Aig Bonuses

[Nihil Obstat]

[url="http://money.canoe.ca/News/Economy/2009/03/18/8797501-ap.html"]90% tax rate on bonuses?[/url]

[quote]By Tom Raum, THE ASSOCIATED PRESS

2009-03-19 21:05:00







WASHINGTON - Denouncing a "squandering of the people's money," U.S. lawmakers voted decisively Thursday to impose a 90 per cent tax on millions of dollars in employee bonuses paid by troubled insurance giant AIG and other bailed-out companies.

The House vote was 328-93. Similar legislation has been introduced in the Senate and President Barack Obama quickly signalled general support for the concept.

"I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated," the president said in a statement.

House Speaker Nancy Pelosi (D-Calif) told colleagues, "We want our money back now for the taxpayers. It isn't that complicated."

The outcome may not have been complicated. But the lopsided vote failed to reflect the contentious political battle that preceded it.

Republicans took Democrats to task for rushing to tax AIG bonuses worth an estimated US$165 million after the majority party stripped from last month's economic stimulus bill a provision that could have banned such payouts.


"This political circus that's going on here today with this bill is not getting to the bottom of the questions of who knew what and when did they know it," said House Republican Leader John Boehner of Ohio.

He voted "no," but 85 fellow Republicans joined 243 Democrats in voting "yes." It was opposed by six Democrats and 87 Republicans.

The bill would impose a 90 per cent tax on bonuses given to employees with family incomes above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses issued since Dec. 31.

The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the political will is there.

It was only this past weekend that the bailed-out insurance giant paid bonuses totalling $165 million to employees, including traders in the Financial Products unit that nearly brought about AIG's collapse.

AIG has received $182.5 billion in federal bailout money and is now 80 per cent government-owned.

Disclosure of the bonuses touched off a national firestorm that both the Obama administration and Congress have scurried to contain.

In a statement issued by the White House late Thursday, Obama said the House vote "rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat."

"In the end, this is a symptom of a larger problem - a bubble-and-bust economy that valued reckless speculation over responsibility and hard work," he said. "That is what we must ultimately repair to build a lasting and widespread prosperity."

In his statement, Obama did not explicitly endorse the House bill. Instead, he was careful to take a wait-and-see attitude on the details of the final legislation while making clear that he supports the effort to get the bonus money back for taxpayers.

Topic No. 1 raised by Republicans during the House debate was the last-minute altering of a provision in Obama's $787-billion stimulus law to cap executive compensation for firms receiving government bailouts.

The measure might have forestalled payment of the AIG bonuses.

But Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat and the author of the provision, says the administration insisted that he modify his proposal so that it would only apply to payments agreed to in the future.

That, critics claim, cleared the way for the AIG payouts.

"The idea came from the administration," Dodd said Thursday

Dodd said he was not aware of any AIG bonuses at the time the change was made.

Treasury Secretary Timothy Geithner confirmed such conversations with Dodd. He said the administration was worried about possible legal challenges to the provision.

"We expressed concern about this specific version," Geithner said in an interview with CNN. "But we also worked with him to strengthen the overall bill."

The treasury secretary, who has been criticized for not learning of the AIG bonus payments sooner since he helped orchestrate the bailout last year as president of the New York Fed, said anew in the interview that he was not informed of the bonuses until last week.

"And as soon as I heard about the full scale of these things, we moved very actively to explore every possible legal avenue to address this problem," Geithner said.

A similar - but not as punitive - bill to recoup bonus payments with taxes was gaining support in the Senate.

It would impose a 35 per cent excise tax on the companies paying the bonuses and a 35 per cent tax on the employees receiving them. The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG.

"This is not just another case of runaway corporate greed and arrogance, ripping off shareholders by excesses lavished around the executive suite," said Rep. Earl Pomeroy, D-N.D. "These bonuses represent a squandering of the people's money. ... Starting right here, right now, we are saying no more."

The Senate measure is sponsored by Senator Max Baucus of Montana, the chairman of the Senate Finance Committee, and the panel's senior Republican, Chuck Grassley of Iowa. It was expected to be brought to the Senate floor next week.

Meanwhile, New York's attorney general, Andrew Cuomo, said AIG has given him the list of employees who received a total of $165 million in retention bonuses.

Cuomo said he won't release any employees' names until his office has answered any security concerns raised by the AIG employees.

He also said he will work with AIG in the coming days to determine which workers have decided to return the payments.

Cuomo had sought the names from AIG chief executive Edward Liddy through a subpoena. The deadline was Thursday.

Separately, Connecticut's consumer protection division also subpoenaed AIG, demanding that the contracts and names of employees who received the bonuses be provided by March 27. Gov. M. Jodi Rell has said she wants the division to determine whether the bonuses can be voided under the Connecticut Unfair Trade Practices Act.

AIG's financial products division is headquartered in Wilton, Conn.

Connecticut Attorney General Richard Blumenthal says his office also demanded the bonus recipients' names and the amounts.

About 400 AIG employees and future employees received bonuses, but not all of them earned over the $250,000 family income threshold specified by the House bill.

Obama administration special envoy Richard Holbooke was on AIG's board of directors in early 2008, when the insurance company committed to the bonuses, and during the previous years of aggressive investment strategies that brought the firm to brink of collapse. White House spokesman Tommy Vietor said Thursday: "Mr. Holbrooke had nothing to do with and knew nothing about the bonuses."

While the House legislation calls for a 90 per cent tax, Representative Charles Rangel, (D-N.Y.), chairman of the tax-writing House Ways and Means Committee, said he expected local and state governments to take the remaining 10 per cent of the bonuses.

Rangel said the bill would apply to mortgage giants Fannie Mae and Freddie Mac, among others, while excluding community banks and other smaller companies that have received less bailout money.

"The American people demand protection and that's what we're doing today," he told the House.

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The bill is HR 1586

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Associated Press writers Stephen Ohlemacher and Julie Hirschfeld Davis contributed to this report.[/quote]

Edited March 20, 2009 by Nihil Obstat

[CatherineM]

What I loved about the bonuses, is that the company calls them retention bonuses. That they can't keep quality help without the bonuses. 11 of these bonuses went to people who no longer work at the company. Besides, if these guys are such great financial geniuses that it takes 6 million dollars to keep them on the payroll, then why is the company just about bankrupt?

[KnightofChrist]

Congress allowed these bonuses via a Provision of the Bill which no one read, that just had to pass for the sake of everything!

This is bull, Congress is committing some type of grand theft and not to mention hypocrisy and stupidity.

Edited March 20, 2009 by KnightofChrist

[eagle_eye222001]

Government is soooo better left letting businesses run their course.

If a company is headed by idiots......the government should let them die off.

----------------
Listening to: [url="http://www.foxytunes.com/artist/3+doors+down/track/kryptonite"]3 Doors Down - Kryptonite[/url]
via [url="http://www.foxytunes.com/signatunes/"]FoxyTunes[/url]

[Nihil Obstat]

Rofl!

[url="http://www.xkcd.com/"]Bailout cartoon, xkcd.[/url]

[cmotherofpirl]

[quote name='KnightofChrist' post='1812076' date='Mar 20 2009, 01:55 AM']Congress allowed these bonuses via a Provision of the Bill which no one read, that just had to pass for the sake of everything!

This is bull, Congress is committing some type of grand theft and not to mention hypocrisy and stupidity.[/quote]
You seriously don't think any Congressman has read the croutons they vote for do ya?

[kenrockthefirst]

What kind of bonuses would they have received if the government let AIG go belly up? Oh, right, NONE.

[homeschoolmom]

I think if Congress wants to publish a list of those receiving bonuses (which I understand they do), it should be coupled with a list of Congress members who received contributions from AIG and Citi. etc.

[add]

McCarthyism is AIGism

[Paddington]

They'll just have to make the bonuses 10x bigger in the future.

[Sojourner]

[quote name='CatherineM' post='1812055' date='Mar 19 2009, 10:37 PM']What I loved about the bonuses, is that the company calls them retention bonuses. That they can't keep quality help without the bonuses. 11 of these bonuses went to people who no longer work at the company. Besides, if these guys are such great financial geniuses that it takes 6 million dollars to keep them on the payroll, then why is the company just about bankrupt?[/quote]
Because in its infinite wisdom, the federal government pushed banks to make risky mortgages available to people who historically would not have qualified, and these mortgages went belly up in record numbers.

The failure of AIG really has little to do with salespeople's abilities. It has more to do with the company's recent entry into the credit default swap market. For a good summary of what happened, see [url="http://www.npr.org/templates/story/story.php?storyId=94748529"]this link.[/url]

For my .02: The administration (and [url="http://www.cnn.com/2009/POLITICS/03/19/aig.bonuses.congress/index.html"]some members of Congress)[/url] DID anticipate this situation, and opted to go ahead allowing these bonuses. It was only after the outcry (which is really economic envy) began to manifest that people started claiming ignorance.

These bonuses are CONTRACTUAL OBLIGATIONS the company made, and the government gave help with knowledge that they existed. Now, to go back and try to tax them into oblivion -- it's hypocrisy.

From my understanding, these bonuses were tied to performance goals, and once those goals were met the bonuses were to be delivered. I don't think we should be urging government to force companies to dishonor their contractual obligations to employees, even if those employees are well-compensated. That sets a bad precedent.

[homeschoolmom]

[quote name='Terra Firma' post='1812311' date='Mar 20 2009, 01:24 PM']Because in its infinite wisdom, the federal government pushed banks to make risky mortgages available to people who historically would not have qualified, and these mortgages went belly up in record numbers.

The failure of AIG really has little to do with salespeople's abilities. It has more to do with the company's recent entry into the credit default swap market. For a good summary of what happened, see [url="http://www.npr.org/templates/story/story.php?storyId=94748529"]this link.[/url]

For my .02: The administration (and [url="http://www.cnn.com/2009/POLITICS/03/19/aig.bonuses.congress/index.html"]some members of Congress)[/url] DID anticipate this situation, and opted to go ahead allowing these bonuses. It was only after the outcry (which is really economic envy) began to manifest that people started claiming ignorance.

These bonuses are CONTRACTUAL OBLIGATIONS the company made, and the government gave help with knowledge that they existed. Now, to go back and try to tax them into oblivion -- it's hypocrisy.

From my understanding, these bonuses were tied to performance goals, and once those goals were met the bonuses were to be delivered. I don't think we should be urging government to force companies to dishonor their contractual obligations to employees, even if those employees are well-compensated. That sets a bad precedent.[/quote]
Exactly...

[CatherineM]

Getting out of contractual relationships is one of the main reasons that businesses go into Chapter 11 bankruptcy. They can re-negotiate union contracts, leases on properties that are now worth less, get out of contracts with suppliers when they can find cheaper elsewhere, you name it. Armstrong flooring went into chapter 11 years ago with a very good bottom line because they were the subject of a class action asbestos suit.

I agree that the mortgage mess caused a lot of this. Where I used to live in St. Pete, it was practically ground zero for mortgage fraud. Just because the government says you can loan money, or should loan money to someone who can't pay it back, doesn't mean you have to. My Florida bank didn't get into sub-par loans, and is now fine. The bailout was to prevent companies from going into bankruptcy because of the fear that would domino.

One thing I learned in law school is just because a contract has been signed doesn't mean that it is valid in concrete. It's not a sin to default on a contract that is against "public policy." As an example, a court in Quebec recently refused to allow a woman to adopt a baby that had been contracted through a surrogate. Surrogate contracts are against the law in Quebec, and they were trying to circumvent that by having the surrogate mom give up the baby for adoption to her paying customers. You also can't enforce a contract for an illegal gambling debt. That's basically what these Wall Street firms do is a form of gambling. If you read the contract these bonuses were based on, you will find that they could get bonuses even if they made a $250,000,000 loss that year. Those contracts were basically permission to steal from investors. Now the investor is the US taxpayer, and they have to right to say no to a contract that is illegal on its face.

[txdinghysailor]

Yes they should be allowed to keep their bonuses. Two Reasons:

1) I believe that it is un-Constitutional for the government to meddle in the affairs of business in this matter. I do not believe taht the Constitution authorizes the federal government to give subsidies to companies and banks to prevent their collapse. If the companies collapse, it's their problem. As for the people who had money invested in those businesses, too bad. They should have known better and/or ensured that the companies were run properly.

2) When I become an executive I want to make sure large bonuses are still the norm. I'm a greedy capitalist pig and I'm proud of it!

[Madame Vengier]

These bonuses are stomach-churning. I literally get a pain in my chest with I read about this madness.

That said, Obama and his people let it happen because they don't have the first clue what they are doing.