From the WSJ article on the House voting to tax the AIG bonuses:
For its part, the Obama administration said that it was pursuing all
avenues for recouping the money. It said that it would seek to deduct
the $165 million from its most recent $30 billion infusion to the
company.
avenues for recouping the money. It said that it would seek to deduct
the $165 million from its most recent $30 billion infusion to the
company.
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{ 43 comments }
The legislation stipulates that any bank which returns the TARP funds will be exempt. I think making the legislation apply to more than one company and conditional on a behaviour (accepting TARP)is a way to get around the bill of attainder issue. Lawyers?
The tax also does not apply to foreign banks like Deutche, RBC, RBS, UBS, etc. All of these banks were recipients of "backdoor TARP" via AIG and all have pretty extensive operations in the U.S. But that's less understood by the unwashed masses (including the unwashed masses of Barney Frank and Chris Dodd, of course). So, there's no righteous indignation over that.
Of course, the legislation makes TARP recipients less competitive in the labour market. Since human capital is extremely important to banks, they have an incentive to return the money – particularly the institutions that didn't want it in the first place. Bernanke will have a cow if that happens. It would thwart the administration's ambition to flood the system with money and re-inflate the credit bubble.
Meanhwile, foreign banks would be at a massive competitive advantage in the labour market. They will be able to drink from the TARP stream and yet still offer compensation high enough to attract the creme de la creme of the financial industry. They'll mop the floor with U.S. banks.
So, word on the Street is that Obama is grandstanding, but he and Bernanke will be burning the midnight oil to stomp out this bill before it gets to his desk and he has to have a face off with his own party.
We'll see what happens.
It's not a bill of attainder regardless, because it doesn't declare anyone criminal. It only declares them obliged to transfer money to the state, in this case money the state first transfered to a corporation owned by the state that in turn transferred it to them.
I laughed when I heard that the Treasury would withhold $165 million from the next $30 billion to be transferred to AIG. That'll teach 'em for sure! They'll never promise themselves millions of bucks from a taxpayer bailout again.
Not.
re: "It said that it would seek to deduct the $165 million from its most recent $30 billion infusion to the company."
We'll just deduct it from our next delivery of taxpayer dollars. Two reactions: First, laughing my ass off to keep from crying. Second, couldn't that have just been the resolution of the AIG bonus issue from the start, instead of all this grandstanding and unconstitutional issuing of a bill of attainder?
If it's remotely legal to promise oneself millions of dollars from some taxpayer financed scheme, or any other scheme for that matter, any number of people will do it. It's as sure as the sunrise. Hell, I'd do it, and if a thousand people deny they'd do the same, at least 999 of them are lying.
So I don't want it to be remotely legal.
Don't worry Martin. If this thing passes, soon all American banks are going to be so uncompetitive and permanently unprofitable that your money will be regularly confiscated to pay the salaries (not "bonuses", of course. Variable comp will be a thing of the past) of all their employees just to keep the doors open. The zombies will feed on your flesh one way or another.
"We'll just deduct $165 MILLION from the next delivery of $30 BILLION". Is it the general assumption of newspaper writers and political commentators that no American can do basic math any more?
Democrats love to raise taxes. They are very quick at it. Just wait till they turn on Main Street.
Quote from Martin Brock: "It only declares them obliged to transfer money to the state, in this case money the state first transfered to a corporation owned by the state that in turn transferred it to them."
And if they refuse to surrender their property, they will be declared criminals. This is a subtle difference that I don't think a court will buy.
Of course by the time a court decides it, the point will be moot. Much like the case against Arthur Anderson, by the time they were exonerated, they were out of business.
I can't understand why I have no respect for my country.
And if they refuse to surrender their property, they will be declared criminals. This is a subtle difference that I don't think a court will buy.
The tax is civil, and precedent supports civil ex post facto laws, specifically including taxes. The bonus recipient's evasion of the tax would be a violation of a criminal law already on the books. This is clean, constitutionally.
in this case money the state first transfered to a corporation owned by the state that in turn transferred it to them.
Martin I'd point out that in this effort to get the TARP money "back", the state is not relinquishing to these bonus recipients the preferred stock it got in exchange for the TARP in the first place. They never *gave* money to the companies – they bought something from the shareholders. And now that they have the money "back", they still have the preferreds, now paid for by employees. Lovely.
It's not even about getting the money back. I'd be just as happy, happier in fact, if AIG burned every dollar it has received from the Fed and TARP. After all, the Fed can create a few trillion more just as easily.
If the shares they bought were so valuable, I'm wondering why they had to buy them. Why didn't you buy them?
The CEO of Wells Fargo is sure his company didn't need any TARP money, and I hope he's right, but if it didn't, and if AIG's preferred shares are so valuable, why didn't Wells Fargo and other private interests buy them instead?
And if these private interests just didn't understand the value, how did Henry Paulson manage to figure it out? Frankly, he doesn't seem so Einsteinian to me, not to mention omniscient.
No, this story never added up from the start. It's a bundle of logical inconsistencies. The shares aren't worth what TARP paid for them in fact, and the giveaway far exceeds $165 million.
Well, if you want to say that money transferred from the state to a corporation and then to officers of the corporation and back to the state is "the employees paying for their company", you go ahead and say that. I really don't care how you title things. The art of entitlement is what politics is all about.
By the way, I heard today that the "excise tax" applies only to income over $250,000 from employees of companies receiving more than $5 billion from TARP and presumably also from some of the Fed programs, so the bit about traders earning minimum wage and working for tips rings a little hollow.
As Ann Coulter suggested, how about re-opening the bonuses paid to Franklin Raines and Jamie Gorelick for their yeoman's work running Fannie Mae into the ground and then collecting bonuses of $90 million and $24.7 million, respectively?
so the bit about traders earning minimum wage and working for tips rings a little hollow.
That's because your hollow head generated that straw man. I suspect you hear a lot of hollow ringing in there.
"I laughed when I heard that the Treasury would withhold $165 million from the next $30 billion to be transferred to AIG."
If I am Liddy I am not too worried: Treasury is too stupid to do the math.
re: "The tax is civil, and precedent supports civil ex post facto laws, specifically including taxes. … This is clean, constitutionally."
That dealt with one of two constitutional objections. What about it being a bill of attainder?
You wrote,
"nominal salary" is your term. "waiter [working] for $3/hour base comp" is your analogy. If I made you from straw, I must be a very gifted artist, lovely lady.
If their performance at FNMA is any indication, they've already lost it. Occasionally, even Ann Coulter makes some sense, but a stopped clock is right twice a day.
It's not even about getting the money back.
I know. Pelosi says it is, but it isn't.
If the shares they bought were so valuable, I'm wondering why they had to buy them. Why didn't you buy them?
I didn't say they were valuable, and I didn't know they "had to" buy them. I only said that for the government to claim that it is taking its money "back" and then to still hold on to what it bought in the first place is unreasonable. I can't buy a toaster of dubious value, take it "back", get my money "back", and then walk out with both the money and the toaster.
Well, if you want to say that money transferred from the state to a corporation and then to officers of the corporation and back to the state is "the employees paying for their company", you go ahead and say that.
Well, I don't, so I won't go ahead. The reason I don't is because the bonus recipients are not being given the shares that the state received in exchange for the money. Their labor has simply been confiscated. This is not to imply that I think it would be a good idea to give the employees the preferreds and call it a day – just that if that were to happen, then I could buy the line about getting the money "back".
To be clear, I don't think any of these bailouts and payoffs should have happened in the first place, except for bonus payouts that any surviving banks could have paid without assistance. But now that we'll never know which those banks might have been, I find it unreasonable for the political class to subject these individuals to this kind of confiscation while they simultaneously enable these same companies to continue paying off creditors. I also think the scapegoating and public shaming of a particular group of people by the political class for non-criminal behavior is a giant step away from liberty.
I really don't care how you title things.
Charming as ever.
"nominal salary" is your term. "waiter [working] for $3/hour base comp" is your analogy. If I made you from straw, I must be a very gifted artist, lovely lady.
Sigh.
When you pay a trader, you're essentially buying the cash flow he generates – his P&L. You're just purchasing a stream of cash flows, just as with any other asset. The market bids for the trader's expected profit. Would you pay $10MM for him to generate $30MM of cash flow? You would if without him you would not net at least $20MM and another employer is bidding close to $10MM for him. He would not work for you if you didn't pay him at least the market rate.
However, to variabalize your costs, you would pay him $150K base salary and the rest in bonus (which will be directly tied to and vary with his P&L, of course). $150K relative to a $10MM expectancy is "nominal". He would never agree to work for you for $150K because his market value is much higher.
You can think of it as a sales person working on commission with a nominal salary if you don't like the waiter analogy. Don't get your knickers in a twist because the numbers are bigger.
Now that we have that straight, back to AIG…the guys they are trying to retain to wind down the business may have been good traders with high market values who were subject to the decisions of upper management. That happens all the time in fixed income derivatives because these trades are too complicated for one trader to perform and make all the decisions. There are usually several traders and a couple of quants pricing any one contract. The risk management – how much they are willing to do and with which counterparty is done much higher up in the firm. That's not up to the trading group. Of course, the traders may NOT have been the creme de la creme but AIG needed them more than they needed AIG at that point, so AIG paid up to get them to agree to stay and unwind the book.
They should have just left. And I bet they wish they had.
just to cut you off at the pass, – yes, they have places to go. All traders lose money and unless the money was lost through fraud, no potential employer would refuse to hire them on that basis.
Another point, of course, is that other than AIG, many trading operations within banks made a lot of money for the banks last year – particularly equity derivatives. The banks lost money everywhere else. Those traders are not going to receive anything resembling the normal cut of their P&L, but now you're saying they shouldn't be paid at all? Fine, next year they won't be at an American TARPed out bank to generate the P&L and I'm sure that the majority of outraged Americans truly believe that will make them better off.
I'd pay him a dollar to generate $30MM of cash flow if possible, and I hope I'm paying for profits and not simply for cash flow. Cash flow can be unprofitable, in which case paying for more of it seems counterproductive.
Generating huge cash flow this year by selling CDFs that require much greater payouts next year, because the CDFs underestimate risk, doesn't seem to merit any bonus. Maybe waiting to see if the CDFs really have estimated default risks profitably is a better strategy.
Right. That's a question though. I don't presume the answer. I don't presume that a particular trader, or a leader of a team of traders, and only this particular trader or leader, can generate a particular cash flow profitably. Why pay a bonus ahead of any evidence supporting this presumption?
These assertions are tautological, but you don't provide any evidence for the underlying assumptions. We aren't discussing a massively profitable company. We're discussing a company receiving hundreds of billions of dollars from the state to avoid a "systemic meltdown".
Here's what I actually know. Some guys are saying that, having now received the hundreds of billions of dollars needed to avoid the collapse of their company, they really need to pocket millions themselves. I don't actually know that particular persons, and only these particular persons, can generate the profitable cash flow. I only know that you pose this hypothetical.
No. The only issue we're discussing is an excise tax on bonus payments to employees with income exceeding $250,000 of banks receiving more than $5 billion from the state. And if banks want to opt out of this requirement, they can return the bailout money. How does this tax result in anyone not being paid at all? Most people have a hard time understanding how a $250,000 annual income is not being paid at all.
So any transfer from taxpayers that anyone receives is "their labor" as long as a statesman or some intermediary signs a contract? That's what "labor" means now?
So any transfer from taxpayers that anyone receives is "their labor" as long as a statesman or some intermediary signs a contract? That's what "labor" means now?
Well stated. In fact, you've succinctly stated one of the arguments the cheated AIG contractors should make: How is an AIG contractor different from a road construction worker contracted to work on a taxpayer-financed highway?
Well, for one thing, I can't name a single "road construction worker" who has ever received a million dollar bonus. That is a difference. If we're only handing these AIG contractors some welfare checks while their company collapses until they find a better offer, maybe the checks valuably satisfy our Christian sentimentality or something, but do we really need to make AIG's contractors, specifically, into millionaires in a single year?
How much better does that really make me feel? A million dollars' worth? That's a hell of lot of sentiment I'm suppose to have for the welfare queens of the finance-industrial complex. Are we so sentimental over guys who have their legs blown off in Iraq?
I find it incredible to call the CEO of AIG "outside of the political class".
And if being titled "CEO of AIG" places someone inside of the political class, so that his taxpayer financed, million dollar bonus is not properly titled "this kind of confiscation", I suppose the guys who want million dollar bonuses financed by taxpayers must title themselves otherwise.
So, is the US Government no longer required to pay its debts? These people were/are US government employees. The congressmen themselves have stated this to be the case repeatedly. They were/are performing on the contract, and now the employer, the US government, is refusing to pay them in accordance with the terms of the contract.
Seriously, I can't believe that anyone still thinks the serious issue here is whether or not these traders should be getting bonuses.
Your standard for whether the Constitution has to be followed is how you feel about it? Hmm, come to think about it, that's how many in Congress deal with constitutionality.
Personally, I'd like to see the U.S. Government renege on many of its debts; otherwise, my children and I must pay them. A bunch of armed men promise to pay themselves lots of cash, and their promises are automatically sacrosanct? When did this position become "libertarian"?
It's not. Again, I'd be happier if AIG burned every dollar it has received from the TARP and Fed "systemic crisis management" programs, literally burn the dollars, if their paper, erase them if they're bits, remove them from existence.
I don't understand why you think the "innocent victims" in this political drama are officers of this quasi-private, fascist enterprise promising themselves millions of dollars guaranteed by taxpayers as a reward for taking billions of dollars guaranteed by taxpayers and handing it to counterparties in their scheme to create "market investment" returns for wealthy individuals and corporations, like state and corporate pension funds, as well as foreign banks holding the "assets" of other wealthy individuals and corporations, like foreign state and corporate pension funds. Why is that?
What concerns me, Martin, is the blatant fascism on display in the Congress and the Whitehouse. Without that AIG would already be history.
But it's not on display only in the Congress and the Whitehouse. Ignoring the role of actors in the "private sector" is absurd. This problem didn't begin last year when Congress handed Paulson the reigns to a trillion dollar bailout bandwagon. It has been going on since the day I was born and for ages before that.
Even if it isn't a bill of attainder, it is an ex post facto law, right?
Like ex post facto matters. Not that I have any sympathy for sex offenders, but forcing these people to register onto a registry that didn't exist when they were convicted certainly constitutes ex post facto. However nobody cares because sex offenders are considered sub-human.
Same thing with these bonuses, Constitution be damned as long as we get our revenge.
Though the bonuses are nothing but a red herring to distract us from the tens of billions of dollars funneled to foreign banks and other institutions (which I'm sure are giving out much bigger bonuses than AIG).
"It's not a bill of attainder regardless, because it doesn't declare anyone criminal. It only declares them obliged to transfer money to the state, in this case money the state first transfered to a corporation owned by the state that in turn transferred it to them."
Oh, so it merely violates their fourth amendment rights against unreasonable search and seizure. I feel so much better.
"Ignoring the role of actors in the "private sector" is absurd."
The first step in solving a problem is to define the problem. The problem is Fascism. How do we solve Fascism? Kill the roots and the tendrils will whither.
Martin,
There's a reason I used "cash flow" & "P&L" instead of "revenue". You obviously required an explanation of my analogy. I provided a very detailed one.
You don't have a clue what a CDS is. I have no idea what you're ranting about now as I have no idea what a "CDF" is. And it's pretty clear that you don't know how those books are run, so your posturing and righteous indignation rings…how did you put it? HOLLOW.
Why pay a bonus ahead of any evidence supporting this presumption?
If you'd bothered to read…they normally don't. But, in a bankrupt company their is no upside for the traders and other employees (who did NOT make the decisions that ultimately brought down AIG but executed based on the parameters set for them by AIG risk management which, in turn, took their orders from upper management). There is, however, PLENTY of downside. There is a huge incentive for them to leave. AIG would have to pay them the non-existent upside to get them to stay long enough to unwind the business. They did this with the government's blessing as Treasury approved the contracts. If they wanted a new team, they should have let the old one go. Good luck getting a new team to come in for less money, but that's not my problem. What the government did was pull a bait and switch. That is a problem which has implications for future contracts with TARP firms.
I've explained ad nauseum why it makes more sense to use the old team than bring in a new team. You choose to ignore it and I see no upside in explaining yet again.
AIG isn't receiving hundreds of billions in order to avoid the collapse of their company. The company is collapsed, Martin. It insured fixed income instruments at par and didn't have enough capital to pay out par. so, it should have gone bankrupt. Instead, our friendly Mafia stepped in to pay out par with your money and mine. Instead of the counterparty taking the 60% hit on the insured assets, you and I are. The traders did not make this critical decision to undercapitalize the operations. Scapegoating them may be emotionally satisfying, but your anger would be more accurately directed toward the band of thugs that forced you to eat a loss on a contract you didn't enter into.
Incidentally, I don't really care if you think $250K is a reasonable payment to you. Upon reflection, I think that you would agree that your uninformed opinion about the value of these people's labour is entirely irrelevant.
There are no Fourth Amendment rights, they've been superseded by the Drug War.
When considering questions of constitutionality, I couldn't care less about these AIG "innocent victims". I'm worried about the precedent. I'm worried about who will be targeted next time.
Actually, this is much worse than it sounds.
The bill levies the 90% tax on HOUSEHOLDS earning in excess of $250K.
So, if you earn, say, $500K running your own non-TARP funded business and your spouse makes $80K working for a bank, the government will confiscate an additional $297K of the money you earned running your business over and above the normal income tax levied on the first $250K. Nah, that'll have no incentive effect.
Wage caps are here.
You can start learning our new national anthem here.
If you earn, say, $500K running your own non-TARP funded business and your spouse makes $80K working for a bank and your spouse received a $330k bonus from the trillions dolled out to banks by taxpayers, the government will confiscate $297K of the money dolled out …
Just wanted to insert that little detail, since you inadvertently omitted it.
I choose not to take for granted your nauseating rationalization for handing out these bonuses to officers of corporations receiving billions from taxpayers after "investing" billions in "troubled assets".
BTW, as a programmer I know that all this funny money is just some values in a database. All you have to do is go make an UPDATE query and POOF another trillion! Yay for hi-technology!