown, completely self created Obama administration and congress event of there own creation, with much more fun to come I’m sure.

Posted by chan | Report as abusive
 

rbsjr, ever buy a home? Ever hear of a ARM loan? The mortgage companies were on a feeding fenzy with these. Let me tell you why. Rules were changed that allowed motgages to be sold eliminating the risk to the originator. ARM mortgages were sweet since for the first few years all you paid was a low interest and next to nothing in principle. Very attractive to short term investors. Lots of return and the selling point was that it could be converted in a couple of years to a flat 30 year loan. They sold millions. They pushed them on people who really just wanted a flat 30 year to begin with. Couple this with the rating companies giving these mortgages a low risk rating, the Mark to Market accounting change which hit the books hard and the Oil companies stealing over a trillion out of the US economy in just over a year and the housing industry reaching its saturation limit and don’t forget the White House screaming the sky is falling and you have a big PoP! Now it is being fueled by millions losing their job.

Not everyone that signed that document went into default causing the crash. It was the otherway around. Industry greed caused the crash which caused the people to default.

Posted by B.Free | Report as abusive
 

Union of Auto Workers is the reason that auto-makers are in trouble. BLUE COLLAR? $55/hr is not a “blue collar” salary, which is what they agreed to drop the pay minimum to. I am an IT proffesional with a good job and I don’t make near that much. Over-priced button-pushers make for over-priced cars. Simple economics that no one who is pro-Union will ever admit.

Posted by Patrick | Report as abusive
 

I love the way she makes it sound like the Obama administration signed off on the bonuses.

Personally I wouldent expect Bush and Co to have a moral problem with giveing out bonues to a bunch of failures, I mean after all wouldent it all “trickle down” and such?

In short this op piece is a failure….

Posted by eron | Report as abusive
 

After reading another artical on reuters I was struck by how well the following applies to this thread
“…..the United Auto Workers, had to be renegotiated to cut costs. The union agreed, and the question arises: are contracts with blue-collar workers less binding than those with highly-paid derivatives traders?”
Bernd Debusmann

Posted by eron | Report as abusive
 

I agree with much of what this article says (and some of the comments as well). What I feel has been left out, however, is that all the blustering Congress is currently making over the AIG bonus payout is really just a way to divert attention away from all the pork-barrel spending they included in the latest stimulus package.

Posted by R. Anderson | Report as abusive
 

Just remotely curious but didn’t President Obama, Senator Dodd and a whole host of other elected officials receive large sums of money from AIG? Why isn\’t the public clamoring to have these officials return this money back to the public treasury (certainly not to AIG). Speaking of bonuses, what do you call it when you can give your self an automatic raise and not have to answer to anyone and your raise is most certainly not performance based? Stealing in my book. It simply appears that the clear majority of politicians – Democrat or Republican – simply have never had a real job and are ill equipped to make decisions that impact each and every one of us.

Posted by Navarre246 | Report as abusive
 

WOW – Great article Diana! Bush-Obama, Obama-Bush, no one cares how all this started because it doesnt change where we are today. And today, the trillions poured into so-called stimulus has been a disaster of staggering proportion. The public is right – no more bailouts for anyone. The government cant even manage itself, how can the politicians and bureaucrats even pretend to manage private business!

Posted by RH Chea | Report as abusive
 

Glad to see Diana leaping to the defense of wealthy financial executives – the people who need it most. In protest at this most unwelcome intrusion by the public sphere into their affairs, these venerable “captains of industry” should take a page from Ayn Rand and establish an independent republic. I’m sure taxpayers and evil gov’t beauracrats alike would be willing to cede a nice patch of the Mojave desert for just such a purpose.

Posted by John | Report as abusive
 

I would beg to differ that Bush is responsible for this entire mess when it is well known that the fundamental rule change in Fannie Mae that created the housing bubble was made in 1999 by Barney Frank during the Clinton administration. Bush’s crime is that he didn’t do anything to stop it before the policies initiated by the Democrats got out of hand. However, politically it would have been suicidal because had Bush been proactive the Dems would’ve banged their usual drum of Republicans not caring a whit about housing for the poor. On it goes at our expense…

Posted by GLK | Report as abusive
 

Just another case of Congress not having a clue of what they are voting on. One of the best ways to show how little you know about a subject is to get before cameras and spout off before you have had a chance to know all of the facts.
Putting a direct tax on specific individuals as has been put forth by certain folks in Washington shows again how little those folks in Washington understand the concept of basic rights. The tax system was never intended to be used as a punishment or a means to break agreements.
I think we need to consider replacing all of our elected reps in Washington and start from scratch.

Posted by Craig Coal | Report as abusive
 

There is an article, written by a securities fraud lawyer, which outlines, in layman’s terms, how we can use existing laws, already on the books, to sue these big bank executives, including the ones at Goldman Sachs and AIG, and bankrupt them, and more.

The article outlines a method by which societal vengeance can be had against the banksters. It was published today on Seekingalpha.com and it could be one of the most important articles of the year, if people write their Congressmen and bring it to their attention.

It is a MUST READ! Here is the URL:

http://seekingalpha.com/article/126814-w ill-we-see-more-lawsuits-against-the-inv estment-banks

Posted by JohnMD | Report as abusive
 

It is the birthright of the American financial aristocracy to treat the dispossessed, indebted peasantry any way they wish. The pleasures of wealth and power include watching from the high-rise patio as the police gun down the parents as they try to steal to feed their offspring.

Posted by In Dollars We Trust | Report as abusive
 

Congress is not taking it back as agreed in November. But Congress did not agree not to tax it.
Why would tax payers be responsible for bonuses to retain the executives who failed billions of dollars for the investors? Why is it important to retain them, so they can fail again? These greedy people should be in jail. This is financial terrorism against the tax payers.

Congress should take this money and give it back to the unemployed people who really needs it.

Posted by Asm Rahman | Report as abusive
 

I’m not a lawer but it seems to me that if a bankruptcy were filed before the government put money in than the employment contract bonus dispersal of Taxpayer Funds.

Interestingly I had a contract dispute with an employer that called for my payment of $2,500,000.00 and I have been waiting for Five (5) Years for my money. That New York Corporation has been alowed a merger. Personally I do not understand the Double-Standard? If I have to wait for Five (5) Years because of an investigation of an old firm that stole from the government, then why do the AIG employees get their Bonus Money instantaneously with no Civil Proceeding?

I earned my money, in fact it was my only compensation for a 2 year period as I worked for Commissions, the AIG employees had Base Incomes, yet none of them had to wait one day for their money. The US Government has made me wait Four (4) Years and continues today just a day after it Gave $165,000,000.00 to people who quite ‘probably’ have been involved in ['at a minimum'] unethical business conduct and quite possibly FRAUD and Corruption.

What is going on in the US Department of Justice and why such lienency on Corporations and the Double Standards favoring Bankers over all other fields? Is our System of Government to Fragile to prosecute Corruption in systemically important companies? Is that why we just keep flushing money down the toilet into them, to avoid the messy awful coming out in a Civil Court? and finding out ‘heaven forbid’ that we have lots of Criminal Misconduct in Executive Offices in New York City?

I guess like the rest of the nation I find myself asking, [Where's My Money?] Considering that my taxes are paying these AIG Geniuses.

I think the Bonus money was quite simply ‘Hush Money’ to prevent angry employees from becoming Whistle Blowers on what was going on in AIG.

From my experience of the ‘punishment of honesty’ in NYC, it is much better for them to take their pay and shut up as management obviously expects.

‘Well Fed Horses don’t Rampage’…

We don’t want to know what has been going on inside these companies anyway…do we?

The rest of us have to descend into WELFARE before we get help, despite being damaged by the Crimes of Others. Why the double standard for Bankers?

[Why are Bankers 'More Equal' than me?]

I’ve been waiting 5 years. I think the Bonuses of AIG employees should be held in ESCROW for Exactly as long as I have waited. Maybe AIG will turn around in that period of time and that money in escrow could be used to pay some ‘real geniuses’ that figure a way to get AIG out of the mess and not dig a deeper hole to pour our money into.

 

Obama became president on January 20, 2009. Ms. Diana Furchtgott-Roth does not seem to know this fact.

Treasury department under Prsidenr Bush agreed to bonus not Mr. President Obam.
Is Ms. Diana pretending to be ignorant or is really does not have knowlwdge of present history?

I request Ms. Diana to her home work

DIvyang

 

That is a side I hadn’t looked at before. It had not occurred to me that the govt. already knew that the bonuses would be payed out. If this is the case then it is certainly ridiculous now to raise a stink over the whole thing. And if executives at Fannie and Freddie are getting bonus checks (as appears to be the case), then Uncle Sam has no reason to complain.

It’s just a shame. Although it would be painful. It would certainly be a better idea to simply deal with the issue of debt directly. Problem is, no one wants to loose any money. And the people who don’t want to loose this money are the same people who caused the problem. The politicians have a stake in the system as is, so they don’t want to change it either. This problem really isn’t as complex as they make it out to be.

All of this is just smoke and mirrors to keep you angry at one group while the other picks your pocket.

 

The author is again on another planet…
Obama didn’t take over until January not Nov 08…
all prev bets are off….sure..if the money was approved..it was still a MISTAKE..and should be gotten back by whatever means.
On the other hand, those that say NO BAILOUTS to ANYONE…
are extreme if not wrong..even JAPAN is giving loans to Honda and Nissan…so why cut our own industries (auto, etal) short….Low Interest loans WITH CHAINS…not strings attached…ie. no bonuses or goodies for mgmt of bailed out entitities…they can use that money to hire more workers or develop new products…to get our economy out of this rut.

Posted by BSd | Report as abusive
 

Don’t tax it and don’t take it away!

I agree the bonuses were bad for business.

But now that it’s done, our lawmakers are trying to find any loophole to steal it back. Some lawmakers have even said “So sue us.”

The reason it is wrong to take the bonuses back by force is this: Our constitution ensures that, when citizens are abused, the government is supposed to be higher-power that allows redress of grievances. Our gov’t should not BE the one who searches for loopholes in the constitution! We fought a revolution over the redress issue.

These financial crises came from a lack of moral leadership while powerful people grabbed at more money. Now congress, following popular outrage, is also failing to lead, and is taking the low road by grabbing for the money!

Posted by Mike Greene | Report as abusive
 

Ms. Diana Furchtgott-Roth does it again…..

“This could make America resemble Russia, where trumped-up charges are used to prosecute companies that fall out of favor with the ruling elite.”

Lets say you have a child, and that child does something that harms your family name. The primary action was previously approved by you – the parent. By your reasoning, its not proper for you to now go back to your child and correct their error and try to undo the ‘unaccetpable’ part of their actions…..

Come on Diana, that doesn’t fly and you know it….

BTW Diana, American history is chock-full of examples making America resemble (place your favorite demon here) Russia. “…where trumped-up charges are used to prosecute companies (or groups) that fall out of favor with the ruling elite.”

In the words of Daniel Patrick Moynihan, “Everyone is entitled to his own opinion, but not his own facts.”

Get your facts right, then form your opinion…..

Posted by Jim | Report as abusive
 

The author of this article had written another article earlier a few weeks ago about the immigration of “highly skilled” aliens into the US, to boost the US economy. Although even that article was devoid of an intellectually satisfying analysis, after reading this article, I am thoroughly convinced that if this is the standard of “chief economists” from reputed universities in the US, then its better to call the immigrants to take over the education and professional jobs in the US.

Posted by fallenmonk | Report as abusive
 

Jim,

You seem to be making a mistake in terms of what doesn’t fly as logic. If your child does something that harms your family name and said action was approved by you as the parent, then it is quite correct that as a parent you should not attempt to correct your child’s behavior. You must instead accept responsibility for it. Learn from it, and then teach your child what is correct according to reality.

If the government signed off on those bonuses. Then they do not, in fact have any room to complain about them. They have an approval process that they (the congress) must go through before money is handed over. If those bonuses got approved during that process then Uncle Sam is pointing his anger in the wrong direction. He should be mad at himself for allowing it to happen in the first place.

On the one side, the merchant princes of Wall Street sell you a bill of goods, fantasies of prosperity without work, and wealth with no money down.

On the other side you have politicians peddling hope, the illusion of law, and the illusion of fair play.

If there were law, then the ill gotten profits of the bankers would have been confiscated and returned to the markets. And many CEO’s would no longer be in place that still are.

If there were fair play, the common citizen would be given as much attention as the banks. The truth of the matter is that ANY FAMILY IS TOO LARGE TO FAIL. But many will loose there homes. The government and the bankers want desperately to save “The System”, when the only value the system has is in its ability to serve the citizen. Systems can be created and recreated. Families cannot. It may not be the place of the government to care for every family. But it’s certainly not its job to add suffering and strife to them either.

 

Oh and just to reply to a good point made by Divyang Shah.
Even if the president himself wasn’t aware of the bonuses that were approved. It is worthy to note, that congress jumped on it and ran. Many of the congressmen that express outrage may already have been aware of the fact that these bonuses were being paid. Especially democrats sitting on the finance commities.

 

B. Free: Not following you. One person (bank) lends money. Other person (borrower) promises to pay it back. If it does not get paid back, which party is at fault?

Posted by rbsjr | Report as abusive
 

rbsjr,

“One person (bank) lends money. Other person (borrower) promises to pay it back. If it does not get paid back, which party is at fault?”

If the lender knows that the borrower does not have the means to pay back the loan, but still goes ahead and lends, then the lender is at fault and should eat the cost.

If the borrower misrepresents his ability to repay the loan in order to get it, then the borrower is at fault and should eat the cost.

 

The $165 million in retention paid by AIG to employees has been played up to distract our attention from the roughly $50 billion AIG paid to Goldman Sachs, Deutsche Bank, Merrill Lynch, Société Générale, Calyon, Barclays, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, Lloyds Banking Group, and other.

Posted by P. Rankin | Report as abusive
 

“It stands to reason that the contracts to pay bonuses would have been known to Treasury officials a half-year ago, when they reviewed AIG’s financial position before funneling $85 billion into the firm to prevent its collapse.”

* * *

From the website of the Federal Reserve:

Release Date: September 16, 2008

“The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.”

“The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets.”

The NY FED “loaned” AIG $85 Billion to AIG, not the US Treasury.

From the former FED Chairman, Alan (Bubbleboy) Greenspan, during an interview with Jim Lehrer:

Jim Lehrer: “What is the proper relationship…what should be the proper relationship that should exist between a Chairman of the Federal Reserve and a President of the United States?”

Alan Greenspan: “Well… first of all, the Federal Reserve is an independent agency, and that means basically that…uh…there is no other agency of government which can overrule actions that we take. So long as that is in place and there is no evidence that the administration, or the congress or anybody else is requesting that we do things other than what we think
is the appropriate thing, then what the relationships are…uh…don’t frankly matter.”

* * *

“…don’t frankly matter.”

Something is rotten in the state of Denmark, and all anyone can talk about is Hamlet’s shoes.

Posted by Baron von Lufthoven | Report as abusive
 

Ok, my point was that both the Democrats and the Republicans contributed through Policy and Law to the collapse. Even more so did the greed of the Corporate Aristocracy. Are you trying to tell me that the industry didn’t see the housing bubble for what it was? This is not the first time this has happened. They couldn’t see that these instruments they were pushing on the public were going to go south very fast once the bubble burst. I think that is naïve. The Corporate Aristocracy was informed. In their arrogance and greed they pushed forward gambling that the fed would bail them out, if the worst happened. There was precedence.

Now, unless Congress steps up to the plate and provides security to those who are losing their jobs, this depression will drag on. And, the worst is yet to come. I give Obama the benefit of the doubt. He was not pleased with the Democrats in Congress or with the stimulus package but, it appears he felt it was better than nothing. I think Obama has stepped up to the plate. But the Executive office does not hold the purse strings and this depression is not going to be turned by policy. It is Congress’ turn to do the right thing and stop playing games. There are a lot of things that need to be done but number one is to get the money into the consumer’s hands and increase their spending.

It is sad that this commentary seems to defend the Corporate Aristocracy. More than any other group in this country they are the most responsible for the current debacle yet they seem to not only retain their jobs but seem to believe they are entitled to bonuses. The arrogance is absolutely jaw dropping.

Posted by B.Free | Report as abusive
 

Just remember when you are baying for blood via reneging on agreed contracts, if you get what you want in this instance, what is to stop your employees or your Government from doing the same to you?

Posted by nick | Report as abusive
 

This is a joke, right? What exactly do you mean then by “bonus”? A “bonus” for ruining the company and destroying the lives and assets of all the people who trusted AIG? NO! A bonus is only paid for extraordinary and positive accomplishments, not the opposite.

For all who are arguing that the AIG managers must legally be paid are fooling themselves. If they must be paid, then it is a salary and if not a bonus is just like a tip for good service. The US government allowed bonuses for GOOD work, but the nobody would and could successfully argue a bonus should be paid for mismanagement and stupidity!

Posted by Eric | Report as abusive
 

I think any rational moral human being is totally fed up with the pathetic media rhetoric and manipulation about these failed financial monoliths … with CEO saying if denied their bonus $$$ they will jump the Titanic and move to the Hindenburg ,,, this mindless ego crap is what created this global disaster … it is becoming sickening to watch the masquerade of madness.

if the governing bodies don’t get tough and clear out these fools and the trash behind them we’ll see the darkest days the world has ever known.

stop the lies and buck passing please … the solution is easy … cause and effect of actions .

you caused the damage .. no fix … end of game .

bury these fools now .. re-structure and organize before they take us all down … new positive energy to fill the vacuum … I’d say there is a 3 month window to make the changes before a total collapse .

do the calculations .. hard decisions and move quickly … a common consensus on viable salvage or corperate scap yard.

the snow job has come to an end … change or crumble to ruin.

Posted by Harry | Report as abusive
 

Architects of the greatest economic collapse SHOULD NOT be rewarded. Is the world full of fools? You would think so when it concerns the opinions of those who think that breaking the US treasury is o’k. If the US government alongside the FED did not take the stance as the ‘lender of last resort’ all of these firms who have recieved bailout money would be in the same state so Lehmen Brothers, worthless, NO money, NO bonuses. Contracts are NOT enforceable on a bankrupt corporation which has no money. HOW MUCH CLEARER CAN THIS POINT BE MADE? It doesn’t matter which piece of the whole forced the company to be worthless.

It is pathetic to see self labeled ‘white collar free marketeers’…those who place their flag on the ground of private enterprises sovereignty while making claims on public moneys and then ridiculing the acts of government bailouts. Only the baby boomer generation could be so dilusional…perhaps it’s the residual LSD which can concieve and then believe in this crap. With our leaders floundering on articulating why those involved in this fiasco should not only have their rewards stripped away but be thrown in jail as well. Perhaps we should throw the SOB’s in Guantanamo Bay and let our military deal with them. The people responsible for this…who attacked our nations financial sovereignty should be treated as terrorists. Not only should their ill gained rewards be stripped away but an actually PUNISHMENT of these theives should be pursued. When you catch the thief that robs your families grocery store you don’t merely take the money back and say all is forgiven and let them go…this is a lesson that teaches the thief to rob you again.

Posted by Craig Teuber | Report as abusive
 

Benny

Only partially right.

If the borrower does not repay, the lender takes the collateral and then sues the borrower for repayment of any shortfall. If the lender cannot recover the shortfall from the borrower (whether by statute/law or if the borrower is insolvent) THEN the lender eats the cost.

My point being that I’m not seeing any members of the public acknowledging that if the borrowers paid the debts as they promised, there would be no crisis.

Posted by rbsjr | Report as abusive
 

People are sensitive to terms like “retention bonus” when I think most of us really do not want these people retained. Also keeping in mind that the average American is struggling to survive, forcing them to subsidize these executive bonuses – to support people some regard as borderline criminals – is inappropriate. Since nobody has already done the obvious, I will go ahead and draw the parallel here as per the Great Depression when people like Ford blamed certain ethnic groups within the banking industry for conspiring to bring the United States and world governments to economic collapse. I feel a lot of these executives might not be criminals or conspirators but just total halfwits who should nonetheless be held responsible for their actions. What is criminal however is their inability to accommodate public sentiment while they press for their contractual entitlements. Nobody said that they are entitled to be subsidized. So it is correct and proper for the government to claw back the payout. Everybody is working very hard to demonstrate a lot of maturity and decorum this time around. But there are these pockets of resistance that can’t seem to get into the program. There is a Japanese saying that the nail that sticks out will be hammered down. My advise to those in the financial industry including regulators and those in the treasury is to blend with public sentiment and accept the fact they must suffer like everybody else. Even more so. Because they caused all of this.

Posted by Don | Report as abusive
 

rbsjr

I do see your point. And you are quite correct on this. There is another piece to this however. Not only should borrowers have repaid. But lenders also should have been wiser in their lending decisions. Granted the government used law to force institutions to make riskier loans. This whole fiasco is the result of a glorious blending of foolish ideas.

The merchants thought they could just keep sucking money out of the masses for ever. The masses thought that they could just keep borrowing and spending for ever.

The “regulators” were content with giving only the appearance of security without actually doing any work. And the politicians create rules that stifle entrepreneurship and support the current market structure. The government should not engage in attempting to shape the markets. Their job is only to make sure that sound business practices are being upheld in the markets, and that fraud and other such activity is removed.

In this, their failure has thus far been exquisite. I’m only 37 years old myself. And in my lifetime have yet to a greater degree of cluelessness. Past foreign policy excluded.

 

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