Apparently, $175 billion doesn't buy what it used to.
AIG has decided that it has no choice but to pay out $165 million in bonuses to employees due to contractual obligations. And the government has decided it has no legal recourse to stop the payments.
To make matters even worse, AIG CEO Edward Liddy has the gall to ask the government to reconsider limitations on executive compensation, saying that such limits curtail the company's ability to "attract and retain the best and brightest talent to lead and staff the AIG businesses."
Are you kidding me?
First of all, the fact that AIG agreed to contracts where they would have to pay out these kind of bonuses in a year the company lost $99 billion ($61.7 billion in Q4 alone) is absurd and highlights the ridiculousness of the typical executive contract structure. Reform is needed now and responsiblity must start with the board of directors.
Secondly, the idea that AIG had no choice but to pay out these funds is laughable. AIG lawyers said the company would be subject to lawsuits if the bonuses weren't paid. Now I'm no lawyer, but I say if an executive wants to sue the company because he or she didn't get a bonus, then bring it on. Even if the legal argument is sound, the public outrage would be enormous. Plus, at least the employees would be the ones taking years to try and fight to get their money back as opposed to the government doing the same through a 'clawback' attempt (which i predict will happen if these payments go through).
Third, the US government should absolutely have the right to stop these bonuses. The government is the one that decided the company was too big to fail. If it wasn't for the government - and the US taxpayer - AIG would have been gone long ago. We own the vast majority of the company. What's the point of doling out $175 billion in bailout money if we can't have a say in how those taxpayer dollars are used?
It's all a joke. One of the reasons this financial crisis is likely to linger for a very long time is that we are so concerned about honoring contractual obligations, especially to holders of debt and credit default insurance. I understand how important the sanctity of the contract is in a capitalist society, and I understand how not honoring certain contracts could trigger a ripple effect that brings down our entire economic system. But this is a crisis of unprecedented proportions and extraordinary measures are clearly called for. Certainly, we can find a way to have companies in the eye of the storm extricate themselves from ludicrous executive contracts.
AIG is the poster child for the reckless, greedy behavior that played a large part in getting us into this current mess.
We must set an example.
The bonuses are a fucking outrage. They must be stopped.
It will be a huge black mark for the Obama administration - and particularly Geithner and the Treasury Department - if we can't make that happen.
Update (3/16): Just want to make it clear that the $165 million in bonus payments being delivered this weekend was unbelievably only a first tranche, a mere down payment if you will. According to a WSJ Story:
In his letter to Mr. Geithner, dated Saturday, AIG's Mr. Liddy said the firm's "hands are tied" on making $165 million of the payments that were due Sunday.
The payments at AIG's financial-products unit are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. Separately, AIG is also making $619 million in retention payments to 4,200 employees.
Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees. At least some individual employees are receiving millions of dollars -- at the financial-products unit, for instance, seven employees will get more than $3 million for 2008, according to an AIG document.