Obama tries to block AIG bonuses

[waitforufo]

In nearly every company on the planet, employee bonuses are directly contingent on company performance. If the company does poorly, bonuses are unavailable. If the company performs well, then employees get to share in the wealth through bonuses. Why in the name of Zeus should a company that was failing so badly that it needed government help just to survive be "sharing the wealth" with its employees?

 

That's the point as I see it, and why so many people are freaking out about this. Yeah, the bonuses are small as a percentage of the bailout, but bonuses are something which are not supposed to be offered unless the company is doing well and making money. AIG is neither doing well nor making money, ergo this whole bonus thing reaks of an elitist sense of entitlement and deservedly inspires deep rage among a populace struggling to put food on their tables and avoid forclosure on their homes.

 

The above is true for most companies and for the majority of employees in most cases. It is not however true all the time. In particular it is not true for companies in financial trouble or who have divisions in significant financial trouble. In such cases companies generally need to restructure. This restructuring generally means exiting business areas that are no longer financially profitable.

 

In such cases, a company often times cannot simply fire all the employees of the poorly performing business segment and shutter the doors (although that seems to be what many of you would like to see happen at AIG.) Contractual obligations exist. I am not at this point talking about obligations to employees. This means that work needs to be done to exit these business areas. Who does this work? Who wants a job working in a business area of a financially failing area of unit of a company? No one does. Well then how do you get people to do these jobs? You have to pay them a premium. Also, you have to structure a compensation package to keep them from jumping ship when a more permanent opportunity becomes available at a different company. Such compensation packages generally include retention bonuses. Without such bonuses all the employees with simply quit.

 

Anyone who works for a company who acquires a failing competitor is familiar with such bonuses. Generally when such an acquisition occurs, most of the acquired company will be shut down when consolidating similar business functions. During this shutting down process, employees in the acquired company are often paid bonuses, perhaps quarterly, and at termination so they don't quit. These bonuses are often so generous that retained employees and employees of the acquiring company wish they were on the slated for eventual termination list. The acquiring company does this because the consolidation would be much more costly if people knowledgeable about the acquired company simply quit.

 

Many of the bonuses at AIG are just such bonuses. If these people are not paid they will simply quit. You think AIG is in trouble now? Wait and see what happens when such people get tired of being social pariahs.

[jackson33]

I've got two words for you: Lehman Brothers.

 

You're trying to look at this in a vacuum, DrDNA. For your mom and pop sized business, bankruptcy is a viable option where court appointed officials can help make decisions on behalf of creditors to navigate the company to safer waters. If you recall, that's what we did with Lehman Brothers. Did you see what happened? Lehman was so interconnected with all other institutions that the bankruptcy of Lehman is part of the reason things in our economy got so bad in the first place (if you need citations showing how big of an impact Lehman had, they won't be hard to find, just ask or go googling for about two microseconds).

 

Well, I've got news for you... AIG is ginormous compared to Lehman Brothers, and much more heavily interconnected than Lehman ever was or could have been. We've got real world experience from just the past few months which proves why bankruptcy is not a viable option, and if you ignore it, then you are doing a great diservice to the actual issue at hand. The simple fact is that you're trying to treat this as an isolated case, and you're arguing from the false prentense of labelling AIG as posing no systemic risk.

 

What 'DNA' is asking for is the reason AIG has an advantage to accept Federal Funds, over just filing Chapter 11. GM for instance believes the word 'Bankruptcy' would hurt sales. In either case the end result has to be 'reorganization' which Chapter 11, offers a somewhat organized reorganization, under mandatory arbitration (a Judge or panel of), where accepting Government Funds allowed the Company to reorganize, while paying off debts, obligations and so forth from the managements opinions.

Both systems, involve the same problems, previous contracts to the actual sale of assets.

 

As for AIG being so gigantic, NO it's not nor is it the point. It is simply the exposure to a particular problem in the economy at a given time, in this case exposure to a declining mortgage market, where assets held by a company have declined below assumed market values.

 

LB, when filing Chapter 11, listed 639B in assets and in short AIG, listed on its Oct. 2008 quarterly filing 1,022B, I would bet having dropped substantially since. LB, is to date the largest asset holder of any Company to file Chapter 11, but is suffering and existing no less than AIG or any other Federally Funded bailout financial. LB is still listed on the 'Pink Sheets', has the potential for recovery, yet being sued by every previous Stock Holder, Creditor or supplier, no less than AIG, or any other financial in trouble.

[The Bear's Key]

I disagree. We had (and still have) the highest standard of living in our history, and more Americans were buying homes than ever before. Your accusation that they were stuck with 30 year mortgages is amusing because before they couldn't GET those mortgages. The American dream was coming true, TBK.

I can only go by the people whose mortgage gets extended by debt and/or who did take 30 year mortgages. Also we're talking over the years, not just recently.

 

Maybe too, you don't know a lot of worse-off people? Nearly bare fridge. Shopping list consists of noodles with monosodium glutamate (8 for $1). No health insurance.

 

Of course, some of these buy new cars. Or home game systems (new or from pawn shop). And even brand-name clothes (occasionally at hand-me-down thrifts). Most who can afford such "luxuries" are divided between the constant work for little pay, and the illegal drug merchants. And many who do spend on those either are single, or neglect their family's basics.

 

Dreamy, huh?

 

Really though, a big divide exists. Hopefully you're aware of it.

 

We just need to make sure that dream rests on a firm economic footing, that's all. Which means appropriate regulation. Surely you agree with this point?

Definitely.

 

Yes.

[*]Upset by excess telemarketing calls?

"Do Not Call" List????

You've obviously haven't gotten the "oh sorry, it takes weeks to remove the name from our system" excuse. Then after, your name is floated to different company. And they like to phone you with no caller ID, to avoid being reported. Or your Caller ID shows a weird number and/or title. Useless for reporting them.

 

Contractual obligations exist. I am not at this point talking about obligations to employees. This means that work needs to be done to exit these business areas. Who does this work? Who wants a job working in a business area of a financially failing area of unit of a company? No one does. Well then how do you get people to do these jobs?

You hand them the list of the hundreds unemployed waiting in line for that job.

 

Also, you have to structure a compensation package to keep them from jumping ship when a more permanent opportunity becomes available at a different company.

Yeah, because so many companies are hiring right now.

 

Such compensation packages generally include retention bonuses. Without such bonuses all the employees with simply quit.

Ditto.

[iNow]

Jackson33 - I'll admit to barely understanding your incoherent post, but unless you're arguing that failure of AIG won't impact the market in a similar manner as Lehman Brothers did, then you're comments are conpletely irrelevant to my point anyway.

 

My point is, AIG is significantly larger and more interconnected than Lehman ever was, or could have been. When we let Lehman fail, we saw what happened. That will look like a drop in the bucket compared to what will happen if we let AIG fail. The point is, we have real world experience from just the last few months which shows, without any shadow of a doubt, what happens when companies systemically connected like these are allowed to fail. I raise this fact since some people like to argue that "economics is more art than science, and you never know who's right." Well, we have some pretty blaring evidence in favor of the "letting them fail causes some seriously bad dominoing effects to occur" category.

 

AIG is bigger and more systemically connected than Lehman Brothers was. Lehman Brothers was allowed to fail, and it was almost catastrophic. It logically follows that an AIG failure would be even worse than Lehman was, and we'd all be made to suffer if we lost sight of this bigger picture in favor of some short sighted desire for moral hazard.

[ecoli]

My point is, AIG is significantly larger and more interconnected than Lehman ever was, or could have been. When we let Lehman fail, we saw what happened. That will look like a drop in the bucket compared to what will happen if we let AIG fail.

Here's a question. Does anybody know what AIG does besides for insuring mortgage derivatives?

 

If it performs some essential service that the market requires, why assume that AIG's presence is necessary. Some corporation that's worth a lot more can take AIG's place in the insurance world.

 

Propping up AIG might be helping to preserve some phantom of positive market psychology, but won't the market react even worse if AIG fails with gov't money, anyway?

 

What about the lost potential for growth for other companies that would have benefited in AIG's absence.

 

This is the exact problem of planning the economy. We don't know all the opportunity costs of a given policy so it always comes down to what policy can best serve what subset of individuals, rather than what's best for the economy as a whole.

[jackson33]

My point is, AIG is significantly larger and more interconnected than Lehman ever was, or could have been. When we let Lehman fail, we saw what happened. That will look like a drop in the bucket compared to what will happen if we let AIG fail. The point is, we have real world experience from just the last few months which shows, without any shadow of a doubt, what happens when companies systemically connected like these are allowed to fail. I raise this fact since some people like to argue that "economics is more art than science, and you never know who's right." Well, we have some pretty blaring evidence in favor of the "letting them fail causes some seriously bad dominoing effects to occur" category.

 

AIG is bigger and more systemically connected than Lehman Brothers was. Lehman Brothers was allowed to fail, and it was almost catastrophic. It logically follows that an AIG failure would be even worse than Lehman was, and we'd all be made to suffer if we lost sight of this bigger picture in favor of some short sighted desire for moral hazard.

 

My point; LB, AIG and for that matter any large financial today are already in the same shape. Lehman Brothers is simply doing it the old fashion way and filed chapter 11. Those that accepted federal funds, are today no better off or are their chances for pulling threw any better.

 

http://www.infoplease.com/toptens/usbanks.html

 

What I think you simply don't understand is filing Chapter 11, is a process the Federal Government circumvented to establish an International Confidence in the US Financial System, which has failed.

 

"AIG is GINORMOUS compared to LB" what ever that means is not equal to 'Significantly Larger" and both are dwarfed by others or in fact a fraction of AIG, who are no better off. Short of making the entire US Banking System a Federal entity, or the hoped for reversal in the economy (will take years) the Federal CANNOT continue to back these firms, IMO. Think about it, $180B to prop up one Financial that at its peak held a little over a trillion in total assets.

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Here's a question. Does anybody know what AIG does besides for insuring mortgage derivatives?

 

If it performs some essential service that the market requires, why assume that AIG's presence is necessary. Some corporation that's worth a lot more can take AIG's place in the insurance world.

 

According to them;http://moneycentral.msn.com/companyreport?Symbol=AIG

 

Lehman Brothers, has already subdivided into about 12-15 separate business and trying to sell off parts to maintain the rest...http://moneycentral.msn.com/investor/common/findsymbol.asp?Company=lehman+brothers&nextpage=http%3a%2f%2fmoneycentral.msn.com%2fdetail%2fstock_quote

 

 

 

Yes, others are interested in AIG parts already. Think India and Canada have already bought rights and split from the main company in one or another category and others have made offers. As for their and all these financial, the mortgage assets are today worth about 1/2 the listed asset value, with any real value being artificial or not known. An example, I hope to buy two homes next week, for about 1/2 what they last sold for, in the hopes the bottom of the market here as been established....some financial will eat those losses, including owed taxes, while I will be liable for repairs etc, from no one living there the past year.

Edited March 21, 2009 by jackson33
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[iNow]

Here's a question. Does anybody know what AIG does besides for insuring mortgage derivatives?

 

This is covered pretty well by the link I shared in post #99.

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My point; LB, AIG and for that matter any large financial today are already in the same shape. Lehman Brothers is simply doing it the old fashion way and filed chapter 11.

Not by choice. They wanted those funds, and they wanted them badly. When they didn't get them, things fell apart.

 

 

Those that accepted federal funds, are today no better off or are their chances for pulling threw any better.

What a specious, unfounded, ridiculous comment.

 

 

The rest of your post is an enormous, poorly articulated and incoherent strawman of my position, so I'm ignoring it.

Edited March 21, 2009 by iNow
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[Pangloss]

I understand and agree with the points people are raising about the value of allowing companies to go under, or file Chapter 11, etc. I just don't see that as an absolute necessity -- I see it more as a balancing variable -- something we have to weigh against other factors, such as the impact on the economy overall.

 

As such, I think it's appropriate to decide in some cases (like with these banks with their massive leverage) to intervene. This is not an undermining of our system -- it's a logical extension of what we always do in a mixed economy. In some cases we may screw that up, but we'll learn from the process and move forward.

 

 

Maybe too, you don't know a lot of worse-off people? Nearly bare fridge. Shopping list consists of noodles with monosodium glutamate (8 for $1). No health insurance.

 

I never said such people didn't exist even at the height of our success. But throwing around straw men about "the big divide" isn't going to change the fact that we were doing very well. Even people living "under the poverty line" were, according to the US Census, living in houses (with mortgages, of course), had a couple of cars, jobs, playstations, DVRs & cable, etc etc etc. Your "big divide" was over whether or not they were keeping up with the Joneses, not whether they had enough food in the refrigerator.

 

That may be changing now, of course.

[jackson33]

I understand and agree with the points people are raising about the value of allowing companies to go under, or file Chapter 11, etc. I just don't see that as an absolute necessity -- I see it more as a balancing variable -- something we have to weigh against other factors, such as the impact on the economy overall.

 

As such, I think it's appropriate to decide in some cases (like with these banks with their massive leverage) to intervene. This is not an undermining of our system -- it's a logical extension of what we always do in a mixed economy. In some cases we may screw that up, but we'll learn from the process and move forward.

 

For a history of US Bailouts;http://www.propublica.org/special/government-bailouts

 

 

If the object is to restructure and either method can achieve that result, how on earth can the Federal Government spending $700B, plus, plus, plus to achieve that outcome be justified...The only way government can succeed in their current practice is to take over AIG. Think of this as your personal investment...You now own 80% of a Company, having paid to date $180B. Since you now own this 80%, who will get blamed for an inevitable failure. They are selling assets and/or parts of the operation, that have value or produce a profit (why else would another party buy). Those that could help you with your investment have left the Company or hated by a large portion of the American public, which happens to include investors. Are you comfortable with this scenario???

 

iNow; Can you argue/discuss/debate with anyone with out making derogatory comments toward that person or his/her methods...If your goal is for me to report a post...It aint gonna happen.

 

Citigroup accepted $248B...52 Week high low 27.35 and .97 cents per share and now 2.63 per. Freddy Mac and Fannie May accepted $200B 33.19/.25 and .73 per share today. LB, who didn't take a dime was dropped from the NYSE, gone 'Pink Sheets' and I don't have time to research the values of each their current 14 stocks, but AM SURE it's not far off the above mentioned or others that accepted up to $700B and no telling how much more to come and I am sure, the survival of LB is equal to theirs, if for no other reason than they are being run by people that understand business, not members of Congress.

[iNow]

For iNow; Can you argue/discuss/debate with anyone with out making derogatory comments toward that person or his/her methods...

Yes, I do it all of the time, as a simple search of my numerous posts to these boards will amply demonstrate. I do, however, have a serious issues with people who make irrelevant and unsupported comments, who ignore the logical rebuttals of their points, and who simply come here to repeat the broken ideologies they've accepted from the myopic and narrow minded commentators in their personally selected media.

 

Make a well articulated argument that is well supported and relevant to what I'm saying, Jackson, and you will convince me. Just because I don't change my mind based on logical fallacies and irrelevant data doesn't mean that I am unable to be convinced of an alternative view or position.

 

 

Now, please... Tell me how exactly your last post negates the certainty that an AIG failure will have catastrophic ripple effects across the globe in numerous sectors. I eagerly await your presentation.

[Pangloss]

If the object is to restructure and either method can achieve that result, how on earth can the Federal Government spending $700B, plus, plus, plus to achieve that outcome be justified...The only way government can succeed in their current practice is to take over AIG. Think of this as your personal investment...You now own 80% of a Company, having paid to date $180B. Since you now own this 80%, who will get blamed for an inevitable failure. They are selling assets and/or parts of the operation, that have value or produce a profit (why else would another party buy). Those that could help you with your investment have left the Company or hated by a large portion of the American public, which happens to include investors. Are you comfortable with this scenario???

 

Remember, it's just a temporary measure. The long-term plan is to remove the toxic assets and then re-attract investors, who should be happy to return.

[The Bear's Key]

Hope that works.

 

I never said such people didn't exist even at the height of our success. But throwing around straw men about "the big divide" isn't going to change the fact that we were doing very well. Even people living "under the poverty line" were, according to the US Census, living in houses (with mortgages, of course), had a couple of cars, jobs, playstations, DVRs & cable, etc etc etc. Your "big divide" was over whether or not they were keeping up with the Joneses, not whether they had enough food in the refrigerator.

I guess we define extreme purchasing power and living on high leisure....differently. But remember, my post mentioned how a few things get neglected in order to have those items?

 

So we might be talking about borrowing power intead (house mortgage, car financing). Also, did the U.S. Census include people's debt in their figures? Student loans, credit card interest, other.

 

Those factor in as well.

[Pangloss]

Neglect implies an obligation that I don't acknowledge. I'll work towards better opportunities by improving education, safety, and healthcare, but I won't be held responsible for other people's foolish decisions, like your mention of credit card interest. Those do NOT factor in, at least how I see it.

[jackson33]

Remember, it's just a temporary measure. The long-term plan is to remove the toxic assets and then re-attract investors, who should be happy to return.

 

That's my argument, it can't possibly be temporary with the potential of being permanent. No, at the time it was liquidity (unable to get short term financing) which the Fed offered...

 

http://en.wikipedia.org/wiki/American_International_Group

 

The results from the first loan was a $61B, 4th quarter loss, the largest ever recorded of a single company. However my scenario to you, was intended to explain Company Performance from an investors viewpoint, which should have been negative to you and for a very long period. If truly interested, the above Wiki outline is very well written.

 

 

iNow; Your defining collapse of a Company (chapter 7 and liquidation period), NOT going Chapter 11. Check out the above site, drop down to 'Holdings'...

 

Each unit of AIG has some value, each asset has as value and of major interest to the Country it's in and each contract active with AIG is and would be in progress, the day Chapter 11 was filed. What is going on today is the US Federal Government is propping up a Worldwide operation, IMO creating an artificial bottom to future values. Business would go on, contracted payment be made, customer payment continue to flow in, people working and all things required to maintain operation placed on hold, while the assets are sold off. It may be required ALL assets, including the name (AIG) be sold, but the end result of these effects would be no different than what has already happened, at least in my opinion. Yes, it is a little larger ans yes it operates around the world. The potential for recovery remains the same regardless where financing comes from and under Chapter 11, it would come from a realistic business community.

[iNow]

But your approach completely ignores the entities whose health is inherently tied to the health of AIG. You completely ignore the banks that would fail when AIG starts selling off. You completely ignore the life insurance policies held by AIG which would go unpaid. You completely ignore the countless millions of regular Joes and Janes who would be shafted, the sick and the elderly alike, who would be DIRECTLY impacted by a filing of Chapter 11. While the most critical failure such a bankruptcy would FORCE to happen lies with the banks, this is about much more than just that, and I've been saying as much for several weeks now, supporting my arguments with data and precedent as opposed to the hand waving and blind assertions I'm hearing out of you.

 

I repeat... You are trying to approach this in a vacuum, and you CANNOT approach AIG in isolation. You MUST understand the business AIG actually performs, you must recognize with whom they are partners and what the impact of those partners not getting paid will be after declaration of Chapter 11 before you continue running forward with any approaches that were intended for small, mostly isolated businesses.

 

I also feel very strongly that you are missing how different the current situation is from ANYTHING we've experienced in the past. We are a GLOBAL economy, and one where the speed at which changes happen boggle the mind. You are focussed almost entirely on local challenges at the expense of global impact. You (and DrDNA and anyone else thinking bankruptcy is the key to solving this issue) continue to miss just how that process works, and why it will fail so miserably in the complex international nature of our current business, especially so with a business like AIG.

 

By declaring bankruptcy, you're simply going to create more problems than you solve. My argument is actually that simple, and you don't need a degree from Harvard to follow my points. Do the cost/benefit analysis and explore the ramifications of what you propose. You're going to create FAR MORE damage than you eliminate. I don't like the idea of bailing these guys out, but I'm practical. It's simply the lesser of two evils, and it's frustrating how you and others continue to discuss this situation with ideological blinders on. You're wrong, and your approach is simply myopic and fails to account for the true nature of these corporations.

 

This issue was covered extensively on the Sunday morning shows a few hours ago.

 

 

http://abcnews.go.com/video/playerIndex?id=7143817

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Listen... We disagree. That's really no big deal. I just get frustrated by the lack of accounting in your suggestion.

 

If you lay out a plan which accounts for the banks which are connected to AIG, and how you'll handle their funding when Chapter 11 is declared... and if you lay out a plan which will cover all of the life insurance policies, and other businesses deeply connected with AIG (as discussed in my link back in post #99)... and how you'll handle their need for capital if AIG goes under and delcares bankruptcy... Then I'm perfectly willing to listen. In fact, I'd love to hear new ideas.

 

But, please, for the love of academic integrity, please don't just reassert the mantra that we shouldn't spend money and that bankruptcy is created for this. I want to see some actual accounting for what the impact will be to banks, business, and people... as well as how you plan to handle their needs and businesses after Chapter 11 is declared by AIG. There are some very real contingencies and connections at play that I just don't see you openly considering.

Edited March 22, 2009 by iNow
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[jackson33]

iNow; My rather extensive business experience is with SMALL business. I don't pretend to understand or be able to explain the complexities of International Financial Institution, the multiple laws and cultures involved, and can only offer an opinion. Unlike the chaos I felt would happen with the Auto industry (producing a name brand product), banking insurance or related issues are universal. If your bank fails tomorrow (25 have this year) the only thing you will notice is a different name on their building. It's not the spending of $180B to save an institution that lost $61B in the forth quarter alone or that under normal conditions they would take 100 years to earn and pay back that 180B if then, it's the total nonsense I see in their reasoning. They are the politicians who I look at as kids arguing over bubble gums, when their issue is the very structure of American Business or Capitalism itself.

 

Today around the US and no doubt the world, small business is cutting back. Selling off property, assets (inventories/machinery/buildings) to maintain the remainder. They don't require Chapter 11, but just do it. Protection for publicly owned companies for their stockholders is required and procedures in place to protect that business, there creditors or the many complexities involving labor, unions or all else involved. IMO, adding the Federal Government and frankly the ignorance I've heard on those procedures or the reasons these actions are and have been taken is making no sense.

 

Said another way; Every contract written, held or backed by any segment of AIG, has either a value (income) or obligation (future expense) and in both cases will be accepted by some other Company, Investment Company (Buffett) or the private investor, to the point AIG, under AIG or another name can stand alone. I would bet the Federal Reserve (Bernanke), the US Treasury Department (Geithner) and every National Government involved already has prepared for the eventuality of just such an action, even probably assuming Chapter 11 is inevitable. The 180B or where ever they take this figure, will have meant nothing, probably adding to the PROBLEMS (new debt and delusion of stock values). That 180B will also delude the pennies on the dollar of other creditors, which will eventually have to be accepted.

[ecoli]

I repeat... You are trying to approach this in a vacuum, and you CANNOT approach AIG in isolation. You MUST understand the business AIG actually performs, you must recognize with whom they are partners and what the impact of those partners not getting paid will be after declaration of Chapter 11 before you continue running forward with any approaches that were intended for small, mostly isolated businesses.

 

iNow, but neither is the economy in isolated. If AIG fails, that may create a power vacuum for insurance companies, and so will also open up a large market for other companies to offer services that AIG used to provide.

 

Sure there will be a time-delay when the market fills in consumer demand, but even with the bailouts, there is no sufficient guarantee that AIG won't just file for chapter 11 in a few months anyway. The ripple effect will still be seen, except now we also have a lot of public debt. And, we'll have to let the market provide for consumer demand.

 

I have not yet heard a convincing argument that the bailouts are 1) sufficiently stabilizing the economy 2) keeping the same economic players around will, in the long term, be better for the economy than letting them fail and letting resources reallocate to more profitable ventures.

 

In our current approach, we seem to be wanting to avoid short term pain for long term uncertainty AND pain, all while letting the clueless politicians make crucial economic decisions.

[Pangloss]

Well I don't think there's any question that the present situation needs to be changed or at least repaired. Robert Reich made that point this morning on ABC and George Will was nodding his head vigorously -- those two never agree on anything, but they agreed that AIG is currently beholden to neither market forces OR the American people.

 

The President has apparently said privately that he will not sign a retroactive law because it would make it harder to get these companies back on their feet. Fine. He's being a bit hypocritical in that regard if he thinks an OVERALL executive compensation rule will make Wall Street any happier, but he's at least recognizing that retroactive laws are unfair.

 

But I think it's becoming more clear by the day that we need to fix this and GET OUT. It was the right thing to do getting in, but we need to count our lessons and learn from them and not get stuck in an economic Iraq.

[ecoli]

Well I don't think there's any question that the present situation needs to be changed or at least repaired. Robert Reich made that point this morning on ABC and George Will was nodding his head vigorously -- those two never agree on anything, but they agreed that AIG is currently beholden to neither market forces OR the American people.

 

I agree with you inasmuch that a corporation being bailed out by the government is overcoming market forces and that the gov't. isn't necessarily listening to Americans in how it handles the bailouts.

 

Given that the above is true and that neither the American people nor the government is good at economic planning, how could there be any other changes planned than getting the government out of the business of economic planning.

[Pangloss]

Given that the above is true and that neither the American people nor the government is good at economic planning, how could there be any other changes planned than getting the government out of the business of economic planning.

 

Because that's throwing out the baby with the bathwater. You don't know that disaster wasn't prevented. Granted I can't prove that it was, but action was taken and there was no disaster, so I don't have to, and I'm not advocating the rejection of an entire economic approach that's been in use for most of a century without proof that it's the cause of the problem.

[DrDNA]

I repeat... You are trying to approach this in a vacuum, and you CANNOT approach AIG in isolation. You MUST understand the business AIG actually performs, you must recognize with whom they are partners and what the impact of those partners not getting paid will be after declaration of Chapter 11 before you continue running forward with any approaches that were intended for small, mostly isolated businesses.

 

You obviously do not understand Chapter 11.

I suggest that you turn off the TV and the internet videos, produced and scripted by the talking heads, and do some reading.

You will discover that the partners will get a PORTION of what they invested (at our expense none-the-less).

Which is much more than they deserve.

 

Forget the free market (which is not free, but apparently in prison at the moment); I do not believe that you fully comprehend the nature of investing either, or else you would not be making many of the statements that you are making.

They (the partners and investors) are not 'owed' anything...nada...zippo.

They did not put their money in an FDIC insured bank account.

They invested it.

They were speculative investments...and they should be subject to all the risks contained within.

And that includes my own 401K investments which are in the toilet.

 

Here is one of the best articles that I have read so far to get you started:

http://network.nationalpost.com/np/blogs/francis/archive/2009/03/19/aig-and-gm.aspx

 

AIG bailout: plunder by the plutocracy

Posted: March 19, 2009, 9:00 AM by Diane Francis

 

...............

What is scandalous is only not the US$165 million. It’s the US$180 billion which has been shoveled into AIG by taxpayers to date, funds which have mostly gone toward paying off AIG’s creditors, or counterparties. These include banks, brokers, pension funds and other gamblers who paid premiums to AIG in order to insure the value of their bond portfolios against calamitous losses.

I agree these counterparties must get something in order to prevent a disastrous cascade-effect, but they should, like AIG employees, be forced to take dramatic haircuts. This is what Washington has forced autoworkers and others to do. This is what the world has had to do.

 

So why the special treatment?

The White House’s super-guru, Lawrence Summers, argued over the weekend that bonuses to AIG traders must be paid due to contractual obligations. Other apologists have argued that valued employees must be properly remunerated or they will leave.

But AIG is a bankrupt and in bankruptcy workouts, workers' contracts, and obligations to counterparties and other creditors, are irrelevant. What should happen is bankruptcy, pay cuts, haircuts to creditors. Instead, AIG is propped up to carry on as though it is a viable business and its employees are entitled to normalcy.

 

The argument for paying AIG’s counterparties is also about contractual obligations as well as about the national interest, or arresting bankruptcy contagion.

That’s fine, but the counterparties forefeited any right to be paid out because they did not check whether AIG or others could pay claims if bond prices fell. Others who bought these credit default swaps, notably counterparty Fairfax Financial Holdings, required its “insurers” (three banks) to collateralize the potential claims. (If all counterparties had required this, the crisis would not have happened because they would have been limited to the amount they could have insured through credit default swaps.)

Going bust would be a good option now

An AIG bankruptcy would mean that counterparties would get only a fraction of what they bet, not what they are owed.

Spitzer articulated why AIG’s counterparties haven’t been forced to take a haircut like the rest of us:

“For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner [now Treasury Secretary], Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP [bailout] money already.”

“It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure.”

 

So Washington, still run by insiders who listen to insiders, is handing over tens of billions to fat cats so they can bail out bets that shouldn’t have been made, might have been illegal, and then, to boot, allowing them to skim millions in bonuses for themselves.

Meanwhile, the rest of the economy is being left to the cruelties of the marketplace these fatcats espouse to believe in.

 

That’s not sensible policy. That’s not capitalism. That’s welfare for the plutocracy on Wall Street. [/Quote]

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Merged post follows:

Consecutive posts merged

 

 

 

This whole bailout fiasco is less about Chicken Little's sky falling and looking more and more like the Little Dutch boy who didn't have enough fingers to plug up all the holes in the dike.

Edited March 23, 2009 by DrDNA
Consecutive posts merged.

[bascule]

While I agree with the overall sentiment of the article and think that letting AIG collapse may be one of our best options at this point, I do have to take issue with this:

 

The White House’s super-guru, Lawrence Summers, argued over the weekend that bonuses to AIG traders must be paid due to contractual obligations. Other apologists have argued that valued employees must be properly remunerated or they will leave.

 

I'm not sure exactly what he's trying to say about Lawrence Summers, but he's certainly not an apologist for the AIG bonuses:

 

http://www.cbsnews.com/blogs/2009/03/15/politics/politicalhotsheet/entry4866598.shtml

 

He's simply stating the reality of a bad situation, one largely precipitated by the previous administration's insistence that bonuses like this be honored.

[ecoli]

While I agree with the overall sentiment of the article and think that letting AIG collapse may be one of our best options at this point, I do have to take issue with this:

glad you're starting to come on board.

 

I'm not sure exactly what he's trying to say about Lawrence Summers, but he's certainly not an apologist for the AIG bonuses:

 

http://www.cbsnews.com/blogs/2009/03/15/politics/politicalhotsheet/entry4866598.shtml

 

He's simply stating the reality of a bad situation, one largely precipitated by the previous administration's insistence that bonuses like this be honored.

 

Are you implying that, in future bills, the limits need to be worked out ahead of time?

 

If so, my counterargument, is that there will always be unforeseen consequences in which the reactionary legislation won't turn out the way you expect.

 

I think that's a strong argument for not proposing the bills in the first place, because all those strings you attach are going to have consequences down the road. But so will not attaching any strings.

[bascule]

glad you're starting to come on board.

 

That actually happened way back here

 

Are you implying that, in future bills, the limits need to be worked out ahead of timme?

 

No, I'm implying the limits were in place in the stimulus bill until the Bush administration insisted they be removed.

[waitforufo]

Interesting discussion regarding government corporate bail outs, government takeover, court managed reorganization (chapter 11 bankruptcy), and court managed liquidation (chapter 7 bankruptcy). I hope you all appreciate that each of these "solutions" will include paying employees retention bonuses. These bonuses, for a company the size of AIG, will amount to millions of dollars.

 

Again, Obama is against the bonus tax. So please explain to me again how Obama is trying to "block AIG bonuses."