Wednesday 27th of November 2024
Home » Blogs » John Richardson's blog

feral failure .....

feral failure .....

If you had to find one single group of people to blame for US economic crisis, you'd definitely have to consider the financial products division of AIG.

They made huge, bad bets on the housing market that have cost taxpayers US$170 billion...so far. That's more than US$500 from every American.

But get this: these people are receiving US$450 million in bonuses & they got their first instalment yesterday. They destroyed the US economy & now they're being rewarded for it with taxpayers’ bailout money!

Treasury Secretary Tim Geithner & the US Congress need to do whatever it takes to get this money back. The government may need to get creative to recover these bonuses, but where there's a will, there's a way.

And some folks in Congress get it ….. Representative Barney Frank & Senator Russ Feingold are already investigating ways to get the money back.

Secretary Geithner claims to have already shamed AIG into reducing the bonuses they planned on paying out. But seven executives in the financial products division will still receive bonuses of more than $3 million each. These people wrote literally trillions of dollars in insurance contracts - those infamous credit default swaps - that they could never hope to cover. And they're getting huge bonuses for perpetrating this fraud.

AIG's main defence is that they have to honour the contracts with these employees.

But let's be clear: AIG would be bankrupt & these folks would already have been laid off if it weren't for the government's massive infusion of money. The big car companies took far less taxpayer money & they're modifying their contracts with autoworkers: a condition of the US$17.4 billion in government loans that the automakers have received.

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others.

Either way, the Obama administration's claim that nothing can be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

As any lawyer knows, there are few things more common - or easier - than finding legal arguments that call into question the meaning & validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements.  Particularly in circumstances as extreme as these, there is a litany of arguments & legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

Of course, since the contracts are secret & everyone is apparently just supposed to rely on the claims of AIG & Treasury Department lawyers, it's impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it's inconceivable that there aren't substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.

The only way a company like AIG throws up its hands from the start & announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so - they haven't exactly proven themselves to be paragons of business ethics - but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

Geithner & Congress need to do whatever it takes to recover that money.

Of course outrage against American International Group (AIG) is set to grow after the ailing insurance giant said that more than half the taxpayer bailout money it has received has been paid to investment firm Goldman Sachs and several European banks.

AIG's disclosure on Sunday that Goldman & the banks had received US$90bn out of the US$173bn of bailout money it received, came as US government officials & politicians expressed anger at the US$165m in bonuses that AIG said it had to pay its employees.

AIG said it paid out US$90bn to firms such as Goldman Sachs - formerly led by Henry Paulson, who was treasury secretary at the time of the original AIG bailout - & to European banks such as Deutsche Bank, Societe Generale & Barclays.

While the payments were not illegal, the fact that billions of dollars given to prop up AIG were then transferred to European banks & Goldman Sachs could raise new doubts about whether the bailout was economically necessary.

Through three separate types of transactions, Goldman Sachs received US$12.9bn. Among the European banks, Societe Generale was the biggest recipient at US$11.9bn, Deutsche Bank got US$11.8bn & Barclays was paid US$8.5bn, AIG said.

The list was made public by AIG amid growing pressure on the insurer to disclose the true beneficiaries of the bailout, ahead of a congressional hearing on Wednesday at which Edward Liddy, AIG's chairman & chief executive, is expected to testify.

Democrat Representative Elijah Cummings, a member of the Joint Economic Committee, today renewed his calls for AIG CEO Edward Liddy to resign.

"For months, I have been calling on Edward Liddy to step down from his position leading AIG & I loudly & clearly renew that call today," Cummings said Sunday in a paper statement. "Mr. Liddy has repeatedly taken billions of hard-earned tax dollars from the American people - many of whom have lost their homes, their savings & their jobs - & then slapped those people in the face with that very money.

Mr Liddy continues to display reckless & irresponsible behaviour at the helm of this company & we simply cannot afford to accept it any longer."

Cummings first called for Liddy to resign in November. Today the Maryland Democrat accused AIG of "trying to play the American people for fools."

elsewhere at the trough …..

Citigroup Inc awarded Chief Executive Vikram Pandit US$10.82 million of compensation in 2008, a year when the government propped up the bank with US$45 billion of capital.

Citigroup also nominated four new independent directors to bolster the banking & financial expertise on its board, including Anthony Santomero, 62, a former president of the Federal Reserve Bank of Philadelphia.

The bank faces increased government pressure to right itself after more than US$85 billion of writedowns & credit losses since the middle of 2007.

Pandit said in February he will accept a US$1 annual salary & no incentive pay until the bank is profitable. His nearly US$11 million of 2008 compensation included US$7.73 million of sign-on & retention awards last January, the month after he took over.

Wall Street has proven over & over that it's incapable of policing itself. So, elected representatives need to. Otherwise they are complicit in this monstrous obscenity.

Off with their heads!!

pass the billionaise...

From the New York Times editorial...

Altogether, the disclosures account for $107.8 billion in A.I.G. bailout money. Which leaves us wondering about the rest of the money. Another $30 billion was added to the A.I.G. bailout pot this month and must be accounted for as soon as it is spent. That leaves some $32 billion unaccounted for. Where did it go?

Taxpayers also need to be told the precise nature of the banks’ dealings with A.I.G. Appearing on “60 Minutes” on Sunday, Ben Bernanke, the Federal Reserve chairman, described A.I.G. as a company “that made all kinds of unconscionable bets.” Well, on the other side of those bets are the banks that received the bailout money. It is possible that one side of a bet is acting unconscionably and that another side is acting in good faith. But it’s also possible that both sides are trying to play an unseemly game to their own advantage.

Congress must investigate, and the new disclosures give them enough to get started. Untangling all the entanglements is not only essential to understanding how the system became so badly broken, but also to restoring faith in the government that it is up to the task of fixing it.

----------------------------

We've been screwed, most likely by stupid bets (futures, derivatives and CDSs)...

Although "betting" on "futures" is not new and crudely goes back possibly to mid-medieval times — such as when a miller had to get flour on a particular date, thus would be ready to pay premium price "in the future" — a price agreed with a suppliers who would have to buy from various other sources, should the local supply fall short because of the weather and other factors, such as wars — this system, once extended to the vagaries on the strange sandy value of money, tends to become very air-headed...

It does not help anyone... — except it keeps an army of fancy traders employed (some now unemployed) to bet against each other on the value of nothing and stinking shifting money. Every-time a bet is contracted, a certain small percentage falls in the lap of the traders who actually do not bet with their own dough but that of banks and financial institutions. Whether the bet is sound or not, it is no skin off the nose of the traders to trade at max speed, as they get their cut everytime. In the long run, even if the traders are super-smart the bets only have a 50/50 chance to win or to fail — and if the traders are dummies, the bets will fail about 99 per cent of the time with one per cent of good luck...On bets alone, the entire yearly world GDP has been mortgaged 10 times over...

It is in the interest of the traders and the banks to spruik a particular area of the market, such as exchange rates and credit supply that may indirectly affect their bets, but they are not allowed to "manipulate" the market...

When the bets for-and-against fail to equalize themselves, even within a very small margin, the pay-outs become huge. With a margin of less than 5 per cent against an institution like AIG, the payouts become in the tens of billions....For AIG it ended up to be in the vicinity of 170 billion — so far...

Welcome to this massive billionaise... You and I are mere mortals. The rest of it borders on risky fraudulence...

retain me, retain me .....

The American International Group, which has received nearly $200 billion in bailout funds, last week paid bonuses to 418 employees, including $33.6 million to 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general.

The company paid the bonuses, including more than $1 million each to 73 people, to almost all of the employees in the financial products unit responsible for creating the exotic derivatives that caused A.I.G.'s near collapse and started the government rescue to avoid a global financial crisis.

The information adds to the firestorm confronting the Obama administration and Congress since the weekend disclosure that A.I.G., almost 80 percent owned by the government, paid out $165 million in bonuses.

http://www.nytimes.com/2009/03/18/business/18bailout.html?_r=2&hp

who, me .....

Politicians like Chris Dodd who said on Tuesday March 17th that he absolutely had nothing to do with the language in the bailout bill that allowed AIG bonuses to be paid by Feb. 11th with bailout money.

Then today, March 18th, he appeared on CNN and in his words: "stepped up to the plate" (political talk for doing the right thing, which is a big deal inside the beltway) and said that "people" from the treasury department came to him and asked him to add an amendment (loophole) to the AIG bailout bill at the last minute to allow for the payment of bonuses.

When asked who these "people" were he said he didn’t know exact names. He also said that he didn’t write the amendment and didn’t know what exactly it said, even though his name was on it.

What a load of bulls**t. Especially considering Sen. Dodd was the biggest recipient of AIG-related donations in the 2008 presidential campaign cycle. To his credit he did apologize for the "confusion" (more political talk for lying and getting caught).

I’m tired of the federal government, in their holier-than-thou arrogance, prosecuting people for "lying to federal prosecutors" or "lying to federal investigators". Are you kidding me? It’s logistically impossible for anyone to lie on a greater scale and with more profound consequences to our country than what the government engages in on a daily basis.

http://www.lewrockwell.com/orig9/cooper7.html

fiddling the other pocket .....

While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.

A.I.G. sued the government last month in a bid to force it to return the payments, which stemmed in large part from its use of aggressive tax deals, some involving entities controlled by the company’s financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens.

A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds.

The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.

http://www.nytimes.com/2009/03/20/business/20aig.html?_r=1&hp