AIG bonuses

[alki_2008]

JoB – for the umpteenth time…the non-AIG (and some AIG) employment contracts were made AFTER the reorgs, not BEFORE.

Walfredo – Greenberg, Cassano, Prince, Killinger, Rotella, O’Neal, Thompson and many other high-ranking financial executives are gone and they’ve taken their millions with them. The current AIG/financial employees are just cleaning up the messes…which most of them didn’t make.

The notion that ‘plenty of people would do those jobs without bonuses’ is absurd. Considering the swaps and CDO’s were so complicated that federal regulators had a hard time figuring out what was going on, then how many finance folks are really ‘qualified’ for these jobs? And those that ARE won’t touch AIG with a 10-ft pole. They don’t want the instability or the public scrutiny that comes along with AIG employment.

My god if we didn’t have these talented people just think what could happen! They might go bankrupt?

Yes, taxpayers’ $150 billion dollar investment and 80% ownership of AIG would become worthless. Taxpayers OWN 80% of AIG! Retained employees are not making NEW deals that would cause further harm, and some of them were transferred from other divisions/groups to replace the unethical folks that were booted from the company.

if the employees who accepted retention bonuses had negotiated incentives instead, they would have been paid their money up front before the US taxpayer started subsidizing their salaries.

Does this imply that there’s a substantive difference between “incentives” and “bonuses”? Would there have been less outrage if AIG paid $165M in “incentives” rather than “bonuses”? The purpose of ‘retention’ is to have employees stay at the company for XX months, and then get paid at the END of those XX months. Paying them upfront reduces motivation to stay with the company and work to unravel the mess, especially in the face of public outrage.

I suspect the “bonus” taxes would’ve just been “incentive” taxes instead. Whether it’s incentive, performance, retention, signing, etc…it’s still “extra”. Sure, performance bonuses aren’t deserved for executives (as performance bonuses should be tied to company performance metrics), but retention/contracted bonuses are different. Are those that keep equating the two even familiar with the difference?

My argument isn’t about financial companies breaking the employment contracts, it’s about the government using special taxes to “essentially negate” (ie, break) the contracts that the financial companies ARE honoring.

JoB – I’m not privy to the investments held in your own 401k, but I’m confused why you would’ve had to take a 10% withdrawal penalty rather than shifting the assets into more stable investments (CD’s, bonds, savings accounts)…which wouldn’t require withdrawal/penalties?

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[JoB]

beachdrivegirl…

no law was broken when the mortgages were packaged thanks to a change in the law nearly ten years ago…

but as someone who was trained in auditing, i can tell you that giving toxic assets a #1 rating and marketing them as something they weren’t to pension funds is fraud… very similar to the sort engaged in by Enron and it’s accounting firms.

You are correct that no-one has been prosecuted for any of this yet.. and may never be.. but that didn’t make fraud legal.

somewhere, someone is very responsible.

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[JoB]

Walfredo…

i never thought i would find myself in agreement with your rhetoric.. but we agree on this…

“These morons need to be fired- and prosecuted- and most of them put in jail or shot. Real jail or real bullets. Stealing $500 at a 7-11 is 5 years in prison- stealing $150 billion dollars and destroying an American institution is worth a bonus- and continued employment. All of us will be paying for these crooks for decades to come- and the bonuses aren’t even the tip of the iceburg. “

well, maybe not the bullets part:)

but certainly the part about jail and the extreme double standard when it comes to white collar crime.

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[JoB]

alki_2008…

There is no reason that the good people who came in to straighten out the AIG mess couldn’t have been the heroes in this situation had they chosen to act like heroes.

The financial wizards who straighten out this mess will be seen as rainmakers in this economic climate… they wouldn’t be tarred with the AIG brush… they would be the guys who whitewashed the AIG tar.

and please notice that i chose the word whitewashed.. not cleaned up or removed… or even sanitized… just whitewashed enough to patch things up so business as usual can get on with.. business.

Admitted, they might have had to forgo the possibility of more lucrative employment short term… though i think those opportunities are diminishing rapidly… but the sky would have been their limit after.

Those who chose to return the bonuses and continue the work will likely have very lucrative futures… perhaps not as lucrative as might have been possible in the age of golden excess… we can hope that has ended… but still not bad.

Alki_2008.. no matter how you want to paint them.. these aren’t the little guys we are talking about… $250,000 ADJ gross income is an amount beyond the wildest dreams of most Americans… and those who make that kind of income have the expertise available to them to limit their tax liability.

This is our first year without a mortgage and I just filed our taxes and i can guarantee you that even without buying a house we will be making changes this year to limit our tax liability. When your best friend makes double your income and pays half the tax you do.. and doesn’t have a mortgage either… you are quickly reminded that it might be time for some financial planning.

Some people do pay a far greater proportion of their income in taxes because they don’t avail themselves of the kind of expertise available to those who make those quarter million plus incomes.

And most of the average hardworking joes who invested in their retirement programs can’t even claim their losses in the stock market this year since they can’t sell the stock captive in their 401K and take the loss…. an accounting maneuver available to those whose assets are not tied in their 401Ks … and a great vehicle for reducing that adjusted gross income:)

funny isn’t it. you sell and buy the same asset on the same day and you can take the loss that year… you lose nothing in assets.. but you gain a great deal in taxes….

as for our retirement loss.. sadly, i imagine our conversation played out across many living rooms in America… if there was no “need” to get the retirement money out of the captive system… there was no “need” to move it to much safer vehicles… and lose money… that is if your timing allowed access to those safer options within your 401K plan.

Not only are 401K dollars captive in the system, they come with a whole lot more strings attached to what you can and can’t do and how quickly you can do it… and that becomes even more complicated when the money is in a plan administered by your employer.

The “experts” were all urging us to push our money into the stock market as quickly as we could set it aside where it could provide for our financial future :(

I am not bitter about our personal circumstances because most of us are in the same boat and doing our best to deal with the mess the “experts” created for us in their lust to make even more money…

But I am also not willing to hand more of my taxpayer dollars than i have to over to those “experts” while they “solve” the problem to their best advantage.

I just saw how much money i am handing over:(

i think i need ice cream.. too bad full tilt isn’t open this early.

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[beachdrivegirl]

JoB I don’t think you understand my point. My point isn’t whether or not what past AIG employees did is illegal or wrong. I think we all agree it is wrong. With that being said though, I am not going to become a victim and point fingers around b/c everyone was playing in this game. We were all loving our big wins!! And if we all had a problem with this “fraud” the time to have a “problem” with it was three years ago. And obviously both you and I didn’t have a problem with it or we would have not put our savings into our 401K’s.

My point includes that yes I do now see that what these past employees did was wrong. My point today also includes the thinking of what can we do to fix the wrong doings of these past employees (who aren’t employed anymore by AIG) while also limiting the loss of all Americans. IMO, (from my research and reading) is that the way to fix this is to have experienced and qualified employees. We need to be able to de-risk these portfolios as quickly as possible. Your average Joe is not going to have the experience to de-risk these portfolios. And most of the individuals with enough experience to accomplish everything we need to be accomplished have either a) secure jobs or b) are trying to get as far away as possible from AIG b/c being associated with that name (obviously) is not good. And those that are looking for jobs are not going to go apply @ AIG b/c of the tarnished name. So this leaves us in a bit of pickle. We need the portfolios de-risked as quickly as possible and we need experienced, qualified employees to do this. How do we accomplish this? Humans (like most animals) react well to positive reinforcement like bonuses. So like every other company out there, AIG decided to bonus employees in a few different phases for their work. (Yes, in case you missed it like you missed the fact that the bonuses are not illegal, there was a “bus tour”, and these contracts were done after the reorganization there is another bonus coming in 2010.)

My concern with your view as well as some of my fellow countrymen is that bonusing these employees was not illegal. It was not wrong. And channeling your anger towards AIG is foolish. If you are angry about these bonuses, you need to channel your dislike of the situation to your elected officials. They were the ones that should have put language in the bailout specifying what the bailout money could and could not be used for.

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[JoB]

beachdrivegirl…

the hotshots who whitewash the AIG mess will not have to worry about being tarred with the AIG brush…

AIG is just the tip of the iceberg.. there are plenty more companies looking for that kind of savior to clean things up for them.

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[alki_2008]

somewhere, someone is very responsible.

….. I completely agree. It would be better to see the legislators pursuing the real culprits (some named in my post #76), rather than spending time writing up bills and amendments that won’t have any effect on THOSE culprits. It’s as though SOMEONE has to take the heat, so the current employees are thrown to the wolves because it’s easier than going after the real culprits or admitting that enough time wasn’t spent evaluating the bailout agreements in the first place (good job, Dodd). I’ve never been a fan of scapegoating.

The financial wizards who straighten out this mess will be seen as rainmakers in this economic climate… they wouldn’t be tarred with the AIG brush

….. In terms of future employment, I’m sure some employers will actually inquire about a financial applicant’s role at AIG…but the death threats, bus tour, and public outrage aren’t as discerning. Unfortunately, there are many folks voicing the same violent comments as Walfredo across a multitude of websites. Lately, the comments are along the lines of how AIG employees should be treated like Somali pirates (ie, sniped by Navy Seals). None of these threats distinguish between the AIG employees that caused the problems vs the AIG employees that come in to deal with the mess afterwards. I can understand why folks would be reluctant to work there, especially those with families. AIG employees whose homes were ‘featured’ on the bus tour hired 24/7 security around that time…and some even had security guards escort their kids to school. It would really suck if society condoned condemning kids for the unproven guilt of their parents (I say “unproven” because some parents were not directly involved in the actions that brought the company down).

$250,000 ADJ gross income is an amount beyond the wildest dreams of most Americans… and those who make that kind of income have the expertise available to them to limit their tax liability

….. Once again, there would be plenty of folks (besides my one example in post #46) that would have an AGI over $250k for the only time in their entire lives. That’s why I think the legislation would’ve seemed saner if it was based on the employee’s base salary or otherwise targeted people that regularly made over $250k…not just in 2009. There are dozens of retention employees in your own “community” that would be affected by any of the tax regulations that have been proposed. Many of them never bothered trying to find loopholes or other methods of reducing their tax liability before, because they never had a high enough AGI to make it worthwhile.

For those that ARE adept at “financial planning”, then it’s hard to plan for tax laws when you don’t know what those laws are going to be. Someone that sold their house in January (and felt lucky about that) would probably regret the sale when, later in the year, a law is passed that makes it a liability that they sold their house in 2009 instead of waiting until 2010. Planning implies that the rules of the game are known ahead of time.

It’s not as though ‘average’ folks were the only victims of the economic meltdown. Financial employees also lost a lot of value in their 401k’s, and the bonuses they received in prior years was whittled down to pennies. I was talking to someone earlier this week whose bonuses over 3 years at a financial company was now only worth enough to get one coffee at Starbucks (bonuses, in the form of stock grants, were ‘captive’ due to vesting rules).

you sell and buy the same asset on the same day and you can take the loss that year… you lose nothing in assets.. but you gain a great deal in taxes….

….. Uhm…what? If you’re talking about stocks, then you can only use those capital losses to off-set capital gains…if there are no gains that year, then the losses can be used to reduce income by no more than $3k/yr. It’s not THAT lucrative of a tax savings. Also, you’d have to avoid re-buying the same stock within 30 days…in which case, ‘wash sale’ rules would apply and the loss couldn’t be realized at all.

Do I think financial executives were overpaid? For the most part, yes – but I know that’s not going to change until the entire industry adjusts the pay scales…if there’s one company that’s willing to pay millions, then the other companies will have to offer outrageous salaries to compete for the good candidates. It’s like professional athletics…players are going to sign with the team that offers them the highest contract.

Do I think the retention contracts were wrong? Retention contracts had a legitimate purpose and were necessary to keep qualified employees, but some of them were probably more lucrative than they had to be. At this point, it’s water under the bridge. I’m confident that any future bailouts will consider the bonus issue, so at least there’s something good out of it.

Do I think the retention contracts should be “essentially negated” by special taxes? No! The contracts were made and negating those contracts (no matter what they contained) is not the way to remedy the situation. Honestly, the AIG bonuses were less than 1% of the $150 billion dollars that taxpayers invested in AIG. I’d rather people get angry at the legislators that removed the provisions from the bailout bill that would’ve prevented bailout funds from being used for bonuses in the first place.

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[JoB]

Alki_2008

“I’d rather people get angry at the legislators that removed the provisions from the bailout bill that would’ve prevented bailout funds from being used for bonuses in the first place. “

trust me, i haven’t forgotten them…

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