![[Big Money]](http://s.wsj.net/public/resources/images/P1-AP128_AIGDC_NS_20090316194831.gif)
My two cents’ worth in a billion-dollar debacle:
AIG has the contractual obligation to pay the bonuses:
The $165 million is the latest installment of a retention program that is slated to pay the unit’s employees about $450 million. AIG had previously paid out $55 million, and an additional $230 million is pending for 2009.
An administration official said that on Friday Treasury Secretary Timothy Geithner discussed the bonuses and compensation going forward with AIG’s government-appointed chief executive, Edward Liddy. Mr. Liddy informed Mr. Geithner he intended to pay out the bonuses, and the Treasury secretary said there was nothing he could do legally to stop that.
The official also said that Treasury has determined there is no way the government can actually extract the money from the individuals who already received the bonus payments. The government would face lawsuits with the potential of significant damage payouts and lawyer fees that could easily exceed the cost of the bonuses.
Nobody thought of asking them to forgo their bonuses, even when two weeks ago White House press secretary Robert Gibbs was saying the White House knew where the money was going.
Jennifer Rubin spells it out
here are two possible answers. First, Tim Geithner messed up. Or, second, there is no conceivable way of depriving employees of contractual bonuses. If the first is correct, then we have yet another reason to dump Geithner. If the second is the case, then the current round of angry recriminations is — shockingly — disingenuous.
So now there’s Plan B: spending more taxpayer money,
Instead, the administration said it will use a $30 billion installment of bailout funds approved March 2, to bring some pressure to bear on AIG. The official said before AIG can draw down funds from the $30 billion, new rules would be written into AIG’s contract to ensure no government money goes toward paying financial-products division bonuses. The cost of bonuses already paid would be recouped for the taxpayer.
It sounds like we’re supposed to believe that the extra $30 billion will make the execs cough up the $165 million the execs just got paid and which would be too expensive to pursue in court. Good luck with that, buddy. This is the smoke-and-mirrors solution.
There are all sorts of personal responsibility questions. Then there’s the seppuku option.
On a lighter note, my brother and I were talking about the AIG bonuses and he said, “You know why they feel they should keep the bonus, don’t you? Because they can say ‘hey, we delivered the bailout!'”
And, by the way, looking at the Big Money chart above, I fully expect we’ll be hearing similar stories about Citigroup, BoA, JP Morgan and Wells Fargo.
Shampoo, rinse, repeat.
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UPDATE
Ed has the moral of the story:
In the future, we can avoid having taxpayer dollars go to Wall Street bonuses by not bailing out private companies with taxpayer dollars.
UPDATE
Is AIG’s (mis)handling Obama’s Latest Costly Blunder?
As much as AIG makes me cringe lately, I really don’t think the government should be getting into the business of forcing AIG to not pay the bonuses. If they can do that with AIG, it opens the door to the government enforcing their whims on other larger corporations, like the Oil Industry. And we all know they’ve been the corporate whipping boys of the left for several years now. It’s bad enough the government is using taxpayer money to prop up failed businesses, contrary to how the market is supposed to work. Somewhere, the term “Too Big To Fail” became the rule, but there’s no such thing. When the Dot-Com bubble burst, where were all the bailout advocates then?
How can there possibly be a ‘contractual’ obligation?
AIG did not make any money. Are there really companies that pay bonuses when they don’t make money?
It makes no sense.
Jack — I work in financial services and I don’t actually get paid my bonus until 3 years after I earn it. I don’t know if that’s the situation with AIG but it may be that they “earned” the bonus in the past and now they are getting paid.
If my boss said he wasn’t going to pay me a bonus I earned 3 years ago because we’re having a bad year now, well I wouldn’t be too happy about that.
This is a test case: If the Feds can not tell anyone who has taken money from the Government to negate all contractual obligations because the taxpayers don’t like it, then, all of business in America, and, without too much of a stretch, every taxpayer will then be subject to the will of the best editorial writers/polling data of the person on the street.
Do they have to keep the legal obligations that pay the government and only ditch the ones that don’t?
You can’t run a country on a stright mob rule mentality. You can’t run an economy on that system, either.
Oh, BTW, do you think the complainers will soon realize that if they got to keep their job at some organization/firm that got bailout/stimulus/assist money from DC, that not only their bonuses, contractually laid out, are at risk, and soon after that, if they are “paid too much,” their salaries could be chopped…because the proletariat doesn’t think it’s fair.
Jack,
Just because a company does not make money as a whole does not mean that people did not hit their contractual goals for bonus. The company has a contract with the person and the company should honor that contract. Look at the NFL. They pay bonuses to players on losing teams because they reach a certain goals. Even though those players might have had a losing season or not reach the Superbowl. I think these companies really don’t want to fail. They want to succeed and make money. That’s business. They should have gone bankrupt and stick the middle finger in the govt’s eye.
This is ridiculous to even talk about this. A CONTRACT people, they had a contract.
Our legislators are getting us 2 TRILLION dollars in debt and they just GAVE THEMSELVES A RAISE! No outrage at that? Have our legislators CUT their expense accounts? Didn’t they just have an OFF PROPERTY meeting at a really fine resort?
While they did have a contract, I feel like there still has to be a way to avoid having these bonuses come out. Obama needs to get way more engaged and angry with these bonuses than he has been.
Saw this in a video I watched. “Mr. Obama, who said paying bonuses was ‘shameful’ while companies were on government life support, has found changing Wall Street culture to be more difficult than anticipated.”
Yes it’s difficult to change, but its even more difficult to change when you don’t get angry.
Here’s the link: http://www.newsy.com/videos/bailouts_and_bonuses_for_aig/
Steve,
There is a way that AIG can try to avoid having bonuses come out…..declare bankruptcy. That gives them some chance to change existing contracts, but employees generally have a preference for unpaid wages over other creditors. And regardless of the volume of these bonuses, they are unpaid wages.