Thu 19 Mar 2009
News about ethical problem in AIG bonus for executives
Posted by arully under Economy , Politics[2] Comments
Ethics in receiving bonuses -
Discussion: Wall Street Pursues Pay Loopholes – WSJ.com
Bad year or good, AIG employees got big bonuses – Yahoo! News
President Barack Obama said Monday that he would “pursue every single legal avenue to block” $165 million in bonuses to American International Group Inc. employees who were in part responsible for the insurance giant’s near collapse. But hours later, administration officials said the payouts made Friday couldn’t be extracted from their recipients without a legal fight that would cost the taxpayers even more. Instead, officials said the White House will focus on ensuring taxpayers recoup the cost of the bonuses and, going forward, executive compensation at AIG would be on a much tighter leash. As leverage, the government said it would apply new rules to the next round of AIG bailout funds, a $30 billion infusion pledged earlier this month. But administration officials also worry that taking too hard a line with AIG and other companies could discourage top financial experts and institutions from joining the government efforts to fix the financial system. That’s one argument that AIG itself has used to justify the bonus payments: that if certain executives leave at this point, their departures would complicate efforts to wind down the financial-products division. The unit’s books contain many transactions that are “difficult to understand and manage,” according to an AIG document explaining the retention plan the company submitted with the Saturday letter to Mr. Geithner. “This is one reason replacing key traders and risk managers would not be practical on a large scale,” the document continued.
Yesterday, facing a political firestorm, President Barack Obama responded: “This is a corporation that finds itself in financial distress due to recklessness and greed,” he said. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay.” He then said he instructed Treasury Secretary Tim Geithner to pursue “every single legal avenue” to cancel the bonuses. What went wrong? AIG was done in by credit default swaps and other derivatives tied to securities and corporate debt. When these financial instruments weakened, the company lost massive amounts of money. In the course of one night last September, AIG’s cash needs went from $20 billion to $80 billion. To meet these financial needs, the whole company was practically wiped out.
Some top employees of American International Group Inc.’s disgraced Financial Products group have agreed to return hefty retention bonuses under mounting public outrage over $165 million in payouts to a unit that brought the insurer to its knees.
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And yet nothing has systemically changed in the way these casinos do business. Risky trades are still made. The banks still bet against their own clients trades. Bad assets still sit on corporate balance sheets. These institutions add no real value to society, only create phony wealth for themselves at the expense of the taxpayer and their enablers in Congress and the White House.
The stock market rebounded and generated these large bonuses because of the government bailout of Wall Street after the derivatives market caused the financial meltdown. They got these bailouts because of insiders like Larry Summers and Timothy Geithner among others who were part of the team that fought tooth and nail to prevent regulation of that market. They protected the obscene profits these financial institutions earned prior to the collapse and pushed to bail them out so they could continue to earn obscene money. The Free Market advocates said that the market would self regulate and it did when the meltdown occurred. Then they took care of their own with the bailout and millions of ordinary Americans are paying the price and will do so for years to come. Of course, Obama has these men in key economic positions in government today while simultaneously paying lip service to the effect that he is going to take steps to avoid another similar crisis. I find it hard to believe that anything will actually occur to substantively change the policies that these men help put in place. I hope their new Lamborghini’s, second and third homes and lavish vacations help to console their conscience as they drive by the millions of foreclosed homes, bread lines and homeless. The next crisis is just around the corner and another bailout may not be there to save them and us.