Josh Marshall reported briefly this morning on why the AIG administrator (appointed by the Secretary of the Treasury) claimed he felt it was necessary to provide those bonuses. The Reuter's report explained it this way:
The decision to give out those bonuses is so wrong on so many levels that it is beyond ridicule. AIG is on life support, based on the earlier decisions made by the very executives now getting these bonuses as payment for their earlier services. Without taxpayer funding, there would be NO MONEY with which to pay these bonuses! So why did Liddy make that decision? Here's what we know about Liddy.
AIG Chairman Edward Liddy said in a letter to U.S. Treasury Secretary Timothy Geithner that the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set early last year before problems at the Financial Products unit became public.
About half of the $1 billion was due to be paid to staff of AIG's main insurance businesses and the rest to employees of the largely unregulated AIG Financial Products.
AIG Financial Products was the unit that made bad bets on toxic mortgages and credit default swap contracts that led to the company's near collapse.
AIG Chairman Edward Liddy was appointed as Chairman of AIG back in June 2008 after AIG had gotten into severe credit problems. Liddy is a long-time Wall Street banker, clear trusted by the Board of AIG to protect AIG from the problems it was in. The timing of his appointment, well before the general Wall Street Financial Crisis demonstrates clearly that his loyalty is to AIG as an institution first rather than to the government, the taxpayers, or even the overall banking system.
This orientation would have made him a good match for the Bush Treasury Secretary, Henry Paulson, also a long-time Wall Street banker. By the end of the Bush administration, it was generally clear that Paulson similarly had a greater loyalty to the institutions of Wall street Banking than he did to taxpayers, government or to society in general.
Unfortunately, most of Obama's experts have similar backgrounds, not least being Timothy F. Geithner the current Secretary of the Treasury.
So what, you say? That's where the expertise is. Quite true. But consider Chairman Liddy's explanation for his decision to pay those bonuses, shown above. Then consider this article at CFO.com. It's title, "Creditors Could Go After Lehman Bonuses," is not even hinted at by Chairman Liddy's explanation.
The CFO article, based on the earlier experience of Lehman Bros. after they went bankrupt, rather strongly suggests that a bankrupt company not only did not need to pay out bonuses to it's executives, but also that if they did, the bankruptcy court could later demand that those bonuses be returned for redistribution to the creditors. Such a payment of bonuses when bankruptcy looms literally amounts to theft from the creditors.
The only difference in situation between the earlier, smaller Lehman Bros. and AIG is that the Treasury stepped in to provide funds that allowed AIG to remain outside the jurisdiction of the bankruptcy court. By so doing, the Treasury also became AIG's largest creditor.
Why Liddy and his attorneys might think the government would not sue to get those bonuses back is a mystery, unless they were depending on the kindness of Timothy Geithner based on his prior history at the Federal Reserve Bank of New York and on the general nature of the incoming personnel at the Obama Treasury Department. That may not have been a bad bet. Liddy many also have believed that they could weather the firestorm of political objections.
On this latter bet, I sincerely hope they were wrong. Those bonuses must not be allowed to stand. That's MY money, and yours, being paid to crooks and fools as a reward for failure. Wall Street cannot be allowed to float along with impunity above the financial disaster that they, specifically, are largely responsible for.
Wall Street must change before it drags America (and the World) back into further financial crises like this one. They have largely created this financial mess. They must not be allowed to do it again. Retrieving those bonuses will not change Wall Street, but it will be a strong signal that the old rules they wrote are dead.
This is going to be a clear battle. It is between them and us, and we'd better win.