Did Obama Administration Screw Up on AIG?
8-ball sez, “Signs Point to Yes.”
In a NYTimes article(read the whole thing, it’s excellent), it appears that lots of people were aware that a significant round of bonuses were due to be paid out on March 15, but those people did not include Timothy Geithner:
Mr. (Representative Elijah) Cummings said he had been communicating regularly with A.I.G.’s chief executive, Edward M. Liddy, about the bonuses ever since December. Mr. Cummings said he was particularly concerned that the bonuses were supposed to be paid by March 15, adding that he assumed Treasury officials had the same worries.
“I assumed that they were well aware of it and would take appropriate action” before the March 15 deadline, Mr. Cummings said. “In light of the biggest quarterly loss in history, you would think that A.I.G. and Mr. Liddy would have been able to convince folks who were supposed to be getting these retention payments, based at least in part on performance, that they might want to voluntarily not take all or part of them.”
Treasury and Fed officials said they knew that A.I.G. paid $55 million in bonuses in December.
But administration officials said that the Treasury secretary, Timothy F. Geithner, did not personally become aware until last week that an even bigger round of payments was due on March 15. Administration officials said Mr. Geithner learned of the deadline early last week, when the Federal Reserve Bank of New York alerted him that the bonus payments were coming due.
…A.I.G. executives said they would never have proceeded with the bonus payments before getting approval from the Treasury and the Federal Reserve.
“We would never make any important business decisions without discussing them with our government managers and owners,” said one executive, who did not want to be identified because of the sensitivity of the matter.
It was Geithner’s JOB to know. And his Wall Street background presumably would have given him some sense as to how bonuses would be paid out. And one would have thought that public outrage regarding AIG would have made him at least check into what was coming down the chute. One would have been wrong.
Plus, according to Rep. Brad Sherman (D-CA), the legislative branch gave treasury the powers to address such bonus abuses.
In yet another excellent article from Talking Points Memo, Sherman said:
We had a provision in there that said Treasury was supposed to establish, by regulation, standards for executive compensation. We required that to be done — had it been done, it would have been binding, whether [or not] these contracts had been signed earlier. It’s entirely within the power of the federal government to have contracts modified [at companies receiving public aid]. Nixon had contracts modified by the federal government. We gave a similar power to Treasury.
Sherman voted against the bailout, he explained, because he didn’t believe that Treasury would use the power given to it by Congress. As it turned out, the department ultimately exercised its executive compensation powers last month, but the final regulations were riddled with loopholes — and only applied to companies receiving “extraordinary” assistance from the government in the future, a standard that no company has officially met so far.
It now appears that the Obama administration may be forced to recoup the $165 million by taking it out of the next multibillion dollar payoff to AIG. Of course, by then, the traders who helped create this financial disaster will all have purchased new villas and cases of the finest Chateau Lafitte.
Someone, other than Robert Gibbs, who is dancing as fast as he can on this, is going to have to explain this to the American people. Perhaps on the same day that Geithner is relieved of his duties.
Tags: AIG, Obama Administration
This makes me want to scream. Honestly, I don’t believe any of them. Geithner’s either an idiot who didn’t know what he should have known or an enabler of Wall Street. Take your pick. Neither is complimentary.
As far as AIG… I wouldn’t believe a word they said, and maybe we should start viewing them (in Glenn Beck lingo) as enemy combatants. And while I understand the consequences of letting them fail I’m beginning to not care. It’s time to call their bluff.
I’m with you, Geithner must go.
The AIG story is really hurting the administration. It’s basically showing that Treasury is not in charge of the bailouts, the banks are. This is bad.
I hope Obama and especially Geithner and Summers have learned from this episode. If it takes popular anger for them to take another look, then good.
If laws need to be passed to make this happen better, then let’s get it together. I would like to see Obama stand up and talk about passing a “Bank PATRIOT Act” to give the government the power to act. We can make it expire, but I’m tired of excuses of why we have to keep the losers in their jobs and pay them big bucks.
The problem with AIG is that only one person knows the entire organization, and that person was forced to dissasociate himself from the business by Spitzer.
The only hope is to leverage Greenburg, but the problem there is Greenburg is perhaps the smartest man on the planet, and no matter what controls the government tries to impose, Greenburg will end up holding an end of the stick that doesn’t smell like shit.
Josh Marshall has an intriguing new theory on why AIGFP crashed and burned. Just look at the photo of the guy heading it up.
(For the irony impaired, this is meant to be a joke.)
This is the fruit of continuing the Paulson and Bush plan for the banks. It it too hard to unwind these things so helping them to muddle through (while throwing nonstop tax dollars at them) is the last option. In the meantime, AIG’s counterparties got paid 100 cents on the dollar for their bets (it occurred to no one to negotiate this down?), AIGs employees are paid in full (even though they crashed their firm and the economy) and the nation of working class and middle class people who own AIG are pretty much forced to just keep printing money for them.
And here’s another reason to nationalize the bastards, ALL the bastards:
http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE52G0X420090317
That’s right. Legislation and limits are merely bumps in the road on the way to ripping off the taxpayers.
There was a recent article I found on yahoo. This senator is calling for the executives to either kill themselves or resign. I think the first would make everyone feel better. That doesn’t fix the problem, but makes us feel better knowing they would probably be suffering in Dante’s 9th circle of Hell.
http://news.yahoo.com/s/ap/20090317/ap_on_go_co/grassley_aig_7
Grassley: “Now watch carefully, executives… I’m only going to do this once.”
LOL, Kristin!
The answer is simple you take that one section of AIG and make it bankrupt then all contracts are void
That’s what I don’t understand TT. Why didn’t we take receivership and declare all contracts null and void? In fact, Geithner and before him Paulson, went out of their way to make sure the U.S. didn’t nationalize and didn’t void any contracts. Why is this? I understand not wanting to take over if you don’t really need to, but how much more data did they need about the f’ed-upedness of AIG?
The argument against taking banks and auto companies into bankruptcy was that customers wouldn’t buy products from bankrupt companies, and they would get sicker. Not sure if this applies to AIG – Is AIG still underwriting?
AIG is still underwriting. That part of their business is stable and making money.
It is the Financial Products portion that was a major nexus of the shadow banking system, possibly its keystone. The list of counterparties seems to overlap the list of problematic, stress test banks AND includes a fair number of foreign banks. The theory seems to be that walking away from the counterparty obligations starts a domino effect that undermines the global economy more (requiring more taxpayer money) or you try to keep what you can of the global economy that these banks oversee with taxpayer money.
Andrew Cuomo provides more detail.
Including the fact that 11 of the people getting these “retention” bonuses had left AIG.
Really, I just don’t think that there is anyone at the table here negotiating for taxpayers.
AIG is getting the full populist treatment… Obama tells Geithner to use all legal means… Dodd, Schumer threaten to tax it away… what woke them up?
Dems are cleaning Republican clocks over this issue, and it is a PROGRESSIVE issue…
Funny, Dems weren’t so outspoken about bonuses and salaries when the TARP was being passed. What got into them?
I guess some focus group found it was a hot button… the bankers must have greenlighted the PR blitz.
Actually, ‘Bulo thinks that AIG is getting ‘the full populist treatment’ precisely b/c the Administration realizes it screwed up royally and needs to do damage control.
As to TARP, many of the D’s in Congress have been pathetic sheep. For that matter, they’ve been pathetic sheep throughout the Bush era.
As ‘Bulo says, “Not just more Democrats, better Democrats.”
Fewer pathetic sheep means less chance to pull the wool over the public’s eyes. ‘Bulo is nothing if not a cunning linguist.
The TARP did have a limitation of Executive salaries — 500K I think.
I think that the Congress ought to tell these companies to give some of these derivatives we are bailing out as bonuses to their people. UBS did this last year, I think.
Mr Geithner was busy doing his 2008 taxes with Turbo Tax — but this year he did yse Tirbo Tax Premium! 🙂
For those of you who believe that Secretary Geithner and his minions didn’t know about the bonuses, I have a stimulus package to sell you.
Our esteemed host wrote:
And that will help how? The bonuses will already have been given.
Reducing AIG’s next payout does not sound like a very satisfying resolution to me. The thieves still got their money.
Chuck Schumer wants to tax all of the bonuses. He wants to tax them enough to recoup the majority of them.
Nice play, but somehow I expect that this will be found to be illegal.
The statement that Geithner’s job was to know(about AIG bonuses) is a little innocent in its pretension…
There is little way that one can know everything, especially if that which he is to know, is being practiced surreptitiously in secret so you don’t know….
Geithner’s problem is compounded by his lack of staff. His appointees have had difficulties passing the Republican filabusters in the Senate, and currently he is extremely understaffed, and is running still with 8 Bush appointees who were held over to fill in the gaps…
There is no one more familiar with what goes on inside of New York, than Timothy Geithner. Anyone else appointed would have to undergo a severe learning curve just to reach the level Tim is at now….
We forget we are only at 56 days… I was not even halfway through the kavipsian Economic Plan at that marker…
Give him time and support… He is our best hope, and we will, no doubt, most definately realize that too late, if we err and replace him too early…
As bad as AIG is, they had a contract to do exactly what they are doing. Obama and his zombies screwed up! He and his helpless cabinet rushed all this money out the door and forgot to put conditions on it. If my employee did this he would be fired and the money taken out of any package he might be due. Obama just went on a rant about how we can’t have the voters paying for someone elses mistakes. Think about that for a moment. How about Obama paying back the $165 mil. out of his salary, forever!!!!