It is completely outrageous that struggling as we are, anticipating hard times ahead, our money is being spent as a reward for those who helped cause our economic crisis. It is outrageous that money that we could be using to replace that which was lost from our retirement accounts or college savings accounts, is being given to a bunch of “Wall Streeters”. Money that could have been used to help us pay our mortgages, or get caught up on our credit card bills, is going support the millionaire playboy lives of some failing bankers. Million dollar rewards going to further support the “Trump” like lifestyles of those who have failed our country.

If only that were the case, but it’s not.

My fellow main-streeters, soccer-moms and soccer-dads, Senators, Congressmen and Congresswomen, let’s all take a step back from the precipice we are about to leap off and take a deep cleansing breath.

The bonuses being paid out at AIG are not merit bonuses. These bonuses are not being paid out for going above and beyond reasonable expectations. These are retention bonuses. These bonuses were offered to keep the folks there who understand these highly complex financial instruments. AIG went to these people and pretty much said “We know you are going to try and run, but if you stay, and help us undo this mess, and do it well, we’ll pay you extra for doing so”. And they did. They did what was asked of them, and now we are telling them, tough luck. We don’t want to pay you, because we are jealous of the fact that you are making so much while we struggle.

Let’s put ourselves this same scenario. You’re a pretty successful stone mason, working as a subcontractor for the wall building division of a large construction company. You are asked to build an incredible complex and complicated wall, and every day, for the next year, you struggle and toil to do so.

On the last day, as your cleaning up your tools, looking forward to finding a new contract with a new company, your old boss comes up to you and says “We told you to build the wall in the wrong place, and if we don’t carefully take it down, it could cause the whole city to be flooded. We need to have the wall taken apart piece by piece, so the stones aren’t ruined. The whole company is going to go under because of this mistake, and we need to save the stones so we can sell them. We know you’ll want to move to another city to be safe but, you built the wall, so you are the best person to take it apart. We’d like to offer you a new contract for another six months. It will include a $25,000 bonus for staying and doing a good job.” So you think about it. You feel bad for the guy, agree to stay on under the new terms and sign the contract.

You work hard for the next six months, and painstakingly undo everything you worked hard to build. After receiving you last paycheck, bonus included (thank you very much), the brother of the owner of the failed company comes up to you and says that he provided financing, out of his pocket, to keep the company afloat for the last two months. He wants you to give him your $25,000 bonus, because, after all, it is really his money, right?

Wrong. You agreed to stay. You did the work as requested. It’s not your fault the company went under because the wall building division told you to build the wall in the wrong place. Heck you even did a great job building it, and taking it down! And now, not only is this guy after you for the bonus you earned, but the whole city is up in arms about the bonus, threatening both you and your family.

Now our elected representatives are considering going after these AIG employees because we all wish, during these hard times that we were the ones getting retention bonuses.

Are we willing to accept the precedent that will be set by this action? What comes next? What happens when the company you work for starts complaining to your congressman that they don’t like the terms of the employment contract you bargained for and they agreed to? What if they want him to propose a new bill undoing the whole thing? There a big powerful company and your just a weak individual.

Laws are set in place to protect the minority from the majority, to protect them from mob rule. Since when do Americans threaten to kill their neighbors because they are doing better for themselves than we are? Where are our leaders? Are they not supposed to stand up to the masses and do the right thing, no matter how unpopular it is? Is this the new change that we were promised? Decisions made based on fear, jealousy and uncertainty, a country run by mob rule?

Benjamin Franklin once said: “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”

This is a slippery slope we are about to go down. Before doing so, maybe we better take a step back an take that deep cleansing breath.

one would have to look no further than 44′s Cabinet/Top Admin. officials, to see the fact of the matter..

http://money.cnn.com/news/newsfeeds/articles/djf500/200903171531DOWJONESDJONLINE000624_FORTUNE5.htm

Everyone is agitated over the AIG bonuses. However egregious, it appears that legally they are entitled to the bonuses. Some argue that the auto workers have had contracts abrogated, but those are before, not after the fact.
However, there may be a way. Read on.
AIG has $500 billion of credit default swaps on the books. If half must be honored, that would be $250 billion. The government has already given them $180 billion, so they might need another $70 billion or so. How is such insanity possible
Remember that CDS contracts are merely unregulated insurance and therefore do not come under the normal requirements for holding reserves against future claims. AIG is primarily a casualty insurer, and that is their mentality.
Determining the appropriate level of reserves for casualty contracts is at least 50% subjective. Experience data exists and is utilized, but no one knows from year to year what level of claims will have to be paid (unlike life insurance where predictability is very high).
AIG should set up reserves for future claims, and additions to their reserves each year reduce current earnings. Since past experience suggested claims on CDS contracts were infrequent, apparently they held small reserves even though they had immense potential liabilities on $500 billion of exposure.
At Aetna, when we had low claim years, we tended to tuck a little more into reserves for casualty contracts, figuring that if claims stayed low over time the reserves could gradually be released to earnings. In other words, we sacrificed short term earnings for long term financial stability. This was a prudent judgment call.

All my career I was involved with incentive compensation plans. One thing I can say with 100% certainty is that when a comp plan has a formula for determining bonuses, and you give the people affected control over the variables in the formula, they will act in ways to max their bonuses. At AIG, the formulas had bonuses driven by earnings, and why would you want to decrease earnings by adding a lot to reserves if it would cost you in bonus dollars? Especially when bonuses could be in millions of dollars.
Given that reserves for CDS contracts involve a lot of judgment and are unregulated, you can see what happened. The guys in charge could argue that “experience” told them that minimal reserves were all that was needed.
Was that prudent? Of course not. But was it fraud? Possibly, if their auditors advised a higher level. And if the auditors did, and they ignored it to their own personal gain, then a basis exists for getting back not only this year’s bonuses, but perhaps past ones as well.
AIG was the envy of the industry for its phenomenal results which seemed unbelievable. Most people attributed it to the genius of Hank Greenberg. Everyone called him a genius and a hard-nosed SOB. Smartest guy in the room.
But they said that about ENRON and Jeff Skilling too. Sometimes these too clever people step over the line. Did AIG? I don’t know. But the place to look is the minutes of the meetings where reserves were established and the auditors’ comments thereon.

“every time i see people posting ‘ let’s get the pitchforks and torches and head for wall street!’
i feel compelled to remind them that it is a federal crime to advocate the violent overthrow of the US government.
______

It’s always, ostensibly, been a crime to overthrow any government, anywhere, anyhow.

I believe a case could be made – based on our Constitution, The Declaration of Independence, the intent of our founders, and our history – that the Federal Government, being of, by, and for The People, could be purged of its elected and appointed officials, as well as those making up the bureaucracy, and still remain on the correct side of the law, as long as The People didn’t declare the Constitution null and void. In fact, I could argue that it’s The People’s duty, as our government has been usurped. There is ample proof of the usurpation of powers by all three branches of government. It would not be a ‘revolution’, per se, but more of a reconstitution, or a reaffirmation of the Constitution, by rebellion.

That said, the powers that be would certainly resist. People would get hurt. Rebellions are not pretty things.

This comment is in no way, shape, or form, a call to action.

Probably much of what you have written is true or will become true.

And probably Obama will end up pumping in EVEN MORE money into AIG.

I really hate these politicians.

Certainly, the CDS holders would object, but their objections are unlikely to be heard or heeded by the bankruptcy court and trustee. The insurance subs are regulated companies, with required levels of capital which is not legally available as collateral for the obligations of the FP division. The fact that some CDS holders might wish for AIG to raid its insurance reserves to pay them off will not matter in the slightest. AIG can’t raid regulatory capital to pay off obligations of an unregulated business.

It means that Goldman will not get their billions for the CDSs and might have to go under or seriously reform itself (boo hoo!), and it means that many of the other counterparties would have to address their own problems, with their own governments. (Why the US taxpayer is throwing money at AIG in order for AIG to make SocGen, DB, Barclays and other foreign financial institutions whole, is completely beyond my comprehension.)

So, yes, toss them into a bankruptcy situation. Yes, we’ll probably have to bail out or wind down a bunch of other institutions here, and our friends in Europe and Asia will likewise have to figure out how to deal with their own failing institutions. But at least we will finally get to see the scope of the counterparties, and make intelliegent decisions about whether or not they need taxpayer support. Just tossing a blanket over AIG and ignoring what goes on underneath merely perpetuates the problem.

I wish there were another way, but it’s clear that none of this ends until there’s complete transparency, and complete transparency will not occur until AIG is picked to pieces and the results made public.

My expectations for the coming weeks are that this will not happen. AIG will attempt to cooperate with the government after the CEO resigns under fire. Unfortunately, pretty much everybody of significance from FP will also resign at the same time. The biggest of the bonus-getters will turn out to be in London and the US will wisely decide not to turn the whole thing into an international incident by suing British subjects in British court. A couple of weeks down the line, the government will march in and seize the empty shell using some sort of made-up authority, then do in a disorganized manner what a bankruptcy trustee would have done cautiously and judiciously. The results will largely be the same except that we the taxpayers will never recover a penny.

-btc