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It was bad enough this past March when--after taxpayers had doled out a mere $180 billion to save AIG and took an 80 percent stake in the company--Americans watched in utter disbelief as the very division responsible for the insurance giant's collapse received $168 million in so-called retention bonuses.
Now Nightmare on Wall Street continues--coming March 2010 to a theater near you, as AIG plans on upping the bonuses for its Financial Products division to $198 million, bringing the total to $426 million since December 2008.
This was just one of the mind-boggling chapters of the AIG misadventure on display during last week's House Committee on Oversight and Government Reform hearing with Neil Barofsky, special inspector general of the Troubled Asset Relief Program.
Chairman Edolphus Towns, who has emerged as a leader in trying to uncover what really happened during the financial meltdown, noted that in response to the public outcry over the last round of bonuses, AIG at the time agreed to repay $45 million to the government.
"How much of that really was collected?" asked the chairman.
"As of the conclusion of our audit's fieldwork in August, $19 million had been collected," said Barofksy.
If you are hoping for a reason with some semblance of legitimacy, guess again. In fact, AIG just wants to see whether it will get the nearly $200 million this coming year before it makes good on its pledge.
"They want to see what they're going to be getting after [pay czar Kenneth] Feinberg conducts his review of the $198 million [scheduled for] next March, before they commit, or fulfill their commitment, to pay back the bonuses," said Barofsky.
Despite the fact that the American people now own 80 percent of AIG, Feinberg can only make a "recommendation" regarding the upcoming bonuses, since these contracts were signed before February 11 and therefore are exempt from any restrictions under the American Recovery and Reinvestment Act (ARRA). It really doesn't matter one iota whether these bonuses are in the best interest of the public.
"Who could have had the power to insert that provision?" asked Ohio Congresswoman Marcy Kaptur. "It wasn't in the House bill. How did that get in there?"
"My understanding is that Senator Dodd introduced the amendment," said Barofsky. "The net effect...is that the TARP does not prohibit these types of bonus payments if the bonus plan was offered prior to that date."
Maybe it was a fiscally sound move for Dodd, the Senate Committee on Banking, Housing and Urban Affairs chairman who was perhaps looking to replenish his war chest before a tough re-election bid. But it wasn't so great for the rest of us.
"I think most members of Congress, if you surveyed them, don't even realize that that provision was in the recovery bill that was passed earlier this year," said Kaptur. "It takes a lot of power to insert a provision like that that literally puts the firewall up against us going after those bonuses."
Towns pointed out that while the public and press were focused on the most outrageous of the bonuses--the $168 million in bonuses paid to the failed financial products division--the fact is that after the Fed extended the initial $85 billion line of credit to AIG in September 2008, it "learned that AIG had planned to pay over $1.7 billion in bonuses and retention plans" to its 50,000 employees worldwide.
Barofsky said those were the "approximate" numbers. The AIG compensation structures, he explained, were "a mess so sprawling that even as we concluded our audit late this summer, executives--at the Federal Reserve Bank of New York, at AIG--and the Fed's consultants still did not have their arms wrapped around the entire AIG executive compensation structure." In all, auditors have found "more than 600 different programs--some entitled bonuses, some deferred compensation, some, retention plans." According to Barofsky, AIG never knew where all the money was going, and still doesn't.
As for the $168 million in "retention bonuses" paid to "essential personnel" who otherwise would have walked out the door and shopped around their golden résumés--former employee AIG Financial Products division--it turns out those particular bonuses weren't quite so limited in scope.
"I too was left with the impression after the hearings and all the public announcements that these payments were going to those who were necessary and involved, who unwind these complex transactions," said Barofsky. "And it was one of the things that surprised me the most as I saw the audit work come in: that [bonuses were going] essentially to every single employee at Financial Products."
Maryland Democratic Congressman Elijah Cummings, who in 2008 wrote and met with AIG for assurances that the bonuses would be limited, said, "AIG was disingenuous at best and outright deceptive at worst.... Somebody simply was not telling the truth."
One would think that the initial discovery in September 2008 of $1.7 billion in scheduled bonuses might have raised an eyebrow or two at the Fed--or at Treasury--after the next $40 billion was handed over to AIG through TARP in November 2008.
But Barofsky said the Fed was looking at AIG from a creditor's perspective, and the bonuses were "just a drop in the bucket compared to their overarching concern, which was paying back the debt. They were not concerned."
Treasury, on the other hand, should have been looking out for the return the American people were getting on their investment. But Barofsky said the agency completely outsourced any oversight responsibility to the Federal Reserve Bank of New York--run at the time by now Treasury Secretary Timothy Geithner. (More on that later.)
"When Treasury outsourced its oversight to the Federal Reserve, Federal Reserve had a far different interest and approach to executive compensation than what Treasury had to do as an investor on behalf of the government people," said Barofsky.
"There was a breakdown in communications between Treasury and the Federal Reserve regarding AIG's plan?" asked Towns.
"I think that would be kind to [call it] a breakdown," said Barofksy. "After Treasury invested the $40 billion, communications were virtually nonexistent."
That's why Treasury didn't know about the $168 million in retention bonuses until two weeks before payment; and even then it took ten more days to get the news to Geithner, according to the audit.
"It was a failure of oversight by Treasury," said Barofsky. "It was a failure of communications, and it was a failure of management."
Congressman Dennis Kucinich wasn't buying the notion that Geithner--who ran the Federal Reserve Bank of New York when this madness began--still didn't know about the bonuses just four days before they were paid in March.
"Given Mr. Geithner's heavy involvement in the bailout of AIG, as the president of the Federal Reserve Bank of New York," said Kucinich, "it's really hard to believe that he wasn't informed of the retention bonuses for AIG-FP [Financial Products] employees prior to March 10, especially since they were awarded retention bonuses of $69 million in December 2008."
Barofsky said there was "no evidence" that anyone informed Geithner of the "size and scope" of the bonuses.
Ranking Member Darrell Issa and his Republican colleagues smelled blood. "So we have a secretary of the Treasury who failed to know what he should have known, failed to do what he should have done and has failed to give us transparency," Issa said. "I believe that it's now time for us to bring Secretary Geithner here."
Kucinich also said Congress should think twice before expanding the Fed's powers as the single systemic risk regulator, as many--including the Obama administration--propose.
"We better look twice before we consider giving the Federal Reserve any more power," Kucinich said. "They can't keep track of small matters, let alone large matters. Time for us to start thinking about changing the direction we have with that institution."
In the meantime, what to do about the next round of $198 million in retention bonuses? Despite owning 80 percent of AIG, the government has no one on the board of directors and can only offer the aforementioned recommendation. "I think sometimes it's important for the federal government to recognize the leverage that is associated with having such a significant ownership interest when seeking to renegotiate these payments," said Barofsky. "We specifically note one opportunity that was lost...was the fact that $30 billion more of taxpayer money was coming down the pike in March of 2009. And this would have been an opportunity to go back and compel a renegotiation."
Compelling Wall Street to do something with the trillions of dollars we've handed them. Now there's a novel idea.
In two weeks the pay czar will appear before the committee. Stay tuned, and consider letting your legislators know you're watching.
16 Comments so far
Show AllSioux Rose
This whole charade makes me think of the kid picked up for petty larceny. He has to go through the whole ritual of appearing at court, dealing with sentencing, maybe finding himself incarcerated for a stolen item that might be worth a few hundred dollars. To add insult to injury, he has to stand witness as the nation's leaders work these loose deals that ENCOURAGE corporate theft when not engineering it from the outset.
This kind of "loss of millions, possibly billions" is a mirror image of the same sort of loss of huge tracks of funds that were allegedly sent to Iraq, or passed onto defense contractors who utterly FAILED at their jobs, made a mockery of what they were contracted to do because they were the types of persons who recognized there was no power of oversight. They were free to lie, rob, and steal to their dark hearts' content.
It's the same scenario here. The ones who have devised the corruption answer that they are innocent, didn't know what was happening on their watch. They do this with impunity for they know quite well that there IS no agency to provide meaningful oversight.
Most of this nation is now in the hands of that type of morally bankrupt sociopath, the type that gets by on an expensive suit and shoe shine smile.
It is somewhat difficult to grasp the enormity of all this corruption.
I just read a very good article by Pam Martens at Counterpunch. It involves details in the corporate mortgage securitization shell game so it gets a little hard to read but the quotes by three decent judges in different parts of the country are inspiring. It seems the condescending corporate lawyers tried to tell one judge in particular, "trust us, we are lawyers". What a hoot. The judged carved them a new one.
Retention bonuses? Why do these buffoons need to be retained? Replacing them should have been part of the bailout plan. The Wall Street Welfare State sucks, and sucks and sucks.
Over the years, there may have been heated controversies over whether the spotted owl or the lowly snail darter were truly endangered species-- and, if so, whether it was worth taking the trouble to preserve their existence as a species.
However, the duopoly has NO such reservations or scruples when it comes to declaring BANKSTERS an Endangered Species. Thus, our government lavishes every sort of benefit and protection possible upon them.
No expense is to be spared!
Kinda ironic that despite the "reformer" spirit that permeated and powered Obama's campaign-- although the term itself was generally avoided-- Obama turned out to be the biggest and most shameless bankster-lover of all!
Although Obama declined to speak or act on many issues after his election, because "there's only one president at a time", he didn't hesitate to open the throttle wide to pimp the bailouts. At that point, it wasn't clear that he intended to outsource the US Treasury to Goldman-Sachs, who now effectively own and operate it.
From the first, there was a choice between "bottom-up" fixes to benefit ordinary citizens screwed over by the banksters, or "top-down" pseudo-fixes.
Obama was happy to drop consumers into a human chum bucket to feed the banksters. That doesn't stop him from incidentally pretending to be annoyed and outraged by the banksters' wanton avarice and venality for dramatic purposes.
But the Obama Gang isn't going to stand in the way of cutting checks for the well-connected.
· Yr Obd't Servant
Well said. You are in rare form today, my friend.
I just read this actual story (from Rolling Stone) about this person that made 270 million dollars in a week back in March of 2008. This bastard bought 1.7 million dollars worth of put options on Bear Stearns on March 21. These options would have been worth ZERO on April 1st. They were what are called "out of the money" puts because Bear Stearns had to go completely belly up to collect on them in the 9 day time frame. Also, you DO NOT pay 1.7 million dollars for said put options; you actually fork over only about 1 to 5%.
And here's the kicker: NOBODY knows the trader's name. Fucking unreal.
Oh, dont we all dream To catch a zillionaire.???...
Let's play "FOLLOW THE MONEY!" it's a game the whole family can play. And Hot ladies too...
We make a spectacle of the winner, who finds us the richest most dispicable crim of the week!
America you Jacobite thriftstore!
Since "we" own 80% of AIG because of "loans" provided by us, perhaps we should do what any bank would do to us if we violated the terms and call the note! Force them to either cancel the bonuses or pay the entire $180,000,000,000. If they can't pay, take the company in its entirety and make it a publicly owned company with ALL profits going into the public fund.
"The Federal Reserve Act that began it all must surely rank as one of the most disastrous and outrageous pieces of legislation to the public welfare ever to come out of any legislative body. It may have also have been and still is illegal according to Article 1, Section 8 of the Constitution which happens to be the inviolable law of the land. The article states that Congress shall have the power to coin (create) money and regulate the value thereof. In 1935, the US Supreme Court ruled the Congress cannot constitutionally delegate its power to another group or body. The Congress thus acted in violation of the Constitution it's sworn to uphold and in so doing created the Federal Reserve System that, as will be explained below, is a private for-profit corporation operating at the expense of the public welfare. By its action, our lawmakers committed fraud against the people of the country and so far have gotten away with it without the public even knowing about the harm done.
The shameful result is that what should have arrived stillborn is now the most dominant institution on earth, and all because of what began on a privately owned island with a scary name. But had the Congress acted responsibly, the act of Fed creation might never have happened. The legislation establishing it was so harmful to the public interest, it likely never would have passed if it hadn't been shepherded through a carefully prepared Congressional Conference Committee meeting scheduled for between 1:30 - 4:30 AM (when most members of Congress were asleep) on December 22, 1913. The Act was then voted on the next day and passed although many members of the body had left for the Christmas holidays and most others who stayed behind hadn't had time to read it or know its contents. Sound familiar? Still it passed (like a thief in the night) and was signed into law by an unwitting or complicit Woodrow Wilson who later admitted he made a terrible mistake saying "I unwittingly ruined my country." But it was too late for postmortems, and the American people have paid dearly ever since. It's about time the public understood that and began to demand an end to over 90 years of damage done.
It almost happened 43 years ago when one president decided to act on behalf of the people who elected him. That man was John Kennedy, who before his death planned to end the Federal Reserve System to eliminate the national debt a central bank creates by printing money and loaning it to the government. That debt has now risen to over $8,400,000,000,000 ($8.4 trillion) which every taxpayer must pay for and has done so in the amount of nearly $174,000,000,000 ($174 billion) in just the first three months of 2006. This debt service is now an annualized amount exceeding two-thirds of a trillion dollars. It's made the bankers rich (which was the whole idea) and the public poorer because we're taxed to pay the tab. It's no exaggeration to call this the greatest financial scam in world history and one that gets greater every day.
http://www.thirdworldtraveler.com/Stephen_Lendman/Federal_Reserve.html
Well said. Stephen Lendman has been on the crooked fed's case for many years. He has great courage and tenacity.
Blah, blah, blah.
Nobody cares. Ezeflyer hit the nail on the head with the Federal Reserve, an unconstitutional, unaudited body that was created with the sole purpose of enriching the banking class.
But, guess what? NOBODY KNOWS WHAT THE FED IS, WHAT IT DOES OR HOW IT WORKS. People don't understand the blatantly obvious ways their government is ripping them off and allowing huge corporations to loot the Treasury, with no bid contracts for illegal wars. How in the world can we expect them to understand -- or care -- about things as complex as the Fed?
Ignorance truly is bliss. The more you know ... the more miserable you are.
The United States people will get exactly what their uninvolved, flag waving, ignorant asses deserve. Misery.
what really should have happened is these bastards should have been tried and found guilty of crimes against america and the
rest of the world put on a platform and publicly hanged for these crimes! it should also have been televised and all
other executives forced to watch this sign a document saying
that they understand why this was done and that they too
will suffer the same fate if they get caught doing these
crimes! this would greatly reduce these monsters desire
for these types of crimes. but at the same time the same
thing should have happened to government officials who aided and
abetted this looting and to now hire smart people who
are capable of figuring out these types of financial
skull duggary and enacting laws that stop this before it
happens!
I just read this anonymous comment at another site (Greenspuns blog) and I just have to share it here:
Essentially, we all pay the Wall Street tax through inflation so that important people in suits can buy multi-million dollar apartments and dispossess people who work for a living. Makes total sense. This country was founded on rewarding those who can invent powerful lies to convince Congress that nonsensical investment vehicles have absurd monetary value.
The rhetorical end result of all this is that the economy is irrigated with liquidity. However, in reality, the true result is that non-bankers all fall into penury debt slavery and die. The irony about that is, Wall Street is trying to collateralize life insurance policies. So, even as we non-bankers all become homeless and die, hedge fund managers can still legitimize their bonuses to Congress.
Because oligarchs draw incorrect conclusions about human evolution from Dawkins, “The Selfish Gene”, misunderstand mythological self-determinism fables from Ayn Rand, and don’t grok that Adam Smith’s tales about the “Invisible Hand” were allegorical, we all must suffer. And, somehow we believe our angry powerhouse of a cleptocracy is the absolute zenith of human existence. Absolute fucking madness.
AIG kept Sen Dodd Rich, Fat, and happy.
The Nation's a disgraced publication that should have absolutely no credibility with the left. After vociferously supporting Obama (yes the same Obama whose greatest campaign contributor was Goldman and Sachs, the same Obama who fought tooth and nails for the gigantic theft of the treasury known as bailout to take place), The Nation now has the balls to ask us to "consider letting your legislators know you're watching" a fake committee ask Obama's pals "tough" questions. Is there a more cynical advice?
How about asking the legislators to impeach, remove and imprison Obama for betrayal of the voters, grand theft of the treasury, not mention his war crimes and multiple crimes against humanity in the Middle East?
And how about apologizing to readers for helping to con millions into voting for the Black Bush?