I’ve always enjoyed well written television comedy and I’ve wondered lately why I’m not seeing as much. What happened to the writers? Believe it or not, they all moved to DC and are writing for our Congressmen! Oh sure, there’s a dark edge to the lines they write, but it’s classic television comedy just the same. The congressional outrage reported in this AP story on the AIG bonus debacle is a perfect example.
AIG notified all involved, over a year ago, that these bonuses were contractually due and payable this quarter. Former President Bush knew, current President Obama knew, the various financial players in the administration knew and Congress knew. But that doesn’t prevent Senator Chuck Schumer, D-NY, from issuing this power-drunk one liner: “If you don’t return it on your own, we’ll do it for you.” (If I had written the scene Sen. Schumer would have exited the room directly after delivering this tour de farce but before going through the door he’d stop, turn and say “I’ll be baaaack.”
Turns out Treasury Secretary Timothy Geithner did meet with AIG CEO Edward Liddy in hopes of discovering ways Mr. Liddy could renegotiate the contracts and all these bonuses, but Mr. Geithner “recognized that you can’t just abrogate contracts willy-nilly” according to President Obama’s chief economic advisor Lawrence Summers. (Apparently, you can only do the old willy-nilly abrogation of contracts on mortgage lenders using BK judges. Don’t you just love this juicy sub-plot on the importance of consistency running throughout the program tonight?)
At this point enters Representative Barney Frank, D-Mass, quite possibly the most culpable legislator in the current mortgage crisis. A less confident person, living in such a LARGE glass house, would probably keep a lower profile but not our crazy Uncle Barney. “The time has come to exercise our ownership rights. We own most of the company.” What?? I thought the administration was taking shares in the companies only to ensure that taxpayers are paid back. Do you mean to tell me they are going to start running these companies too? I’m shocked, shocked to find (this) going on here. Rep. Frank closes by pointing out that the government should not pay these bonuses (thus breaking a legally binding contract) because the employees contractually entitled to these bonuses “…didn’t live up to (the) contract.” For pure laughs, it’s hard to beat someone lauding the sanctity of a contract by… breaking a contract.
The most chilling line was delivered by Representatvie Tim Ryan, D-Ohio, who co-sponsored a bill to tax 100% of the bonuses. He was not satisfied writing a punitive and selective piece of taxation – the very contemplation of which breaks any moral or ethical boundary of democracy, but he invoked the memories of Stalin with this bit of noir: “We will use any means necessary.” (Cue the dark organ music.)
Lest you think I’m being unbalanced quoting only Democrats, this comedy ends with Republican Senator Charles Grassley, R-Iowa, going for broke on the last line of the day. In most sit-coms this last line is milked for a few extra seconds’ laughter while all the actors stand in place and laugh. So come on and laugh along with them:
“Obviously, maybe (the AIG executives) ought to be removed. But I would suggest the first thing that would make me feel a little bit better toward them if they’d follow the Japanese example and come before the American people and take that deep bow and say, ‘I’m sorry,’ and then either do one of two things: resign or go commit suicide.”
Ah, yes. The always funny hari kari. Cue the laugh track.
Tom Vanderwell says:
Sean,
Well said. Something that I’ve wondered about with all of this…..
I’ve signed numerous commission contracts with a number (5 to be exact) banks over my career and every single one of them gave the bank the unilateral ability to modify the contracts as they see fit. What rights do the employees have? The right to leave.
I’d be surprised if the AIG contracts don’t have the right to be modified by the company……
Tom
March 17, 2009 — 6:29 pm
Sean Purcell says:
Tom,
It surprises me no end that any of this money got paid. Almost as much as it surprises me that a big, fat bail-out check (was that the second or third) was given to AIG knowing they were planning to pay these bonuses and not doing something about it then. But you have to admit, nothing compares to the feigned outrage and hilarious(ly dangerous) comments that come from Congress.
March 17, 2009 — 8:21 pm
Tom Vanderwell says:
Sean,
Disappoints you? Yes. Angers you? Yes. But really, are you really surprised?
And yes, I do admit that the comments from Congress are over the top….
Tom
March 17, 2009 — 8:33 pm
Sean Purcell says:
Tom,
I have to say that I am surprised. The administration was aware of the bonus situation and gave the money anyway; without any conditions. I may not agree with much that they’re doing, but I do perceive them to be very intelligent. This is the definition of a tin ear…
March 17, 2009 — 9:39 pm
James Boyer says:
I still find it sad that many of these same people getting the bonuses were involved in the downfall of AIG. Any other situation and there would be no bonuses.
March 18, 2009 — 8:02 am
Scott G says:
This whole situation is absurd. I can’t believe that the taxpayers ended up paying the bonuses of the greedy people that contributed to the mess of this economy. I think that the people that recieved these bonuses should be looked at individually and possibly prosecuted.
March 18, 2009 — 9:07 am
Jeff Brown says:
I’m stuck on the contracts themselves. They either clearly spell out what triggers the bonuses or they do not. The most dangerous issue here isn’t the debacle of AIG’s mess, or the multiple bailouts — it’s the sanctity of the contracts.
If a precedent is set with these contracts, we’re all in deep do-do. When the gov’t can go all willy nilly on our contracts, it’s all over. Our entire free enterprise system is contingent upon the respect/enforcement of the sanctity of contracts.
March 18, 2009 — 10:28 am
Tom Vanderwell says:
A couple of thoughts….
Didn’t the original TARP call for elimination of all bonuses and dividends?
If a company files for bankruptcy, doesn’t that give the company the right to break all of their contracts? I hear many people saying that GM is going to have to file bankruptcy because that’s the only way they’ll get out of their union contracts.
I don’t think there’s a question of whether the government can go willy nilly (to quote Jeff) if a company is profitable. But if a company is bankrupt and looking for government protection from their creditors, doesn’t that change the rules?
Tom
March 18, 2009 — 11:17 am
Eric Blackwell says:
Tom;
I say this in the friendliest tone I can,…nope. 😉 it does not change anything.
a) they did not file bankruptcy.
b) let’s reverse roles. Let’s say you were employed by AIG and did work for them. There are over 116,000 AIG employees. Let’s say you weren’t the guys in the direct depts plagued by the financial mess.
You sign a contract with AIG that includes the bonus. You stay on with them even though you don’t like the environment, why? Because you see a large retention incentive at the end of that gruelling struggle.
So it finally comes to pass. The company does not declare bK but does accept the gov’t bailout money. Is your contract still enforceable? or not? How would you feel if people around the country were then stirred up to the point where you feared a witch hunt or for your family’s safety simply because you had negotiated and stuck it out?
Everyone likes to picture these bonus recipients as scumbags. We do not know who they were. Why not separate the issues and treat the contracts as valid and then prosecute criminal acts if any as criminal acts and be tried in a court of law, where there is a presumption of innocence rather than guilt?
Like it or not, the govt did not bK AIG. The contracts are enforceable. And the key? Bush knew. Obama knew. And the congress is demagogging the issue because the public’s ticked.
I don’t like that they paid this much money to people anymore than anyone else, but when you sign on a dotted line, it needs to mean something…whether Uncle Sam gave you money or not.
Just my .02
March 18, 2009 — 11:56 am
Tom Vanderwell says:
Eric,
What you say makes total sense. In a legal sense, they didn’t file bankruptcy. But it’s the next best thing to BK, isn’t it?
I still keep coming back to what I said in my original comment:
“I’ve signed numerous commission contracts with a number (5 to be exact) banks over my career and every single one of them gave the bank the unilateral ability to modify the contracts as they see fit. What rights do the employees have? The right to leave.”
I’m not so sure that there isn’t a loophole in those contracts that gives the company an out. I don’t have them, so I don’t know.
I was talking to a fellow banker this morning and we both agreed that putting AIG on your resume right now would not be a smart thing. That’s a shame.
You said, “Let’s say you weren’t the guys in the direct depts plagued by the financial mess.”
That’s the heart of the matter isn’t it? From what I’ve read, these guys who got the bonuses were the direct departments that caused the billions and billions of losses.
It’s a difficult issue at best and the way the government is handling it is making it worse.
Tom
March 18, 2009 — 1:23 pm
Sean Purcell says:
I think most of you are getting off topic here. You’re talking about bonuses, contracts and actions that bankrupted AIG. Those are discussions of substance and have no place in our current times. Please refrain from looking at the actual meaning, cause and effect or future ramifications of anything going on and limit yourself to moral outrage and knee-jerk reactions. 🙂
Of note: as I understand it there was actually over $400 million paid out. The outrage concerns the $160 million or so that is going to the derivatives department. I am with Jeff: I’d love to see the contracts and discover how exactly these bonuses are triggered. Of particular interest is the idea that these are not bonuses (as Tom correctly pointed out, performance bonuses are not allowed under current TARP) but rather retention payments designed to keep together the brain trust they’ve assembled. I know this is all smoke and mirrors but still: if it were a performance bonus, just how low was the bar set? And if it’s a retention payment, what are your standards for hiring and keeping employees? “Bankrupting the company is OK, just don’t kill the plants?” In other words, just how low was the bar set?
The fact that other areas of AIG were profitable raises another question. If one division creates a situation so grave that the entire company is on the verge of collapse and tax payer money is needed to keep the company afloat, how do you handle bonuses for all the other departments? Once tax payer money is involved is the entire company tainted? Should the Treasury micro-manage the funds to make sure none of it ends up in the “bad” department? Does populist outrage trump contractual obligation? Is taking money from middle-income tax payers and giving it to upper-income employees as any type of bonus just another form of income redistribution (which already has the President’s Stamp of Approval)?
I think most of these questions end up being rhetorical. There are no reasonable answers, which is why the government should not be involved in bailing out privately held corporations from the start. (Oops, there I went and thought a serious thought. I better be careful…)
March 18, 2009 — 2:37 pm
Tom Vanderwell says:
Sean,
You crack me up! Keep it coming!
Tom
March 18, 2009 — 3:23 pm
Jeff Brown says:
Sean — For the record, I draw the line, unequivocally, at killing the plants.
March 18, 2009 — 3:36 pm
John Sabia says:
I’m torn on this issue. While I realize the importance of respecting contracts and the consequences for precedents set for breaking them, I also can’t dismiss the reality that had AIG not been bailed out, there would be no bonuses paid.
I do believe this administration did not anticipate the backlash and is scrambling for damage control. Quite possibly the reason for an appearance on Jay Leno?
Absolutely.
March 18, 2009 — 9:51 pm
Phil Hutson says:
Tom, you’re right, I haven’t seen any good sitcoms on TV in ages, they must’ve all gone to Washington!
March 26, 2009 — 9:23 am