More Whines from AIG

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Funny. I never heard any UAW employees whine like this when they were falsely accused of ruining the domestic manufacturing industry because they demanded a completely fictional $75/hour.

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. “It is as bad if not worse than McCarthyism,” he said. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, “for their own political agenda.”

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Geithner Still Pushing the “Lawsuit” Myth

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Apparently, Tim Geithner is about to go on CNN and admit he was the one who put the bonus loophole in the stimulus bill. But he’s still telling the "afraid of lawsuit" story that Larry Summers already spun.

Treasury Secretary Timothy Geithner told CNN Thursday his department asked Sen. Chris Dodd to include a loophole in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses.

In an interview with CNN’s Ali Velshi, Geithner said the Treasury Department was particularly concerned the government would face lawsuits if bonus contracts were breached.

Aside from the fact that the White House just made the Democrats’ most endangered Senator, Chris Dodd, take the fall for this in two media cycles, I gotta say I’m utterly disgusted that Geithner is still using Larry Summers’ already-discredited excuse about lawsuits.

We own these companies.

We saved them from bankruptcy.

We can demand–as we’re demanding of the car companies–that they forgo their bonuses.

But instead, in an apparent still half-assed charade of coming clean, Geither still wants to pretend that’s why he’s bribing these banksters to stick around the collapsing house of cards.

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Wah! Wah! Wah! And More Semtex from AIGFP

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The WaPo is out with a story about how the remaining people at AIGFP are being unfairly lumped in with the banksters who broke the world economy.

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. 

[snip]

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.

In it, Gerry Pasciucco contradicts the story Edward Liddy told yesterday, denying that the remaining AIGFP employees were irreplaceable.

"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." 

Yet in the middle of this big sob story about how maligned these poor quants and their secretaries are, they return to the threats they issued in the white paper demanding the bonuses.

"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." 

Let’s see, aside from the fact that these guys’ contracts undoubtedly have confidentiality agreements–making such cooperation with counterparties a gross breach of contract–assuming their counterparties actually did anything with this information, they’d all be breaking the law. 

Don’t get me wrong–I believe Liddy when he says the US government stands to be exposed to the tune of $1.6 trillion if this happens. I believe this threat is real. 

But make no mistake. The kind of people who would threaten to do this are threatening to bring down the global finance system. Again. Read more →

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What Did Geithner Know and When Did He Know It?

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 I’m with Jane.

I do not think that anyone understands that some Rube Goldberg model, where we pay out a billion in bonuses, and then try to get the money back in taxes, is going to be a winner. But that appears to be what the administration wants, because both Nancy Pelosi and Barney Frank are saying the same thing. Then again, we’re talking about a bunch that thought this wouldn’t be a big problem in the first place, at least not one they couldn’t solve with faux "outrage" and blaming Chris Dodd.

I’m fairly confident they’ll have a chance to rethink this in the near future — somewhere around the time Tim Geithner’s "I knew nothing" story crumbles. The only question is how much public rage they’ll have to suck up before they face that reality. [my emphasis]

The Administration is shortly going to be dealing with the uncomfortable job of admitting Tim Geithner knew a lot more about bonuses a lot earlier than he has let on.

And while news outlets like Time are chasing down precisely when Geithner learned the details of AIGFP bonuses, I’m more interested in an earlier round.

As Elijah Cummings described in the waning moments of yesterday’s hearing, Edward Liddy approved a round of retention payments back in September.

On September 18, 2008 AIG’s compensation committee of the Board of Directors approved retention payments for 168 employees. 

Cummings’ point is important, because it shows that, however distasteful Liddy may find paying off the banksters who broke the world economy, he’s willing to pay retention bonuses himself, even at a time when AIG was engorging itself on the federal teat. 

But the retention contracts negotiated in September also put them squarely in the time when Tim Geithner was intimately involved in bailing AIG out. We learned yesterday that he recused himself from matters pertaining to AIG once he was picked to be Treasury Secretary (that nomination was announced on November 24). But back on September 18, when this round of bonuses was approved, Obama hadn’t even won the election yet, much less picked Geithner to be Treasury Secretary. Back on September 18, Geithner was in charge of the well-staffed (his current excuse–that he’s not staffed up yet, doesn’t work here) NY Fed, and in charge of negotiating this bailout. Read more →

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Financial Services AIG Hearing Liveblog, Liddy Testimony Part Two

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For earlier liveblog posts:

Royce: Any discussion with members of the Senate to guarantee payment of bonuses?

Liddy: We have a strict prohibition against lobbying.

Royce: Could you check?

Royce: Discussions with members of the Administration?

Liddy: Geithner. First discussion would have been about a week ago. One on a Tuesday and one on a Friday. When I said administration, I did not include Federal Reserve.

Royce: Please send any talking points. The issue to us is that Senator Snowe was concerned about this provision. That measure applied these restrictions retroactively.

[Once again, Royce refuses to chase this down. Liddy has just said he was talking to the Fed, but Royce still wants to be able to claim that Dodd was the one responsible, so he backs off any questioning about the Fed.]

Scott:  We are in effect at war. We need to hurry up and get this bonus issue off the table.

Posey: We wouldn’t care about the bonuses if it weren’t for the bailout money. A big bonus for these people is that they’re not in jail, and that they still have jobs. I can’t imagine that the demand is that great for someone who can screw up an entire company.  Have you seen any signs of what someone might normally consider criminal activity.

Liddy: Nothing has come to light that I am aware of. It really is easy to paint with one brush. There are people who worked on one piece called CDS. Another regulatory capital. Derivitives book. For the most part those are separate people. Those are the ones that brought our company to our knees. In the derivitives book those are the ones we’re asking to please wind this down. Those are the ones that got the bonuses.

Posey: Is there an obligation to report unethical behavior? To whom?

Liddy: Absolutely. 

Liddy: What we have at AIG is too much appetite for risk, too much appetite for business outside our core competence.

Posey: 73 people got bonuses that exceed 1 million, 11 are no longer with the company. 

Maloney: Submit questions in writing. On bonuses, you mentioned a number of people said they’d give back bonuses. On the floor tomorrow will be a bonus that will tax the bonuses. How many said they’d give back the money. I requested for many months now for a list of the counterparties. Read more →

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Gary Peters: Why Is It Okay to Abrogate UAW Contracts But Not Wall Street’s Contracts?

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Gary Peters asks the question all Michiganders have been asking since September. Why are UAW’s line workers forced to renegotiate their contracts and GM’s engineers forced to forgo bonuses, but not the banksters who ruined the economy?

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Liddy: We Can Threaten US Taxpayers but They Can’t Threaten Us

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When Barney Frank asked AIG CEO Edward Liddy to send him a list of the people who got bonuses, Liddy said he’d only do so if Frank could promise they’d remain secret. He read from a threat letter that disgustingly threatened the children of AIG employees.

I agree with Barney Frank: those threats are disgusting and inappropriate. Those who send those threats should be turned over to law enforcement.

That said, the white paper AIG submitted to explain why AIGFP employees should receive their bonuses was, itself, a massive threat: pay these bonuses or AIGFP employees will trigger a default event that will bankrupt AIG and cause American taxpayers to lose billions–if not crash the entire financial market.

No one should be physically threatening AIGFP’s derivatives traders–at least not with anything short of legal investigation and, if appropriate, indictment.

But at the same time, neither should we tolerate threats issued on behalf of traders holding a gun to our economy. 

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Financial Services AIG Hearing Panel 2 (Liddy)

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The hearing can be view on the committee stream or CSPAN3.

The witnesses are: 

Panel two 

Kanjorski: Pink ladies respond properly or please leave the room. Signs DOWN!!!

Kanjorski administers oath.

Kanjorski: We’ve had occasion to visit personally 2-3 months ago and 4-6 weeks ago a telephone conversation that wasn’t as great. Mr. Liddy is not a person that is being paid for the CEO position he occupies at AIG, impressed into federal service and he responded to their call. He is former CEO of one of our largest insurance companies. I wanted to make that clear bc I’m sure that you and your family have had a lot of abuse in the last few days. I think it only fair that we set record straight. When we discovered potential bonus payments, I urged you to suppress payment. My understanding that AIG people and my staff would cooperate and transfer docs to lend assistance. Specifically, we wanted to see whether we could vitiate this contract. As of Saturday last we have received no communication regard papers. Only thing we received was a letter indicating that payment was made.

[Note, this whole exchange suggests–rather implausibly–that Kanjorski knew about the bonuses before Geithner did.]

Kanjorski: Sometimes insurance companies delay payment until they’re sued. This appears to be a rushed payment. One of the last payments would have been a denial of the right to pay on the contract. Not a bad remedy. If you had taken that position, these bonus recipients would have been in the same position as the US, worst that could have happened would have been penalty. I thought you were missing gravity of this situation. 

Liddy: Why pay these people at all. Trying desperately to prevent uncontrolled collapse of that business. Only way to avoid systemic shock to the economy that the US government help was meant to prevent. We concluded that the risk to the company and the financial system and the economy was too high and that we would have happen what the involvement in AIG was supposed to prevent. I’ve asked employees of AIGFP to step up and do the right thing, those who received retention in excess of $150,000 to give up half. Some have already given up 100% of those payments. Obviously we are meeting at a high point of public anger. As a businessman I’ve Read more →

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Financial Services AIG Hearing Liveblog, Panel 1

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The hearing can be view on the committee stream or CSPAN3.

The witnesses in this panel are (Liddy, AIG’s CEO, comes later):

Panel one

  • Mr. Scott Polakoff, Acting Director, Office of Thrift Supervision 
  • The Honorable Joel Ario, Insurance Commissioner, Pennsylvania Insurance Department, on behalf of the National Association of Insurance Commissioners 
  • Ms. Orice M. Williams, Director, Financial Markets and Community Investment, Government Accountability Office
  • Mr. Rodney Clark, Managing Director, Insurance Ratings, Standard & Poor’s

Scott Polakoff: Rapid decline of AIG stemmed from liquidity problems in two business areas. CDS, typically based on mortgage loans. And securities lending. AIG stopped originating CDS in 2005. By that time, the company had $50 B on its books. AIG halted these activities while the housing market was still going stong. AIG protecting against losses for the least risky credit vehicles. There have been no underlying losses. Crisis resulted from liquidity calls. Two important lessons learned. CDS continue to be unregulated products. New regulations are essential. AIG story makes a compelling argument for a systemic risk regulator with authority to examine temporary liquidity problems.

Joel Ario: Hedge fund attached to large and stable insurance company. Financial products bet twice the value of AIG and faied to hedge the bets. It was to protect those leading financial institutions. We are doing this to protect our own financial system. AIG’s competitors claim AIG is underpricing in an attempt to maintain volume. Such disputes reflect insurers trying to protect profit margins in soft economy. We have reviewed charges on both sides. We have not seen any evidence of undercharging on either side. Insurance companies have the value they do because state level regulation requires reserves. Securities lending would not have caused a systemic risk. This does not compare to the credit default risk. The lending problem is solved. Need to identify and manage systemic risk. Insurance companies more likely recipients than creators of risk. 

Orice Williams: GAO prohibited by law from auditing the Fed. Assistance given to AIG has given AIG an unfair competitive advantage. Fed and Treasury told us goal was to avoid systemic risk. The Fed has been monitoring AIG since September and Treasury has begun to more actively monitor AIG. AIG has mixed success in progress on its restucturing. Has not sold off business units in this market. Declines in the values of its assets. Potential impact of AIG on commercial property casualty market. Read more →

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Financial Services AIG Hearing Liveblog, Member Blowhard Statements

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The hearing can be view on the committee stream or CSPAN3.

The witnesses are:

Panel one

  • Mr. Scott Polakoff, Acting Director, Office of Thrift Supervision 
  • The Honorable Joel Ario, Insurance Commissioner, Pennsylvania Insurance Department, on behalf of the National Association of Insurance Commissioners 
  • Ms. Orice M. Williams, Director, Financial Markets and Community Investment, Government Accountability Office 
     

Panel two 

Liveblog

Barney starts by warning the hecklers.

Three other members included–I missed the first one [oh, I think it was Joseph Crowley], but Marcy Captur and Elijah Cummings are in there.

Kanjorski: AIG unique. Not a bank, and has received much more assistance than any other bankster. Treasury and Fed could not accommodate us. "We need to hear form them, directly and publicly." Full committee hearing on March 24. 

[Note, AIG’s much greater assistance was really assistance for the banks via other means. That Kanjorski statement does not inspire confidence in me, because it hides the degree to which this is still about the JP Morgans and Goldman Sachs of the world.]

Garrett: Where was the outrage when Bush was demanding money from taxpayers? I think I’ll blame it on Democrats.

[Note, the Republicans are going to be out for Geithner’s head here. He’s not going to have much fun when he testifies on Tuesday.]

Frank: I hope we can focus on the subject at hand, but I have to respond to Garrett’s complaint that he didn’t get a hearing quick enough. We did have the hearing in July 2008. At that hearing he asked no questions at that hearing. He declined to ask any questions about it. I suppose he’s disturbed that we didn’t give him a chance to ask questions a month earlier. 

Garrett: My understanding is that I went into other issues as well.

Frank: Not according to my reading of the transcript. Covered bonds hardly seemed to be the major topic that the gentleman wanted to have the hearing about. The committee had a hearing on this well before the Fed went into AIG. It is important for us to amend that statute, but doing it in the midst of that uncertainty is probably not a good idea. I guess we’ll just release the transcript. I guess a lot of people left their fight in the gym. Time to exercise our ownership rights.  Read more →

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