From the New York Times:
Under the photo it says:
Representative Barney Frank was among the politicians charged with creating legislation to recoup the bonus money at A.I.G.
This is the same Barney Frank who has been the champion of Fannie and Freddie, the opponent of keeping too much of an eye on Fannie and Freddie, the champion of their solvency when they were, in fact, insolvent, the champion of bailing them out, the champion of increasing home ownership rates with other people's money. Is it not strange that this man is now involved in trying to stop AIG from paying bonuses with money he has voted for them to have and money that is being spent partly because of policies he relentlessly pursued?
Grassley wants AIG execs to kill themselves. I'd settle for an apology from Frank followed by resignation.
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I will only be satisfied if Barney Frank and Chuck Schumer kill themselves. But, I'll settle (grudgingly) for a resignation.
Schumer should be hanged just for his involvement with Madoff. I mean, since we're out for blood and all…
Someone made an interesting point on the blogosphere.
AIG executives wrote billions of contracts knowing they had no capability to cover those contracts.
Now, AIG executives want their personal contract honored, for bonuses they earned writing fraudulent contracts.
Dog chases tail.
Rustbelt, that's what happens when government inserts itself.
The easiest way to not pay the bonuses is to let the company fail.
Since it is kept alive by government. The state is merely another investor and new investors can't abrogate existing contracts. Plus, the state either has to pay the people working in AIG a wage that keeps them there and honor contracts or it will lose them and Barney Frank will have to figure out how to trade fixed income derivatives. The government got itself into this pickle, now they want to blame it on AIG employees who had no decision making authority with regard to the type of businesses that AIG enters into.
"Irony isn't a strong enough word," but snake in the grass is fairly descriptive. I wonder who Claire McCaskill thinks the "idiots" are now – the companies that are spending the tax money unwisely, or the Congress that gave said companies said tax money. It's not like these stringpullers in Washington weren't warned.
Barney Frank makes me feel sick. He seems a foolish, arrogant, and dangerous man. If Barney Frank were to have an "unfortunate accident", then I would feel sorry only for his family. Everyone else would be better off with one less looter in the world.
Barney Frank is the perfect politician.
I hope no one ever says that about me.
Barney Frank just demanded the names of the AIG employees who received bonuses and did not give them back.
The CEO asked only that the names of those employees remain confidential because of death threats. He read a particularly blood curdling threat made to AIG employees (AIG has had to post armed guards outside of its buildings).
Barney Frank refused to keep the names confidential.
If anyone thinks this is anything more than a witch hunt and Barney Frank will be happy with anything less than blood, they are kidding themselves. LITERALLY blood.
I won't say what I hope for Barney Frank.
It gets worse: Fannie and Freddie are going to pay retention bonuses, even in the midst of this DC firestorm.
But they'll all be under $1 million, and that plus Barney's blessing makes it all OK.
No. The rest is strange, but this one isn't.
It's a separate issue. If AIG had declared bankruptcy last year, the situation would be totally different, but it didn't. If AIG played a game of "too big to fail" by selling CDFs securing FNMA's junk bonds, or whatever the story is, then I don't want the AIG factors who played the game benefiting from it.
If Frank was their partner in the game, that's irrelevant. If he's disingenuously milking voter indignation, that's also irrelevant. I don't want politicians or their corporatist patrons profiting form this fascistic business.
Don't bet on it.
Wait… So, Barney Frank is a Laissez-faire Capitalist? Are we for more or less regulation? I'm confused.
Martin- My understanding is that Goldman would have failed in AIG failed. Paulson wasn't going to let that happen. So that's why we're in this mess: Goldman Sachs Cronyism. Aided and abetted by BOTH parties to this day.
But maybe we'll actually be better off from this slow death of AIG, despite all the political theater and increased socialism. I'm not holding my breath.
I don't want politicians or their corporatist patrons profiting form this fascistic business.
Too bad. We live in a kingdom, Martin. Bow to your betters and STFU!
I had to listen to this crap all day. Here's the deal with those bonuses (as per the irritating back and fourth during the hearing today).
First of all, the traders who are receiving these bonuses are not the people who decided to get into the CDS insurance business and not capitalize it enough. Those guys aren't getting anything and that's fine.
Second, you have to understand what "bonus" means in financial institutions. The largest cost for most financial institution is employee compensation. It can be as high as 55% in some cases. Smartly, the institutions would like to variabalize as much of this giant cost as possible. So, to their best paid employees they pay a nominal salary and the rest of the comp is variable and called a "bonus". Nobody would ever accept the job for the base salary just as no waiter in a restaurant would work for the $3/hour base comp they're paid. If you're paid down from expected on your bonus in any given year, it is said that you "weren't paid" and you leave. Often it's a sign to leave from your firm because you're not worth much to them, so they don't want to pay you enough to keep you.
In this case, the traders saw the writing on the wall. There would be no bonuses at AIG ever again. Their base comp is not worth the stress and the time away from their kids, so they were going to leave. AIG management, of course, knew this.
Fixed income derivatives are non-standardized (structured) products. The guys who partook in the creation of them know all the counterparties, the agreements, covenants and assumptions that went into them best and they are the best people to unwind the book.
The only way AIG could get the traders to stay and unwind the book is to offer them compensation for their time and effort. The deal was they unwind the book to AIG's satisfaction and AIG would pay the promised amount. These aren't officers of the company. They're just employees. It's called a "retention bonus" but that's just semantics. These retention bonuses were really a contract which outlined the task to be performed and the remuneration for performing that one task. These are not performance bonuses that are contingent on the company or group exceeding expectations. The confusion is that these arrangements are usually called "retention bonuses" and everyone objects to "bonuses" based upon the connotation.
To force these traders to give back that compensation would mean that their labour was simply stolen. It's a bait and switch. In fact, I'm not sure it's different from slavery.
Now, Barney frank wants to publicize the names of the traders who refuse to forgo their promised comp so that they and their family can be open to harassment and physical harm. It's basically "give back the compensation on pain of death".
I don't want politicians or their corporatist patrons profiting form this fascistic business.
Too bad. We live in a kingdom, Martin. Bow to your betters and STFU!
I had to listen to this crap all day. Here's the deal with those bonuses (as per the irritating back and fourth during the hearing today).
First of all, the traders who are receiving these bonuses are not the people who decided to get into the CDS insurance business and not capitalize it enough. Those guys aren't getting anything and that's fine.
Second, you have to understand what "bonus" means in financial institutions. The largest cost for most financial institution is employee compensation. It can be as high as 55% in some cases. Smartly, the institutions would like to variabalize as much of this giant cost as possible. So, to their best paid employees they pay a nominal salary and the rest of the comp is variable and called a "bonus". Nobody would ever accept the job for the base salary just as no waiter in a restaurant would work for the $3/hour base comp they're paid. If you're paid down from expected on your bonus in any given year, it is said that you "weren't paid" and you leave. Often it's a sign to leave from your firm because you're not worth much to them, so they don't want to pay you enough to keep you.
In this case, the traders saw the writing on the wall. There would be no bonuses at AIG ever again. Their base comp is not worth the stress and the time away from their kids, so they were going to leave. AIG management, of course, knew this.
Fixed income derivatives are non-standardized (structured) products. The guys who partook in the creation of them know all the counterparties, the agreements, covenants and assumptions that went into them best and they are the best people to unwind the book.
The only way AIG could get the traders to stay and unwind the book is to offer them compensation for their time and effort. The deal was they unwind the book to AIG's satisfaction and AIG would pay the promised amount. These aren't officers of the company. They're just employees. It's called a "retention bonus" but that's just semantics. These retention bonuses were really a contract which outlined the task to be performed and the remuneration for performing that one task. These are not performance bonuses that are contingent on the company or group exceeding expectations. The confusion is that these arrangements are usually called "retention bonuses" and everyone objects to "bonuses" based upon the connotation.
To force these traders to give back that compensation would mean that their labour was simply stolen. It's a bait and switch. In fact, I'm not sure it's different from slavery.
Now, Barney frank wants to publicize the names of the traders who refuse to forgo their promised comp so that they and their family can be open to harassment and physical harm. It's basically "give back the compensation on pain of death".
I don't want politicians or their corporatist patrons profiting form this fascistic business.
Too bad. We live in a kingdom, Martin. Bow to your betters and STFU!
I had to listen to this crap all day. Here's the deal with those bonuses (as per the irritating back and fourth during the hearing today).
First of all, the traders who are receiving these bonuses are not the people who decided to get into the CDS insurance business and not capitalize it enough. Those guys aren't getting anything and that's fine.
Second, you have to understand what "bonus" means in financial institutions. The largest cost for most financial institution is employee compensation. It can be as high as 55% in some cases. Smartly, the institutions would like to variabalize as much of this giant cost as possible. So, to their best paid employees they pay a nominal salary and the rest of the comp is variable and called a "bonus". Nobody would ever accept the job for the base salary just as no waiter in a restaurant would work for the $3/hour base comp they're paid. If you're paid down from expected on your bonus in any given year, it is said that you "weren't paid" and you leave. Often it's a sign to leave from your firm because you're not worth much to them, so they don't want to pay you enough to keep you.
In this case, the traders saw the writing on the wall. There would be no bonuses at AIG ever again. Their base comp is not worth the stress and the time away from their kids, so they were going to leave. AIG management, of course, knew this.
Fixed income derivatives are non-standardized (structured) products. The guys who partook in the creation of them know all the counterparties, the agreements, covenants and assumptions that went into them best and they are the best people to unwind the book.
The only way AIG could get the traders to stay and unwind the book is to offer them compensation for their time and effort. The deal was they unwind the book to AIG's satisfaction and AIG would pay the promised amount. These aren't officers of the company. They're just employees. It's called a "retention bonus" but that's just semantics. These retention bonuses were really a contract which outlined the task to be performed and the remuneration for performing that one task. These are not performance bonuses that are contingent on the company or group exceeding expectations. The confusion is that these arrangements are usually called "retention bonuses" and everyone objects to "bonuses" based upon the connotation.
To force these traders to give back that compensation would mean that their labour was simply stolen. It's a bait and switch. In fact, I'm not sure it's different from slavery.
Now, Barney frank wants to publicize the names of the traders who refuse to forgo their promised comp so that they and their family can be open to harassment and physical harm. It's basically "give back the compensation on pain of death".
OMG!!!! I had problems with the "post" button. I got an error message that told me the post didn't go through a couple of times. Sorry for the multiple post.
Methinks-
You are exactly right, of course. I received a retention bonus myself when I was running the trading operation of a company that was bought out. It was understood by all that, after the acquisition was complete I would be replaced (we were being acquired), and in order to keep me there through the process I was offered a lump-sum to be paid when the deal was complete, IF I stayed. I kept my end of the bargain and stayed. They kept their end of the bargain and paid me. Then I went out looking for another job.
The irony is that these retention agreements are put in place to protect the interests of the new owners – in the case of AIG, the government. I'm sure that's the reason the government approved them. The fact that they are wailing about them now just show what spineless twerps they are.
It will be interesting to see if the TARP employees pursue any action against their employers for subjecting them to any bills of attainder by accepting government money. Particularly at the "we didn't need the money" banks.
Chuckie Schumer should be treated as Methinks recommended only it would come some 18 years too late.
I have a copy of "Waco, The rules of Engagement" and its follow-up, and when I show it to people and Schumer comes up sitting on the so-called congressional investigatory committee and provides cover for the BATF and the FBI I get physically sick watching the smug asshole.
Of all the foul mouldering critters in Congress that need a little implant it is Schumer, Frank, and Kennedy.
That's true in most businesses, including mine. In fact, I'm sure employee compensation is much more than 55% of total costs.
If you have some figures on AIG's employee compensation, we can discuss them, but simply comparing these guys to waiters with a base pay of $3 an hour isn't very persuasive. I'm extremely skeptical.
This morning, I heard some high level AIG officer testify before Congress that the company was reconsidering its bonus payout and would cut bonuses completely for "the leadership team". I doubt that "leadership team" describes many traders earning nominal salaries.
AIG Cuts CEO Sullivan's Pay 48% to $14 Million
So in 2007, while AIG was bleeding like a stuck pig and preparing to beg hundreds of billions of dollars from taxpayers, the company's CEO suffered a catastrophic cut in annual compensation to the near starvation level of $14 million. Clearly, he's just like those bartenders struggling to pay the rent on tips.
If any member of the AIG "leadership team" wants to quit, let him quit.
Here's my offer. I'll happily promise to bail out foreign central banks buying junk paper from FNMA, knowing that my promise is bunk and that I'll be begging the Treasury for my own bailout in a year, for a mere one million dollar bonus.
When AIG needs me, they'll call me.
the company's CEO suffered a catastrophic cut in annual compensation to the near starvation level of $14 million. Clearly, he's just like those bartenders struggling to pay the rent on tips.
Martin, I never said anything at all about a "leadership team" and I never said anything about CEO comp that in any way deviates from what you said. I suggest you stop building that straw man so that you can feel good about machine gunning him. It's beneath you.
The congressional circus yesterday was about TRADER retention bonuses, not the "leadership team". Go back and read what jl and I wrote about that. If you want the traders to walk, fine. But, you're going to need traders to unwind these non-standardized positions as you unwind that business and close it down. If you don't pay the old team who knows everything about these positions to stay and do that, you're going to have to figure out how you're going to attract new traders to a bankrupt company where there is no upside and which is now controlled by overpaid, bloviating halfwits in congress who are outraged over everyone's compensation and performance except their own. As a trader, I'd cut off my head and piss down my own neck before I stepped into that cesspool. Then, these new guys (who are obviously so bright they couldn't find any other employment!) will have to figure out a mass of non-standardized products. This will take forever and it's likely AIG will suffer more losses in its derivatives book.
So, if you don't want the old team to be retained through the wind-down of this business, what you're saying is that you, as a taxpayer, would like to pay more for a worse result. I, as a taxpayer, do not.
On the bright side, I must say it is quite comical to see politicians get purple-faced with rage over having (supposedly) no knowledge of the financial details of the AIG-employee contracts.
Given that the Democratic Senators presented the country with almost no time or opportunity to read through the $1 trillion stimulus bill, I must say…
"How does it feel?"
So we aren't only talking about bonuses for front line traders, and I don't know that we're primarily talking about these bonuses. I read somewhere that the top bonus was over ten million, and I doubt that was going to a front line trader.
I just heard AIG CEO Edward Liddy testify to Congress saying, "I know $165 million is a very large number … it's a very large number. In the context of $1.6 trillion and the money that's already been invested in us, we thought that was a good trade."
He's not discussing any profits or investment returns. He's "trading" on "the money that's already been invested in us". So he's not discussing "pay for performance". He's saying, "You gave us $1.6 trillion, and we thought we'd kept a measly $165 million of it for ourselves."
He's not saying that, Martin.
He's saying that the government has poured $1.6B into AIG (actually, to its counterparties, but whatever). They thought it would be a good trade to pay the existing teams which are most familiar with the products they trade to unwind the business because the alternative is to let them walk and that scenario would create losses much greater than $165MM. He knew that AIG could not attract outside traders capable of unwinding the book without paying them more than the $165MM and suffering the losses that will occur during the transition when nobody is managing those positions and new traders are climbing up the learning curve of these complex structured products without the benefit of the knowledge of the team that constructed them. That's a good trade.
I don't know what you mean by "front line trader". I've never heard that expression. The $10MM would probably go to the head of the desk. I'm guessing. Hell, you couldn't pay me $10MM to be a trader on that desk for the limited time of six months right now.
Of course not. He would never describe the situation as I did.
Of course, they thought so. If I could pocket a million bucks by thinking so, I would too.
For a million bucks, I'd think the moon is made of green cheese. I'd think that lead can be turned into gold. I think that postage stamp arbitrage is a source of endless wealth. I'd think whatever Madoff thought early in his scheme too.
I'd even think that selling reams of default swaps insuring promissory notes of dubious value wouldn't end up driving my company to the brink of bankruptcy and give politicians an excuse to throw a few hundred million bucks my way to avoid catastrophically "systemic risk".
And then I'd think a million dollar bonus in my pocket is absolutely necessary to keep me thinking so brilliantly.
How hard is this thinking to understand?
For a million bucks, I'd think the moon is made of green cheese. I'd think that lead can be turned into gold. I think that postage stamp arbitrage is a source of endless wealth. I'd think whatever Madoff thought early in his scheme too.
Well, then you're cheaper than I thought.
Correction: … a few hundred billion bucks …
It's not a technical term. You compared these guys to waiters earning three bucks an hour plus tips. I had that analogy in mind.
I don't know why you say so, but you can explain if you want. It's tough to imagine the hell you'd be forced to endure for the $10MM over the six months.
It's tough to imagine the hell you'd be forced to endure for the $10MM over the six months.
Tough for you, not tough for me. But then, I'm rather more informed about these types of environments than you are.
You compared these guys to waiters earning three bucks an hour plus tips.
I made an analogy you clearly can't comprehend, despite the clear language in which it was written. I said a great deal more about this compensation structure which you chose to ignore so so that you may continue to indulge your raw emotions in the full flower of your outrage over castles and assorted Martinisms.
Just another point of clarification. I'm confident that these retention payments didn't go only to front office staff. They likely were also granted to middle and back office personnel as well. That is, to analysts, trading support, accountants, book keepers, etc.
Greedy bastards all, I'm sure. Probably with greedy spouses and children, too!
Better to have the remaining positions of AIG hemorrhage billions than see these damn greedy accountants get paid for their labor!
Great point, jl.
Since HOUSEHOLDS with incomes exceeding $250K will face the 90% tax on everything above $250K, those greedy spouses and children will be brought to justice.
Barnie Frank, hmmm, nothing comes to mind that isn't vulgar so nevermind.