It's no wonder AIG is incurring the displeasure of taxpayers in US.
Out of the US$170b worth of government bailout funds, AIG has paid US$22.4b dollars worth of government bailout funds to largely foreign-owned banks and financial firms on credit default swap (CDS) contracts.
And now, AIG has announced plans to pay US$450m dollars in bonuses to staff who had a direct hand in AIG's spectacular collapse. CEO Edward Liddy indicated a refusal to pay bonuses could lead to risks of lawsuits for breach of employment contracts, and would also affect AIG's ability to 'attract and retain the best and brightest talent to lead and staff the AIG businesses'.
A few questions popped into my head as I was reading the articles:
1. Why would bonuses, usually issued at the discretion of companies, find their way into employment contracts? Shouldn't bonuses be tied to performance, which in this case, would have caused AIG to drown in the sea of CDS exposures, if not for the government coming to AIG's rescue?
2. Would a person who has happily sold CDS, in return for premium income and potentially exposing his organisation to a larger proportion of credit exposures be considered part of the best and brightest talent? With the benefit of hindsight, the answer is probably NO. If you are paid for something that is priced out of the market and it seems too good to be true, trust your guts and know that that it is too good to be true. No structurer/investment bank will make a deal where they are at the losing end. But well, it is always easier to analyse issues after-the-fact.
3. If AIG was to refuse to pay out the staff bonuses, would a lawsuit led by employees be likely? The US government would in all likelihood throw its weight behind AIG, and the employees would only incur public wrath for their pursuit of monetary gains which are not rightfully theirs. These people are the ones who almost singlehandedly caused the dearth of their employer..do they still have the conscience to ask for payment?
4. The CEO of AIG seems insistent to pay out the staff bonuses. He gives no impression that he has tried to renegotiate the payouts. Is it fair that public money that has been pumped into AIG to keep it alive and breathing, be redirected into individual hands?
Out of the US$170b worth of government bailout funds, AIG has paid US$22.4b dollars worth of government bailout funds to largely foreign-owned banks and financial firms on credit default swap (CDS) contracts.
And now, AIG has announced plans to pay US$450m dollars in bonuses to staff who had a direct hand in AIG's spectacular collapse. CEO Edward Liddy indicated a refusal to pay bonuses could lead to risks of lawsuits for breach of employment contracts, and would also affect AIG's ability to 'attract and retain the best and brightest talent to lead and staff the AIG businesses'.
A few questions popped into my head as I was reading the articles:
1. Why would bonuses, usually issued at the discretion of companies, find their way into employment contracts? Shouldn't bonuses be tied to performance, which in this case, would have caused AIG to drown in the sea of CDS exposures, if not for the government coming to AIG's rescue?
2. Would a person who has happily sold CDS, in return for premium income and potentially exposing his organisation to a larger proportion of credit exposures be considered part of the best and brightest talent? With the benefit of hindsight, the answer is probably NO. If you are paid for something that is priced out of the market and it seems too good to be true, trust your guts and know that that it is too good to be true. No structurer/investment bank will make a deal where they are at the losing end. But well, it is always easier to analyse issues after-the-fact.
3. If AIG was to refuse to pay out the staff bonuses, would a lawsuit led by employees be likely? The US government would in all likelihood throw its weight behind AIG, and the employees would only incur public wrath for their pursuit of monetary gains which are not rightfully theirs. These people are the ones who almost singlehandedly caused the dearth of their employer..do they still have the conscience to ask for payment?
4. The CEO of AIG seems insistent to pay out the staff bonuses. He gives no impression that he has tried to renegotiate the payouts. Is it fair that public money that has been pumped into AIG to keep it alive and breathing, be redirected into individual hands?
It is wrong for public funds to be used to make good the errors that a profit-driven organisation has made. But there was no choice because of the systemic importance of that organisation. But beyond that, it is even more disheartening if the organisation does not ensure that the public monies are put to the best use possible to restore the organisation to it original condition. Paying staff excessive bonuses doesn't constitute good use of public funding - AIG should fight harder again this wrong and make things right.
===============================================
16 March 2009
Let the sunlight in (FT)
Many responses to the financial crisis have been leaps into the dark. But that is not a reason to avoid turning on a light. Details of AIG’s counterparties have been released, illuminating some of the companies effectively being bailed out by the US government. This should only be the start.
The AIG rescue is a particularly unpalatable part of the US response to the crisis. The US government is now pouring good money to back bad policies written by the feckless insurance giant, fronting up $160bn so far. In addition to being numbingly expensive, the bail-out is also grossly unfair and distortionary.
Sadly, it is probably also unavoidable. The Financial Times supported the bail-out of the insurance giant; AIG’s size, its systemic importance and the range of its policies would make a conventional insolvency process for the company an unacceptably risky gamble. But since AIG is now a publicly funded prop for the financial system, a fuller and more up-to-date list of the policy-holders and investors who are benefiting from public largesse should be published.
Taxpayers must know enough to be reassured that the government is genuinely supporting the system rather than writing blank cheques in a blind panic. It is not necessary to reveal the names and addresses of every person whose pension fund is invested in AIG. But the shareholders of big companies that rely on AIG’s products do not have the right to commercial confidentiality if their solvency now relies on public subsidy.
This lesson applies across the global financial system. Since October last year, governments have committed to protect the creditors of their banks. As the bills mount and public support wears thin, it is important to know how the bondholders are actually distributed. Only then can one have a well-informed debate about how to deal with this massive fiscal burden.
Revealing that taxpayers are ladling out money to foreign banks might create an outcry against rescues. Attempts might even be made to cut out creditors on the basis of who they are. But it is wrong to hide the truth simply for fear that it would be unpopular, or require governments to defend their policies.
In any case, secrecy does not prevent rumours, chauvinism or allegations of Wall Street cronyism. On the contrary, scurrilous grapevines flourish in shuttered rooms. It might not save a penny of public money, but in this crisis of the uncertain and unknown governments must shed light on what they are doing. Otherwise, voters – and investors – will assume the worst.
===========================================
17 March 2009
Outraged Obama vows to block AIG bonuses (CNA)
WASHINGTON: President Barack Obama on Monday vowed to block multi-million-dollar bonus payouts by bailed-out insurer AIG as he confronted intensifying public anger against Wall Street excess.
The controversy escalated as New York state Attorney General Andrew Cuomo started to slap subpoenas on American International Group, after the crippled firm ignored a Monday afternoon deadline to divulge details of the bonuses.
Conscious of the potential backlash as his administration readies new support for the financial industry, Obama said the planned bonuses for AIG executives and traders revealed over the weekend were an "outrage."
"This is a corporation that finds itself in financial distress due to recklessness and greed," he said, in a rare flash of public anger, at a White House event with owners of small businesses.
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less 165 million dollars in extra pay," Obama said.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, adding half in jest that "I'm choked up with anger here" as his voice caught at one point.
On Sunday, administration officials said there was little that Treasury Secretary Timothy Geithner could do legally to stop the bonuses, because they were promised under AIG employment contracts before the insurer was bailed out.
But Obama, noting the substantial government support extended to AIG, said: "I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
Massive losses at a London trading division have already forced the US government to pump some 150 billion dollars into AIG, leaving the company 80 percent owned by the taxpayer.
On March 2, the administration unveiled another emergency injection of 30 billion dollars.
According to widespread reports, the bonuses are largely going to traders at the very London-based financial products unit that is blamed for AIG's spectacular fall from grace.
White House spokesman Robert Gibbs said the administration was looking to attach stricter conditions to the latest infusion of 30 billion dollars.
"Certainly, any person that is subject to these bonuses ... should think long and hard about whether, given the performance of the company, this is either warranted or appropriate," he told reporters.
Acknowledging the public's anger at how 700 billion dollars in government bailout money for Wall Street has been used, Gibbs said the AIG case "offends our common sense, offends our sense of value, and seems completely misplaced."
The administration is at risk of deeper public anger after AIG revealed on Sunday that it had passed on 22.4 billion dollars of government money to many foreign-owned banks that signed up for its exotic insurance against risky bets.
France's Societe Generale and Germany's Deutsche Bank were among the top three recipients after AIG used the bailout funds to cover so-called credit default swaps offered by the London office.
AIG was deemed by the US government to be too big to fail, given the intricate web of ties it built with other financial institutions through the credit default swaps linked to the tanking property market.
Obama said he wanted Congress to pass tougher financial regulation "so we don't find ourselves in this position again."
In a letter to Geithner on Saturday, government-appointed AIG boss Edward Liddy said the bonuses could not be canceled due to the threat of lawsuits for breach of employment contracts.
He also argued that AIG risked an exodus of senior employees unless it awarded incentives to retain "the best and the brightest talent."
That argument is being ridiculed in Congress as the Obama administration girds for the tough sell of asking for more bailout money to help US banks clear out their toxic assets.
John Boehner, the Republican leader in the House of Representatives, said the "outrageous" AIG bonuses proved his party's case that Obama must spell out an "exit plan" to wind down his administration's hefty market interventions.
=============================================
15 March 2009
AIG to pay US$450m in bonuses despite bailout (CNA)
WASHINGTON : AIG plans to pay 450 million dollars in bonuses to finance executives who led the US insurance giant to a 99.3-billion dollar loss last year, US media reported Sunday.
The payments have dismayed the US government as AIG has received 170 billion dollars in federal aid.
The bonuses are for staff at the London subsidiary AIG Financial Products, which helped trigger the collapse and then the nationalization of the former world number one insurer, The Wall Street Journal reported.
American International Group CEO Edward Liddy told Treasury Secretary Timothy Geithner bonuses could not be cancelled due to a risk of lawsuits for breaching employment contracts, The Washington Post said.
In a letter to Geithner, Liddy also indicated a refusal to pay bonuses worth tens of millions of dollars would prompt an exodus of senior employees.
"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses -- which are now being operated principally on behalf of the American taxpayers -- if employees believe that their compensation is subject to continued and arbitrary adjustment by the US treasury," Liddy wrote, according to the Post.
Some of the bonuses are as small as 1,000 dollars but seven executives at AIG Financial Products were to receive more than three million dollars in bonuses, The New York Times reported.
For the fourth quarter, AIG announced a loss of 61.7 billion dollars -- the biggest ever for a US firm in one quarter -- pushing up its net loss for 2008 to 99.3 billion dollars.
===============================================
AIG says US$22.4b of govt funds paid other firms (CNA)
16 March 2009
WASHINGTON : US insurance giant AIG revealed it passed on 22.4 billion dollars worth of government bailout funds to other -- largely foreign-owned -- banks and financial firms, a company statement said Sunday.
"Using funds from the emergency loan, financial counterparties received... a total of 22.4 billion dollars in collateral," a statement from the company said.
French bank Societe General, Germany's Deutsche Bank and New York-based investment bank Goldman Sachs were the top three recipients.
Once among the world's largest insurers, AIG has received around 180 billion dollars from the US government to keep it afloat.
The payments announced on Sunday relate to contracts made by AIG's Financial Products branch -- the division widely blamed for the company's downfall.
The payments were made between mid- September until the end of December on credit default swaps contracts -- complex financial derivatives akin to debt insurance.
One of President Barack Obama's top economic advisers Sunday blasted AIG for preparing to hand out millions in bonuses to top executives.
The firm said it was contractually obliged to pay the bonuses, despite posting the worst quarterly loss in US business history at the tail end of 2008.
American International Group announced a quarterly loss of 61.7 billion dollars, pushing up its net loss for 2008 to 99.3 billion dollars.
===============================================
16 March 2009
Let the sunlight in (FT)
Many responses to the financial crisis have been leaps into the dark. But that is not a reason to avoid turning on a light. Details of AIG’s counterparties have been released, illuminating some of the companies effectively being bailed out by the US government. This should only be the start.
The AIG rescue is a particularly unpalatable part of the US response to the crisis. The US government is now pouring good money to back bad policies written by the feckless insurance giant, fronting up $160bn so far. In addition to being numbingly expensive, the bail-out is also grossly unfair and distortionary.
Sadly, it is probably also unavoidable. The Financial Times supported the bail-out of the insurance giant; AIG’s size, its systemic importance and the range of its policies would make a conventional insolvency process for the company an unacceptably risky gamble. But since AIG is now a publicly funded prop for the financial system, a fuller and more up-to-date list of the policy-holders and investors who are benefiting from public largesse should be published.
Taxpayers must know enough to be reassured that the government is genuinely supporting the system rather than writing blank cheques in a blind panic. It is not necessary to reveal the names and addresses of every person whose pension fund is invested in AIG. But the shareholders of big companies that rely on AIG’s products do not have the right to commercial confidentiality if their solvency now relies on public subsidy.
This lesson applies across the global financial system. Since October last year, governments have committed to protect the creditors of their banks. As the bills mount and public support wears thin, it is important to know how the bondholders are actually distributed. Only then can one have a well-informed debate about how to deal with this massive fiscal burden.
Revealing that taxpayers are ladling out money to foreign banks might create an outcry against rescues. Attempts might even be made to cut out creditors on the basis of who they are. But it is wrong to hide the truth simply for fear that it would be unpopular, or require governments to defend their policies.
In any case, secrecy does not prevent rumours, chauvinism or allegations of Wall Street cronyism. On the contrary, scurrilous grapevines flourish in shuttered rooms. It might not save a penny of public money, but in this crisis of the uncertain and unknown governments must shed light on what they are doing. Otherwise, voters – and investors – will assume the worst.
===========================================
17 March 2009
Outraged Obama vows to block AIG bonuses (CNA)
WASHINGTON: President Barack Obama on Monday vowed to block multi-million-dollar bonus payouts by bailed-out insurer AIG as he confronted intensifying public anger against Wall Street excess.
The controversy escalated as New York state Attorney General Andrew Cuomo started to slap subpoenas on American International Group, after the crippled firm ignored a Monday afternoon deadline to divulge details of the bonuses.
Conscious of the potential backlash as his administration readies new support for the financial industry, Obama said the planned bonuses for AIG executives and traders revealed over the weekend were an "outrage."
"This is a corporation that finds itself in financial distress due to recklessness and greed," he said, in a rare flash of public anger, at a White House event with owners of small businesses.
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less 165 million dollars in extra pay," Obama said.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he said, adding half in jest that "I'm choked up with anger here" as his voice caught at one point.
On Sunday, administration officials said there was little that Treasury Secretary Timothy Geithner could do legally to stop the bonuses, because they were promised under AIG employment contracts before the insurer was bailed out.
But Obama, noting the substantial government support extended to AIG, said: "I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
Massive losses at a London trading division have already forced the US government to pump some 150 billion dollars into AIG, leaving the company 80 percent owned by the taxpayer.
On March 2, the administration unveiled another emergency injection of 30 billion dollars.
According to widespread reports, the bonuses are largely going to traders at the very London-based financial products unit that is blamed for AIG's spectacular fall from grace.
White House spokesman Robert Gibbs said the administration was looking to attach stricter conditions to the latest infusion of 30 billion dollars.
"Certainly, any person that is subject to these bonuses ... should think long and hard about whether, given the performance of the company, this is either warranted or appropriate," he told reporters.
Acknowledging the public's anger at how 700 billion dollars in government bailout money for Wall Street has been used, Gibbs said the AIG case "offends our common sense, offends our sense of value, and seems completely misplaced."
The administration is at risk of deeper public anger after AIG revealed on Sunday that it had passed on 22.4 billion dollars of government money to many foreign-owned banks that signed up for its exotic insurance against risky bets.
France's Societe Generale and Germany's Deutsche Bank were among the top three recipients after AIG used the bailout funds to cover so-called credit default swaps offered by the London office.
AIG was deemed by the US government to be too big to fail, given the intricate web of ties it built with other financial institutions through the credit default swaps linked to the tanking property market.
Obama said he wanted Congress to pass tougher financial regulation "so we don't find ourselves in this position again."
In a letter to Geithner on Saturday, government-appointed AIG boss Edward Liddy said the bonuses could not be canceled due to the threat of lawsuits for breach of employment contracts.
He also argued that AIG risked an exodus of senior employees unless it awarded incentives to retain "the best and the brightest talent."
That argument is being ridiculed in Congress as the Obama administration girds for the tough sell of asking for more bailout money to help US banks clear out their toxic assets.
John Boehner, the Republican leader in the House of Representatives, said the "outrageous" AIG bonuses proved his party's case that Obama must spell out an "exit plan" to wind down his administration's hefty market interventions.
=============================================
15 March 2009
AIG to pay US$450m in bonuses despite bailout (CNA)
WASHINGTON : AIG plans to pay 450 million dollars in bonuses to finance executives who led the US insurance giant to a 99.3-billion dollar loss last year, US media reported Sunday.
The payments have dismayed the US government as AIG has received 170 billion dollars in federal aid.
The bonuses are for staff at the London subsidiary AIG Financial Products, which helped trigger the collapse and then the nationalization of the former world number one insurer, The Wall Street Journal reported.
American International Group CEO Edward Liddy told Treasury Secretary Timothy Geithner bonuses could not be cancelled due to a risk of lawsuits for breaching employment contracts, The Washington Post said.
In a letter to Geithner, Liddy also indicated a refusal to pay bonuses worth tens of millions of dollars would prompt an exodus of senior employees.
"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses -- which are now being operated principally on behalf of the American taxpayers -- if employees believe that their compensation is subject to continued and arbitrary adjustment by the US treasury," Liddy wrote, according to the Post.
Some of the bonuses are as small as 1,000 dollars but seven executives at AIG Financial Products were to receive more than three million dollars in bonuses, The New York Times reported.
For the fourth quarter, AIG announced a loss of 61.7 billion dollars -- the biggest ever for a US firm in one quarter -- pushing up its net loss for 2008 to 99.3 billion dollars.
===============================================
AIG says US$22.4b of govt funds paid other firms (CNA)
16 March 2009
WASHINGTON : US insurance giant AIG revealed it passed on 22.4 billion dollars worth of government bailout funds to other -- largely foreign-owned -- banks and financial firms, a company statement said Sunday.
"Using funds from the emergency loan, financial counterparties received... a total of 22.4 billion dollars in collateral," a statement from the company said.
French bank Societe General, Germany's Deutsche Bank and New York-based investment bank Goldman Sachs were the top three recipients.
Once among the world's largest insurers, AIG has received around 180 billion dollars from the US government to keep it afloat.
The payments announced on Sunday relate to contracts made by AIG's Financial Products branch -- the division widely blamed for the company's downfall.
The payments were made between mid- September until the end of December on credit default swaps contracts -- complex financial derivatives akin to debt insurance.
One of President Barack Obama's top economic advisers Sunday blasted AIG for preparing to hand out millions in bonuses to top executives.
The firm said it was contractually obliged to pay the bonuses, despite posting the worst quarterly loss in US business history at the tail end of 2008.
American International Group announced a quarterly loss of 61.7 billion dollars, pushing up its net loss for 2008 to 99.3 billion dollars.
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