Recession-weary Americans outraged by AIG bonuses

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http://www.reuters.com/article/domesticNews/idUSTRE52G5L420090317 While U.S. President Barack Obama tries to claw back bonuses paid to AIG employees, Americans facing pay cuts and job losses are outraged that some refuse to share the pain of the recession. "It's not fair," said Nancy Johns, echoing millions of Americans who watch with disbelief as Washington and Wall Street battle over whether to recover millions in corporate bonuses paid out by firms that received government bailouts. AIG, an insurance giant that is being kept alive on a taxpayer-funded $180 billion lifeline, is paying out $165 million in bonuses for 2008. It has argued that it is legally obliged to meet employee retention payments. Ordinary people have trouble understanding that logic. Johns was working as a daycare provider in Cincinnati in 2007 when the economic downturn hit. The subsequent slump in daycare demand led to her work hours being cut from 40 hours a week to 25 -- dropping her weekly paycheck to just over $200. "You couldn't get enough hours to buy food for your kids," said Johns, who has a five-year-old daughter. She quit her job, the family sold their second car, and she spent $20,000 to go back to school to retrain as a medical billing specialist. Her year-long struggle has eased now that she has a job handling medical paperwork, but she's outraged that some at the top rungs of the income ladder are helping themselves to big payouts while the less fortunate lose their jobs and homes. "There were no guarantees for us," she said. Others question the financial merit of paying out bonuses in companies that were on the brink of the collapse until the government stepped in. "I always thought bonuses were contingent on a job well done, not for simply showing up, or mindlessly driving the company over a cliff," said Dave Blank, a medical supplies salesman in Milwaukee, Wisconsin. "So what have those bonus-worthy executives done so well?" CONCESSIONS MADE In Arizona, unemployed manager Don Yows, 50, is furious about the AIG bonuses, which have prompted threats from the Obama administration and lawmakers in Congress and made newspaper headlines across the country. "My frustration is two-fold: why they feel they are entitled to it, it's a level of arrogance. I'm angry, angry. And number two, how they've gotten away with it so far," said Yows, who lost his technology job in December. "I'm looking for any job ... bonuses aren't even a part of the consideration, it's just getting a job and being gainfully employed right now." A belief that Americans have made concessions to help save jobs, especially in hard-hit sectors such as the auto industry, has helped to fuel the popular outrage over the corporate bonuses. Thousands of white-collar workers have accepted unpaid furloughs, Congress forced U.S. automakers to wring concessions from their employees before receiving federal aid, and many workers have swallowed pay freezes. At the same time others, particularly on Wall Street, say the furor over bonuses has been blown out of proportion. They note that the payouts represent a sliver of government bailout funds and resulted from legally binding contracts. That argument, however, rankles Tony Montana, a spokesman for the United Steelworkers of America, which represents workers in industries as diverse as steel and nursing. "A lot of companies have come to our union and said 'Please let us renegotiate our contract,'" Montana said. "Our union has been very pro-active and very flexible with our employers because we do recognize the circumstances." "It is unfair to expect rank and file union members around the country to accept concessions or cutbacks while CEOs and other executives are raking in the benefits from their lucrative employment contracts," Montana said.

[fineleg]

Rep Frank: America must sue to recoup the bonuses: http://www.reuters.com/article/newsOne/idUSTRE52G59F20090317 Obama on topic: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031701063.html

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Highest possible tax proposed to be slapped for these bonuses: American International Group's $US165 million ($250 million) in executive bonuses may face ``the highest excise tax'' possible as Senate leaders including Harry Reid and Christopher Dodd seek to recover the money for taxpayers. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said he may impose the biggest excise tax sustainable in court on bonuses paid to employees after AIG took four taxpayer funded bailouts totaling $US173 billion. ``The American people are outraged, and I am as well,'' Senate Banking Committee Chairman Dodd, a Connecticut Democrat, said during a hearing today in Washington. ``One way or another, we're going to figure out a way to get these resources back.'' Dodd said he wants the Federal Reserve, which is overseeing AIG's bailout, to explain how it will resolve the situation. New York-based AIG, whose fourth-quarter net loss was the worst in corporate history, has been targeted by lawmakers for continuing to pay bonuses, including to employees in the unit that sold the credit-default swaps that contributed to the company's collapse. ``I would recommend they give back those bonuses,'' Senate Majority Leader Reid, a Nevada Democrat, said on the Senate floor today. ``We as a Congress are not defenseless.'' Baucus's proposal ``will certainly send a message to the people at AIG, and all others who try to benefit from the hardships the American people face,'' Reid said. ``What's the highest tax we can impose on those bonuses that is sustainable in court?'' Baucus asked Internal Revenue Service Commissioner Douglas Shulman at a committee hearing in Washington. ``I share your outrage,'' Shulman responded. `Serious questions' Senator Charles Schumer, a New York Democrat, said in a speech on the Senate floor that he was sending a letter to AIG Chief Executive Officer Edward Liddy asking executives to return the bonuses to their ``rightful owner.'' He said if the money isn't refunded, Congress will pass laws to ``tax these bonuses at a very high rate.'' Senator Sherrod Brown, an Ohio Democrat, said the AIG bonus payout ``smacks of greed, arrogance and worse.'' House of Representatives Majority Leader Steny Hoyer of Maryland separately told reporters today ``these guys ought to give the money back.'' ``If they had any common sense at all, any sensibility of the rightness and wrongness of their position'' AIG would reject the bonuses outright, Hoyer said. Senator Richard Shelby of Alabama, the Senate Banking Committee's top Republican, said mismanagement at AIG, once the world's largest insurer by assets, ``raises serious questions about the adequacy of state supervision.'' ``If insurers are managing risks on a national basis, it may make sense to consider regulating them on a national basis as well,'' Shelby said. US insurers, which are regulated by the states, have been lobbying Congress for the past seven years to give them the option of a federal charter that would give the industry uniform rules across state lines.

[beetle]

Obama admin seems to be full of jokers.Why didn't they have some 'no bonus for greedy chiefs' rule before giving the money?

[zubinpepsi]

^^ lol.. it was bush admin... this was bush's last atrocity... be glad tht atleast obama is talking some sense..

[gs]

Except raising a fuss, I doubt if the fed can do anything about it. From what I understand, AIG is protected by an agreement against any exploitation by the govt in exchange for TARP funds! Go Dubya!!

[fineleg]

Yes, this was a gaffe by Bush administration. Obama's group is trying to do something to get the outrageous bonuses back, but they have to work within some constraints.

[Online]

apparently these bonuses will be taxed 100% :giggle:

[Ram]

There is no way AIG is going to ahead with this bonus plan, against all collective public opinion. It will become an unmitigated PR disaster for them then.

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http://content.usatoday.com/communities/theoval/post/2009/03/64320451/1 Wow! Now they will give it back I think! http://www.reuters.com/article/ousivMolt/idUSTRE52H6ME20090318

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Inside AIG-FP, Feeling the Public's Wrath By Brady Dennis Washington Post Staff Writer Thursday, March 19, 2009; C01 WILTON, Conn., March 18 -- A solitary flat-screen television hangs on the back wall of the trading floor inside the headquarters of AIG Financial Products here. Wednesday afternoon, the most-talked-about employees in America huddled around it to find out just how despised they have become. They watched quietly as members of Congress referred to them as greedy and incompetent. They heard more than one demand that their names be released to the seething American public. They heard the chairman of American International Group, Edward M. Liddy, tell lawmakers that people, in e-mails sent to AIG-FP, suggested that the firm's leaders "should be executed with piano wire around their necks." The evening before, the firm's chief operating officer, Gerry Pasciucco -- whom Liddy recruited in November from Morgan Stanley to shut down Financial Products before it could do more harm to the economy -- had gathered them together in the same spot. Pasciucco urged them to keep their heads down, to act professionally and to continue working to extricate Financial Products from its more than $1.6 trillion in outstanding derivative contracts. He acknowledged that the past few days have been like being "inside the piñata." In reply, they told him that they worried mostly about getting shot, despite the guards now patrolling the parking lot, the front door and some of their homes. A sense of fear hung in the room -- the palpable, unsettling kind that flashes across people's eyes. But there was anger, too. No one would express it publicly, of course. Who wants to hear a wealthy financier complain? And yet, within those walls off Danbury Road lies a deep sense of betrayal -- first by their former colleagues, now by their elected leaders. The handful of souls who championed the firm's now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president. "They've chosen to throw us under the bus," said a Financial Products executive, one of several who spoke on condition of anonymity, fearing reprisals. "They have vilified us." They say what is missing from this week's hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm's former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster. So AIG stepped in with an offer to employees of Financial Products. Work through all of 2008, and you'd get a lump payment in March 2009. Stick around through 2009, and you'll get paid through 2010. Almost all other forms of compensation -- bonuses, deferred payments and the like -- have vanished. "People are trying to do the right thing," the same Financial Products executive said. "Guys have worked their [tails] off to try to get value for the taxpayer. This isn't money that's being advanced to us. People have performed the work and done it exactly as we asked them to do." Pasciucco cringed at the notion, articulated by many lawmakers and even President Obama, that Financial Products is a firm of nearly 400 reckless and greedy derivatives traders. In actuality, he said, nearly all the troublesome sectors of the business -- namely, the risky credit derivatives written on mortgage-backed securities -- are now out of the equation, as are the people who worked on them. That leaves a small number of employees to untangle the remaining trades in four main areas: commodities, interest rates, currency and equities -- most of which were fully hedged and have caused little problem. The effort also requires a sizable number of "back office" staff, such as systems, computing, accounting, human resources and legal teams. "Everybody, including my secretary and including the guy down the hall that serves lunch, gets a payment," said Pasciucco, who added that he received no retention payment and has no contract. But what about the argument made by top AIG officials that the people receiving retention bonuses have unique skills and knowledge that make them indispensable? "They are replaceable," Pasciucco acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time." But it would be impractical at best, dangerous at worst, to get rid of everyone at Financial Products, according to AIG officials. If everyone leaves, Pasciucco said, "you don't have people that really, truly understand the book [of business]. We're still big enough that that matters." If they did walk out the door, who would volunteer to work at the Chernobyl of the financial world? And what would become of the mammoth portfolio that remains? "It would become the biggest naked position on Wall Street," one longtime Financial Products executive said, "and everybody would exploit it." Before he waded into the circus on Capitol Hill on Wednesday, Liddy e-mailed a letter to the employees of Financial Products, asking them to "step up and do the right thing." He asked that anyone who received more than $100,000 in retention payments return at least 50 percent. The Financial Products staff met twice Wednesday inside one of the firm's large, glass-walled conference rooms to discuss the boss's letter. Numerous employees indicated that they would be willing to return the money, but most wanted nothing more to do with the firm. It was a preview of the possible exodus to come, one that concerns Liddy himself. "My fear is that the damage is done," he told a congressional subcommittee. "That they will return [the money], but that they will return it with their resignations." There is little doubt within Financial Products that he's right about that. "Nobody is going to give it back and then stay," said one of the firm's employees. "If they give back the money, then they will walk. And they will walk into the arms of AIG's counterparties." In the meantime, the e-mails from the public have continued to roll in, including death threats and calls to blow up the firm's Wilton headquarters. Reporters and photographers have camped out in front of the offices in London and Connecticut. They have staked out employees' houses. The New York Post identified one executive and labeled him "Jackpot Jimmy." Another employee had to relocate his family after a London tabloid printed his address. A protest group is organizing an "AIG magical mystery tour" Saturday, loading up a 47-seat bus to stop at Financial Products and at the homes of some of its executives. "People are really upset. Everybody's calling them," one Financial Products employee said. "College roommates are calling. In-laws, relatives, cousins nobody has heard from. Because people are reading this around the world and saying: 'Oh, my God, you work for that place?' "

[Macj]

Obama didnt read the AIG bailout package looks like. Hate the bonus all ways till Sunday but still this clause was written into the bailout package when Obama and the Congress signed it and doled out AIG.

[gs]

Dont understand this bailout business, honestly. Its bailing out irresponsible, greedy people. Why not create a govt. entity like Federal Insurance, and let it guarantee all the clients on AIG's balance sheets. Let AIG (and its ilk) collapse, rot and die. I am sure the market confidence is much more in US govt entity than a private firm full of maggots. Letting them collapse will let other smaller insurance companies step up and fill in that space. Treat the root cause not the symptom.

[Macj]

Dont understand this bailout business' date=' honestly. Its bailing out irresponsible, greedy people. Why not create a govt. entity like Federal Insurance, and let it guarantee all the clients on AIG's balance sheets. Let AIG (and its ilk) collapse, rot and die. I am sure the market confidence is much more in US govt entity than a private firm full of maggots. Letting them collapse will let other smaller insurance companies step up and fill in that space. Treat the root cause not the symptom.[/quote'] You are of course right on and full marks on Capitalism BUT and a bit BUT: See the insurance arm may fail but what happens is it takes down the much larger re-insurers e.g. Brka and a few others, mostly based in the US but many based in Europe. In the immediate aftermath of the bailout was assumed that AIG's assets alone could guarantee lending and akin to Fannie and Freddie could be repackaged and sold as a security and it would survive, but the lenders i.e. banks are circumspect lending to a troubled arm. Plus the Democrats mandated that AIG's other departments NOT intervene to bail out 1 troubled department after the Enron scandal. In other words what would happen is AIG's insurance wing would fail, reinsurers would force AIG to liquidate, they would still incur losses, theyll increase premiums on other insurance companies, now consumers would suffer as premiums will go up and back end loan instruments like PMI etc would shoot through the roof.