AiG – another view

Some digging into the matter has revealed a few (some inconvenient) new wrinkles. Firstly, it would appear (and I do stress appear) that AiG, in paying that absurd sum, is merely honoring their contractual agreements.
Which is interesting, given that AiG has, to this point, maintained that these were retention payments, not bonuses (and so thus not related to performance). What kind of business signs a contract promising a payment of a retention bonus X time in advance? For that much money?

Other sectors, of course, have some more fundamental questions. As I’ve been pointing out, Geithner was the backer of the original AiG bailout as head of hte New York Federal Reserve (I’m sure he’ll preen on endlessly about how he was kept out of the loop. ) As the article sited goes on to say – since public money is involved, doesn’t (in theory – obviously in practice it doesn’t work this way of course) the public own about 80% of the company? Doesn’t that put us, or more likely the Fed (as the public’s “proxy” essentially) as majority shareholder? Can’t (therefore) we just stop payment?
Of course, the sticky theoretical question that interests me is – could AiG then sue the shareholder, i.e. the Fed, for breach of contract? (Sorry, I couldn’t resist taking this to an extreme.)

But wait, it gets better. Apparently, AiG spent about 90 billion of their bailout on other banks, some foreign and some domestic and some of which received their own bail out funds.

Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks _ France’s Societe Generale at $11.9 billion, Germany’s Deutsche Bank at $11.8 billion, and Britain’s Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
Other banks receiving between $1 billion and $3 billion from AIG’s securities lending unit include Citigroup Inc., Switzerland’s UBS AG and Morgan Stanley.

Please don’t hesitate on my account to shake your fist at the sky for the presence of Citigroup on that list. The whole sordid affair is reminding me of the definition of a Corporate strategic alliance from the Macintosh Way – “a group of crooks making arrangements to pick each other’s pockets.” (Or words to that effect, I last read it like 10 years ago.) It would seem that AiG is naming names only to spread the damage around, naming a total of 20 other banks faster than you can say “stool pigeon.”

But the worst is not yet come. According to the New York Times, these “retention payments” continue through 2009, with $230 million in bonuses that must be paid by March 2010. So again, I will repeat my no doubt tiresome refrain – why didn’t we just let these guys fail? Why was government intervention necessary? If a company is content with (allegedly) going down the tubes because of bad, unsound, unethical business practices *and* because it is run by people earning millions of dollars in employment contracts regardless of performance, again…in the long run, isn’t it better to let them pay for their mistakes rather than artificially propping up the industry, hoping it fixes itself, and telling those involved “Don’t do that again.” (The way all of these corporate big wigs are getting away with this kind of thing is so reminiscent of the 1980s that I’m amazed I’m not dreaming about Oliver Stone’s Wall Street. Save of course, I remember more arrests in the 80s. During the Reagan era.)

At this point, I’m not in any way convinced that AiG was in any way threatened by reported losses of $61.7 billion in last year’s Q4 so much as their profits were threatened, which of course necessitated government intervention in the form of hand outs.
If anyone can dredge up any kind of contractual statements between the Fed and those who received the bailout money, please send it to me, because from where I’m sitting, there isn’t any such thing.

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~ by Auntie Ranty on March 17, 2009.

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