Today Congress had AIG's Chairman Liddy in front of them to explain why he approved and permitted the payment of $165 million dollars to executives of the AIGFP division out of taxpayer funds. There is a great deal of public outrage at the appearance made by giving the bonuses, called retention bonuses, on March 15th. Some of the multimillion dollar bonuses were paid to individuals who have already left the job. The video of Liddy's testimony can be found here.
My reaction to his testimony started with disgust at Liddy's initial evasiveness (as I had expected), but then became more sympathetic to the problems Liddy was dealing with. I'd have to say that by the end of his testimony I feel that the media simply has not given the AIG situation a fair break. My reaction frankly surprised me, and it is NOT one I was inclined to make for him. But Liddy is not a tobacco executive.
Liddy was at the beginning evasive on whether he would comply with NY State AG Cuomo's subpoena for the names and amounts of the bonuses which were paid. He seems to feel that the employees have privacy rights that might override AG Cuomo's subpoenas, so Liddy cannot right now commit to compliance with the subpoena. When pressed for a yes or no answer to the question of whether he would comply with the subpoena that NY State AG Cuomo had sent asking for the names and amounts of bonus of individuals getting the payments Liddy would not say either way. He does not seem to believe that is a decision he can make without his attorneys. Upon reflection, I think I would agree with him. That's a Congressman's PR-hungry trap question.
Liddy is not a PR expert, and I have to have sympathy for him. He has neither the training nor the experience in putting public lipstick on a pig to pretty is up when it is already hated by the mob. He is sitting in front of Congress trying to defend actions that he felt were critical to the continued survival of AIG but which run counter to the current wave of public and Congressional outrage.Let me explain that.
The bonuses were apparently contracted for back in January 2008, and it is my reading of Liddy's responses that the retention bonuses were contracted to guarantee that the individuals would work out highly complex books of derivative contracts which require daily evaluation and manipulation until those books could be shut down and closed out without going into default along the way. That would mean that the reference retention was completed in the year 2008, not on-going. Liddy also makes the point that those contracts were written long before he came on the scene last September, and that he would not have written the contracts that way. While the payment of the bonuses occurred this year, the decision to pay them was made in January 2008 upon completion of the work contracted for. These were not performance bonuses in the sense of being for successful sales. They were for completion (performance) of services contracted for in January 2008. They were contracts to get individuals to shut the books of derivatives down without loss of great sums that default would have involved.
Liddy said that he knew making those payments was going to lead to public outrage, but he felt that the work had been contracted for at a price and performed as contracted for so he was committed to making those payments.
That's no doubt what Secretary of the Treasury Geithner and Chair of the Economic Advisers Summers saw when they let it pass without blocking it.
I'm glad that I didn't have to make the decision to make those payments and then have to defend my decision before Congress. Liddy's job has been to parachute in after the credit crunch of last Fall, take over AIG, isolate the destructive CDS and shut them and the derivative books down without losing any more money than necessary (a complex process easily screwed up at extreme cost in case of default), and then sell off the various parts of AIG to pay the Treasury back for the funds that were put into it. The assets are there, and given time and effort to maintain them until the end of the contract, can permit full recovery of their value for the taxpayers. Default would destroy their value and instead create massive losses. The guys getting the bonuses were doing the daily maintenance and shut down. Apparently the crooks who created those contracts were removed in September.
When anticipating the public outrage the bonus payments made, Liddy, top AIG managers, and US government officials were anticipating normal public outrage. The ability and intent of the ignorant Washington media to blow the issue up to "Terry Shiavo" levels to feed to a ravening, angry public was not anticipated.
That's what I gleaned from Liddy's testimony. It's also an explanation that would explain why Larry Summers and Timothy Geithner (grudgingly) approved of the bonus payments before the "loyal opposition" and the Washington Media looking for a scandal blew it up into a media firestorm.
I guess I'll have to shelve my earlier, more paranoid conclusion that the payment of the bonuses was the result of a scam by holdover Financial Products executives. I sort of regret that. My crooks-running-a-massive-scam over non-lawyers was more fun. But Liddy's explanation fits the facts better and requires a lot less criminality.
Josh Marshall, however, is looking into the possible criminal fraud that occurred in AIGFP. He seems to think that there is a RICO investigaion going on. The previous head of AIGFP, Joseph Cassano, was a protege of crooked bond trader Micheal Milken who went to prison for his junk bond dealings.
The division that has caused all of AIG's problem, AIGFP, is a separate apparenlty wholly-owned organization called AIG Financial Products.