Monday, March 16, 2009

Sincere or False Outrage? The Obama Administration Smacks Down AIG

The federal government decided to include billions of dollars in earmarks in the recently approved omnibus budget. The federal government decided to give AIG billions of dollars without a sincere effort to regulate executive compensation.

The price of the earmarks dwarfs the value of AIG's bonuses, but the Obama administration told critics of earmarks that the budget was "last year's" business. The banking bailout -- or TARP -- was actually enacted last year, unlike the omnibus budget. As you witness the federal government condemn AIG, consider the source of the outrage.

Prior to his inauguration, President Obama met with Democrats in Congress and threatened to veto any bills that placed tougher restrictions upon the usage of TARP funds. Some Democrats, seeking greater oversight surrounding the distribution and use of TARP assistance, proposed measures that would govern the second distribution of $350 billion in federal funds for the program. Now, the White House worries that voter disenchantment with banks and bailouts will kill public support for the President's other initiatives.

Recently, a Treasury Department official testified before Congress and urged lawmakers not to "micromanage" banks. But now, the Treasury Department is outraged over AIG's bonus structure. Dictating executive compensation probably qualifies as "micromanagement."

Is the federal government's sudden outrage sincere or false?

Update: Obama is trying to negate the bonuses, paid with last year's budget.


Andrew said...

I think the outrage is false and the Administration is probably just trying to profit from public outrage over executive pay. The public's outrage is justified, I think, because we are bailing out companies while they can still afford to pay their execs so exorbitantly.

Darren Lenard Hutchinson said...

Andrew, I find your arguments very persuasive!

1950 Democrat said...

These companies are giving 'retention bonuses' to executives who should have been fired (and sued for damages, and/or prosecuted for fraud)

Anonymous said...

Mr. President, this is just last year's business, just like the pork in the latest omnibus. I'm sure going forward AIG will act in the best interest of taxpayers, just like you. heh.

Mikey said...

AIG is a pretty big company with lots of separate divisions. It may be that some of the bonuses are entirely justified, and justifiable.

I think the administration is just trying to make political hay out of this issue, and further, it's extremely ironic that Barney Frank is out there talking about how the AIG bonuses are "rewarding incompetence" when it was HIS OWN incompetence that helped get us into this mess to start with!

F15C said...

1950 Democrat: "These companies are giving 'retention bonuses' to executives who should have been fired (and sued for damages, and/or prosecuted for fraud)"

Prove it. Show us how you know that the employees responsible for AIGs problems are getting bonuses.

There are many employees at AIG that were not a part of the problem, but are a part of the solution who rightfully earned and deserved bonuses.

Anonymous said...

AIG hires 100,000 people, and apart from a small segment of that company (the speculative investment arm), has generally been profitable.

Why should the ones promised bonuses based on their performances BEFORE the bailout get denied?

dualdiagnosis said...

I enjoy your writing and analysis. I feel like I am watching someone realizing that Obama was and is not what he was portrayed as.

Anonymous said...

It's just Obama's incessant need to find folks to demonize and scapegoat in order to cast himself as the leader in the fight against unseen forces of evil. It used to be rural Americans who supposedly clung to religion and guns, now it's "derivatives traders". It is extraordinarily puerile, and one has to wonder, who is next.

1 said...

Hey DISSENTING JUSTICE, consider the words from Tax Rascal in his Why Barney Frank’s Phony AIG Outrage is Worse Than the Bonuses:

'If AIG’s structured products team is collecting these bonuses, it is, indeed, an outrage. But it’s much more likely that the bonus recipients aren’t the same team at all. AIG has a huge variety of insurance businesses, and it invests the proceeds from its insurance in an incredible array of assets. Even at a time like this, there are numerous AIG employees who are capable of making the company millions of dollars (and this would be a good time for them to have some extra money).

But think about those people: how happy would they be to work for AIG? If they got stock options for good work in past years, those options are worthless; if they invested their savings in AIG stock, their retirement account just blew up. It’s a wild guess, but I’d bet that the average AIG employee has lost far more (as a percentage of their net worth, and in absolute terms) than the average American worker

Darren Lenard Hutchinson said...

DD - I have ALWAYS been cynical of politics. Obama is not the first one. And he won't be the last. My critiques focus on him primarily because he is in power. This does not mean that I would treat others differently.

Darren Lenard Hutchinson said...

A lot of people have argued that AIG should not pay bonuses to executives who engaged in "fraud." IF, AIG is paying bonuses to such employees, I would have a problem with it - but prosecuting them for fraud is a good way to restore the public trust. Also, the point of the essay is to get people thinking about the "outrage" issue. The bonuses are much smaller than the earmarks; TARP money was enacted last year, while "last year's" omnibus bill was enacted this year. The administration's approach is inconsistent - which probably means it's politically motivated.

Hershblogger said...

The outrage is false for several reasons:

First, these bonuses have been known about for a year. AIG disclosed the contracts prior to the passage of TARP. The surprise is entirely feigned.

Second, Chris Dodd put a provision in the original TARP bill to protect any such bonuses legally contracted before Feb 11, 2009. (Now he wants to tax them at 90%?) Dodd is also the largest recipient of campaign cash from AIG.

Third, they are retention, not performance, bonuses. "You stay until such-and-such date and we'll give you this much money."

The White House is making sure the outrage is not directed anywhere that it might damage plans for carbon taxes and nationalization of healthcare. Dodd is worried about his seat in the next election. They're both demonizing AIG.

Hershblogger said...

Oh, and if it's last year's budget, isn't it "last year's business?" Can't intervene in that. Need to move on.

Anonymous said...

You folks who espouse legalistic justifications for taking the money fail to consider that the common man is hurting, FYI. If corrupt capitalists are allowed to continue to grab what they can as everything continues to spiral downward, it will be setting the stage for a reckoning that makes the French Revolution look like a child's tantrum.

Hershblogger said...


Those who support the rule of law as applied to employment contracts consider the application of such law to apply equally to AIG employees and UAW members. If corrupt government continues to steal citizens' money on behalf of greedy corporatists, it will set the stage for a reckoning that will take place at the ballot box.

There, fixed that for you.

Darren Lenard Hutchinson said...

Anonymous - I understand that people are hurting - but I do not understand the rage being point at AIG rather than the government which gave AIG the money to spend in the first place. I have always advocated doing more for the "people" directly - which is the main reason why I disagree with the stimulus package.

Darren Lenard Hutchinson said...

Hershblogger- the original version of Dodd's amendment did not contain the language you cite. Instead -- unlike Obama and Geithner's watered down TARP regulations -- it applied retroactively and basically would have banned the bonuses. The Obama administration expressed disagreement with the language and the retroactivity provision vanished during the conference committee.

This is an example of the Obama administration trying to blame Dodd for its mistake. Now Dodd has a good reason to look "tough" on banks -- he has received tons of money from them and is in a tough reelection race. But I think he actually tried to move this issue along.

Hershblogger said...


Sen. Ron Wyden and Sen. Olympia Snowe certainly tried to put in a provision to cap bonuses, but their proposal was rejected. If Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, was committed to limiting bonuses, how did that happen?

I am aware that Jane Hamsher has put together evidence that Dodd was not responsible, however, this is just moving the Titanic while the deck chairs stay in place.

We may never know for certain who inserted the date (what Dodd denies doing). Since nobody read the bill before it was passed and signed by the president, all those who voted "Yea" are at fault.

At present the origin of the language that protects the bonuses is not decided. Circumstantial evidence (the Connecticut location of many AIG personnel receiving bonuses and the large contributions from AIG to Dodd) cause me to think we should wait for more info before we exonerate the Senator.

Of course, as you point out, it's the Administration that said Dodd was responsible. In terms of competence, I'd rather think they were right about a serious charge _apparently_ so easily checked.

We'll see how this circular firing squad works out.

Hershblogger said...

Another thought. If it was Treasury that wanted the bonuses preserved, and since TARP was passed last year, couldn't they blame Bush?

If not, why not? It's not like they are averse to blaming Bush and it's certainly preferable to blaming each other.

Darren Lenard Hutchinson said...

TARP passed last year, but most Democrats - including Obama - voted for it. Also, because TARP required Congress to authorize the second installment of money, Obama and Congress are in on it as well. Obama threatened to veto efforts to place restrictions on the use of TARP funds. He also created regulations that were basically toothless and ineffective against high salaries and bonuses. Finally, he negotiated the removal of Dodd's amendment that would have prohibited these very bonuses. Check out the "Misdirected Outrage" thread for more details. There are too many actions by Obama and his administration regarding TARP to make a Bush attack credible.

Darren Lenard Hutchinson said...

Hersh, I had not read your earlier post -- at the time, I distinctly remember reading Dodd's amendment and commenting on it. I actually still have a draft essay on the subject, which I never finished. Basically, I argue in the essay that Dodd was trying to save his job by pushing for tougher reform. He has faced criticism for receiving so much money from the banking industry, which he regulates.

So, I know that he proposed the measure. I also know that the Obama administration publicly disagreed with Dodd's amendment. I did not know until this week that the final language was altered.

I believe that Obama told Senators to take it out during the conference committee. Dodd probably knew and conceded to Obama. Rather than attacking Dodd, though, I think it's best to place blame where it ultimately lies: with the Obama administration. Treasury has a lot of discretion over TARP, and Obama has rejected multiple efforts to toughen it. That is far more relevant than whether or not Dodd knew that Obama told the conference committee to alter his amendment.

Hershblogger said...

You say, "There are too many actions by Obama and his administration regarding TARP to make a Bush attack credible."

I think you are correct about that, however bashing Bush offered the possibility of being written off as partisan BS. By attacking Dodd, they quadrupled down and made it a headline for 3 days.

When they make an "easily falsifiable" (I'm still hoping for info on what happened behind closed doors in the middle of the night) attack on Dodd, it damages the administration's credibility much, much more than appearing to bash Bush without cause (again).

Did they expect Dodd to just roll over? This would be severe incompetence and consummate hubris. And, true or not, it does serious damage to Senator Dodd's re-election chances. He was already reeling under the questions regarding his mortgages and Irish "cottage."

The scary thing is that if this administration will so blithely attempt to throw a senior Senate Democrat supporter under the bus by lying so transparently, what can the rest of us expect?

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