There's no better way to introduce this, so I'll let the news account speak for itself:
Sunday, March 15And you thought Jon Stewart got vicious on Jim Cramer? Pfft. That was ineptitude; this is unmitigated -- but duly litigated -- gall.
WASHINGTON (AP) -- American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars.
If you're not up on the details here -- or if economics tends to bring on the glassy-eyed stare, like it does to me -- let me brief you on some of the appalling statistics at work here.
The economy's been tanking for awhile. (Okay, you knew that.) The government started shoveling bailout money to some of Wall Street's biggest players last fall, trying to shore up credit markets and restore confidence. A few weak voices suggested it wasn't the wisest course of action, given that these banks and investment companies were the source of the problem to begin with, but conventional wisdom overruled their objections; the system was simply too entrenched to change things so radically. "We'll straighten things out after we're back on our feet," was the chorus from Wall Street.
So then the bailout checks started sailing out, but it was a remarkable number of weeks before anyone bothered to ask, "Exactly WHERE is all that money(about $700 billion) going, and what's going to become of it once it gets there?"
The financial sector replied, "Trust us." Washington replied, "Have you seen my new dress for the inauguration?" But more on this in a minute.
A few weeks passed by, during which very little happened beyond thousands of more workers being laid off at companies across the country, the Dow Jones plummeting 25% from its level at the start of the year, and a bunch more bailout checks getting posted. And that brings us to March, and back to AIG.
On March 4, CNN.com ran a feature story on AIG's PR machine, which employs four separate agencies to try and spin the company's image to both shareholders (there must be some, still) and the public. As of that date, AIG had just received its FOURTH bailout check. But as the story illumined, the weight of the situation still wasn't sinking in. The story quotes AIG's chief restructuring officer -- the woman who's supposed to be in charge of getting things fixed -- as saying that it might be "better to go to jail" than deal with the crisis.
"Better to go to jail"? Is that admitting culpability in something that could be considered grounds for incarceration? Or was it just an ill-timed Freudian slip?
But, as they say on TV, that's not all.
See, just two days before the feature on AIG's PR woes, there was another story: AIG announcing a quarterly loss of $61.7 billion. That's a record, folks. No other company in history has ever lost that much money in a three-month span. Ev. Er.
And yet, the government had just handed AIG's chief restructuring officer (and her colleagues) a check for $42.5 billion or so, to spend as they saw fit, with little more than "trust me" as a guarantee.
So, back to wondering where the money goes. On March 9, Fortune/CNN ran a story about the vice-chairman of the Federal Reserve, Donald Kohn, and his reticence to give up the names of subcreditors that stood to benefit from AIG's share of the bailout -- the literal passing of the buck, as it were. According to the article, The Wall Street Journal had a list of 25 counterparties...but Fortune came up with a different list of 15 names. It wasn't until today that AIG finally coughed up its own list, revealing that a considerable percentage of the money went to foreign banks. A press release stated that the company "recognizes the importance of upholding a high degree of transparency with respect to the use of public funds."
Is this a sudden realization? A brief ironic interlude now, courtesy of AIG's web page on Corporate Responsibility, last updated 6/22/07:
Since our founding nearly a century ago, the AIG Companies (Collectively "AIG") have focused on being a leader in corporate social responsibility. As a global financial services organization, we have committed our resources to developing products and services that address the needs of our clients as well as promote a corporate culture that values integrity, diversity, innovation and excellence.I'll bet Enron had a statement like that, too.
AIG recognizes that its investments in support of our customers, employees and the communities in which we operate are critical to our success. AIG’s ongoing efforts to be an outstanding corporate citizen and promote responsible and sustainable business practices are essential to our long-term business objective of creating value for our shareholders and serving the interests of our clients.
So now it's Sunday afternoon, and the news and the fury is spreading over airwaves and the net about AIG's bonus payouts.
Undoubtedly spurred on by its four-headed PR machine (and a chastisement from Treasury Secretary Timothy Geithner), AIG has already pledged to cut its bonuses for 2009. Well, somewhat:
The company says in [a white paper prepared as a response to inevitable backlash regarding the bonuses] it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30 percent.For the record, that would be 30 percent of "about $165 million of previously awarded 'retention pay' to employees [plus] another $55 million in retention pay [which] has already been distributed." There would also be "$9.6 million in bonuses scheduled to go a group that covers the top 50 executives."
That's "about" $230 million, total. A mere fraction of the $170 billion that AIG's already slurped up from federal coffers.
I came into writing this column full of indignant fury, prepared to demand, at the very least, that AIG's bailout money be reduced by the amount of its bonus payouts. But the more I stare at the numbers, the more I realize how irrelevant that is. Not even a quarter of a billion dollars at stake. Would it hurt them so much? Would it impact their counterparties one whit? Given the kind of figures that get tossed around the world of international finance, probably not. Washington can't adequately punish AIG without the rest of the global economy suffering. To quote from a Reuters article from last week, "AIG has been described by the United States as being too extensively intertwined with the global financial system to be allowed to fail."
In the end, all we can do is shake our fists. AIG and its cohorts have Washington -- and by extension, the rest of us -- by the short and curlies. The bonus payout is, despite AIG Chairman Edward Liddy's earnest statements that "[our] hands are tied" (under threat of litigation) and that he personally found it "distasteful and difficult" to issue the checks, nothing more than another PR bruise on a company that's learned to wear them like battle scars.
Of course, just because Washington can't do anything, it doesn't mean that the public's voice can't be heard. The guilty party in this deal is AIG's Financial Products division, "the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer." That's right: the ones getting all the rewards are the ones most to blame for the morass. Feel free to let them know how you feel.
AIG Financial Products Corp.
50 Danbury Road
Wilton CT, 06897
Toll Free: 800-248-SWAP
If the media is the eye on the world, Russ Carr is the finger in that eye. Tune in each month to see him dispersing the smoke and smashing the mirrors of modern mass communication. The world lost Russ on 2/7/12, but he lives on.
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IF YOU LIKED THIS COLUMN...
3.18.09 @ 10:46a
Yeah, I've been thinking about the big numbers. And I've been thinking about people on both sides of the aisle in Washington getting indignant over the big numbers. Especially in light of the really big numbers.
When the Republicans cried about pork in the stimulus bill, and that list came out regarding the parts of the spending that they considered wasteful, it came to something like $12.5 billion. Which seems like a lot. Except that we were talking about a $900 billion package. No one really thought about it at the time, but the Republican objections came to about 1.4% of the original bill. Put in that light, it's not really that much.
Same with the bonuses. $230 million compared to $170 billion? Sure, it's annoying, but even if the government did succeed in blocking the bonuses, I'm not really sure how useful that would be except in a punitive sense for those who caused the problems in the first place. Which, truth be told, I wouldn't mind seeing.
3.18.09 @ 3:02p
From AP, this hour: "The head of financially strapped AIG is telling Congress he's heard the rage over executive bonuses and has called on employees to voluntarily return at least half of the money."
3.19.09 @ 12:18a
The problem with the numbers being discussed is their sheer size. Numbers like $165,000,000 or $170,000,000,000 have no bearing on ordinary folks who are likely not going to see their own personal salaries described in more than six digits annually (more like five, for most people).
Just as a squirrel has no concept of the speed of the moving car he's about to dart out in front of, we have no concept of the numbers we are being asked to comprehend. Until, of course, we put such numbers into a scale that we can recognize. How many houses just like mine would $165,000,000 buy?
I think it would help if print news outlets would start referring to the big numbers with all the zeroes, instead of "$165 million" or "$170 billion".
3.19.09 @ 11:18a
Agreed. $165 million is a little less than 1% of $170 billion. Don't be outraged by the $165 million. Be outraged by the $170 billion.
Also: $170 billion is just over 10% of our national debt. Not a huge chunk.
By contrast, the war in Iraq has cost us $600 billion so far.
You want to talk about wastes of money? Congress. Howabout the fact that the House of Representatives gets a collective annual salary of $73.6 million for 4-day work weeks for FAR fewer than 52 weeks per year and 90% of the time spent is partisan bickering. Both sides. There's your waste of money. They could have tied conditions to those AIG handouts (like - no incentive pay). They hold the purse strings.
Don't be mad about what the known irresponsible spender did with the blank check. Be mad about the people that issued them a blank check.
3.20.09 @ 9:24a
A little more from xkcd
3.20.09 @ 10:42a
If that's "billion," I don't want to consider the concept of "trillion."
3.20.09 @ 7:08p
I just tried to type in $170,000,000,000. into my calculator to get the answer to Tim's question of how many houses like his could be bought with that. Unfortunately my calculator only accepted $170,000,000. So based on the average house price in my area (Central NJ) of $300,000. a total of 550 houses could be purchased. If an average block has 8 houses on it that comes to just under 69 blocks of a town or city of a certain size.
Not having the calculator that can do the "big" numbers I will hypothesize that my numbers would triple and roughly 1650 single family 2 and 3 bedroom homes could be purchased in Central NJ for those "big" numbers. The average Realtor working full time in NJ sells between 10 to 14 houses a year. At 14 houses each that's 137 realtors to sell that value. Or 1 realtor who works for 137 years.
I've got a handle on the size of these numbers now. It is very disturbing. I'm back to the concept of wanting my personal bailout. With these numbers in mind my need for a measly $500K seems very reasonable and the government could afford my request so much easier than the "big" numbers.
3.23.09 @ 2:45p
Executive arrogance continues unabated:
(From ABC News) Embattled bank JPMorgan Chase, the recipient of $25 billion in TARP funds, is going ahead with a $138 million plan to buy two new luxury corporate jets and build "the premiere corporate aircraft hangar on the eastern seaboard" to house them, ABC News has learned.
The recipient of $25 billion in TARP money plans to buy two new corporate jets.The financial giant's upgrade includes nearly $120 million for two Gulfstream 650 planes and $18 million for a lavish renovation of a hangar at the Westchester Airport outside New York City.
A public hearing will be held by Westchester County officials tonight regarding JPMorgan's request for new hangar space.
So... invite potential jobs and taxes by letting them build... or punish the pigs by denying their abuse of taxpayer funded bailout money? What would YOU do?
4.1.09 @ 8:19a
(hmmm... Joe must have sent out his monthly email because someone's resurecting the dead...)
Agreement, agreement. AIG might be underhanded and slimy and reprehensible... but they did nothing illegal. Congress, on the other hand...
As well, Robert took the words out of my mouth. Let the bloated behemoths fail. If you want to help the economy give me $200k so that I can refinance and not be upside down on my mortgage for the house I bought in 2007 when the bubble was its biggest, and pay off a few credit cards. Then I'll eat out more often, buy more clothes, and purchase that new car I so desperately need. Come on folks, it's not rocket-science.
But in reality, I have no desire to be under obligation to the latest and greatest mob-boss, Mr. O. Maybe we can get him on mail fraud.
4.2.09 @ 9:14a
What a bunch of noise-making frauds these congressmen are.
They KNEW these bonuses were going to be paid LONG before they were, because Chris Dodd wrote an amendment to the bailout bill that sanctioned them. And it had no limits to the amount. And they all knew exactly when they would be paid too. B.O. authorized these bonuses by signing this into LAW. And now they whine and prentend to be outraged.
Tell ya what. If it's time to give back bonuses, Let's start with Chris Dodd, the largest recipient of AIG campaign "bonuses". Second largest recipient? Barack Hussien Obama. Not even slightly suspicious that they would set up all this special consideration for AIG, is it? Give back YOUR "bonuses", boys.
WRITE YOUR CONGRESSMAN and tell them to STOP THE BAILOUT INSANITY! Bailouts don't work. Never have, never will.
And find a Tax Day Tea Party to attend so you can protest this congress and all their foolish spending. It's a major grass roots movement on April 15th. http://taxdayteaparty.com
4.2.09 @ 9:50a
5.5.09 @ 8:08p
Apparently what AIG claimed back in March was only PART of the bonuses:
In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year.
And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date.
AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.
That is nearly four times more than the company revealed in late March when asked by POLITICO to detail its total bonus payments.