Friday, March 20, 2009

Bonus? Pah! They're balloon payments of delayed compensation!

This is my latest iteration explaining the so-called "Bonuses" to people looking for a cause to get upset over. I got it basically from Chairman Liddy's explanation of the bonuses to the grandstanding Congressman.

Those payments are not what the media thinks they are. The contracts were written in Jan 2008 to give to the technician managers of the bundles of CDO's that remained after firing Joe Cassano and shutting down his financial products division because of the losses that had occurred in the CDO's AIG was managing.

AIG had massive investment in the remaining CDO's. The current investment is still $1.6 trillion dollars. They have a fixed termination date and don't pay off until that date, and have to be managed on a daily basis every day until that final date. Each bundle of CDO's has to be hedged against changes in default risk as the risks in the market change. The technicians, the bundle managers understand both the hedging markets and the particular structure of the given CDO bundle they are managing. Replacement bundle managers simply cannot be trained and trusted not to cause a default of the CDO which loses the entire investment AIG has in it AND triggers massive default penalties. It is critical that each manager remain on the job until the last day of the bundle he manages.

However, AIG has shut down the FP unit. After the bundle expires, there is NO JOB for them at AIG. AIG is reverting to being an insurance company and has been since January 2008. Only, they have to recover the investment in each CDO bundle without it going into default, which can only be done after the Bundle final expiration date has passes. Then those managers are out of jobs.

How do you stop the managers from finding new jobs and moving on now, instead of at the end of the life of the bundle they are managing? Keeping those managers on the job for the life of the investment is crucial to the recovery of the funds invested in those CDOs by AIG, and that is crucial to AIG actually repaying the taxpayer bailout funds. The alternative is a series of defaults in which the investment funds are lost, AIG is destroyed, and the world banking system is seriously threatened at the very least. Imagine the economic consequences of that. That will be avoided if those managers remain at their jobs until the contracts expire and the investment in each intensively managed bundle of CDOs is recovered with the expected profit. Thus the contingent final payments, contingent on the contracted individuals working until the end of the bundle they are each managing.

Those payments should be called deferred compensation with a balloon payment contingent upon completing the job to the final expiration. They don't get the pay until the job is finished. Which explains the 13 bundle managers who have left AIG before getting paid. They had to finish the job to get paid, and after that, the job was over. But since they had fulfilled the terms of the contract, they were owed the promised money.

The $175 billion in taxpayer money will be repaid with a significant profit if the bundles don't go into default. It is WORTH taxpayer money to pay those bonuses if it keeps the managers protection OUR investment funds and keeping them out of default. Those "Bonuses are a mere pittance compared to what will be lost if the managers leave early. You want the managers to collect that money. I want those managers to collect that money. That means they finished successfully and WE GET THE BAILOUT MONEY BACK - with interest. Probably a big profit. Certainly a profit more than large enough to cover the so-called "Bonuses. "

Sadly, the incompetent financial media is looking for a story to sensationalize, so they misread (intentionally?) what the so-called "Bonus" payments are for. Certainlythey aren't reporting on it. They are disseminating assumptions, not facts. The media consist of essentially incompetent "reporters" and shills selling investment products. It's a frigging game to the media. Jon Bennet Ramsey is gone, there hasn't been a murdered white girl to sensationalize for months, and OJ Simpson has gone to prison after all, so they have latched on to this. They have nothing else to pile on to. The Republicans are egging them on because they, too, are incompetent, losing as politicians, and they are generally venal. Republicans are aiding and abetting in large part because they are almost universally negative-talking assholes.

Oh, and the managers are back-office administrative technicians. They supported the sales turkeys after the sales people sold the products. Period. The managers do not sell product, nor do they generate revenue. AIG fired all those sales people in January 2008 when they started to shut the FP division down. The sales people were the decision makers who created those products that turned out to be so toxic. The bundle managers manage nothing except their own staff who are responsible for on-going monitoring of the existing contract bundles. They were not responsible for the creation of the CDOs that have been so generally toxic so widely. They just manage the investments to keep them profitable until they can be liquidated.

Bonus payments? Forget it folks. There's simply no real story there.

The real problem is that the media is creating one of its patented circuses over this subject, so the actual subject very quickly got lost right from the get-go. There has been NO REPORTING! None. Zilch.

Especially there has been no reporting from the so-called financial news.

The Obama people, from Barack on down, are waiting the wild-assed journalists out. No real response, no counters, no nothing. Anything they do will just prolong the journalistic idiocy, so they are quietly letting the furor die out on its own.

It is driving the so-called journalists nuts. Watch the fun and enjoy their frustration. I keep hoping for some real journalism to break out and for someone to ask some real questions, but I don't consider it at all likely. This is the TV age. We get images instead of questions with real answers based on real evidence.

Even the bloggers are caught up in the furor. The right-wing bloggers always have, and the left wing bloggers are used to going after the idiots of the Bush administration.

It's going to be a while before the Obama people bring the TV personalities to heel, but it's happening. Just watch and enjoy the show.

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