Is nobody else made deeply uncomfortable by this idea?
Senate Majority Leader Harry M. Reid (Nev.) said Finance Committee Chairman Max Baucus (Mont.) would unveil a proposal by tomorrow that would tax up to 98 percent of the bonus money. "That will certainly send a message to the people at AIG and all others who try to benefit from the hardships the American people face," Reid said.There's been some discussion about whether levying a tax of this nature would be legal, or instead would represent an unconstitutional bill of attainder. Lawrence Tribe of Harvard Law School says the bill would probably pass constitutional muster, although the answer is less than 100 percent clear.
In the House, Reps. Steve Israel (N.Y.) and Tim Ryan (Ohio) introduced the "Bailout Bonus Tax Bracket Act" to create a 100 percent tax on bonuses over $100,000 that are distributed to employees of financial firms receiving federal bailout funds. Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars. The Israel-Ryan proposal would apply to all bonuses to government-supported firms such as AIG that have been given since Jan. 1.
I'm not sure that's the whole crux of the matter, though. Among the most basic duties of a functioning government is to uphold contracts. The "retention" bonuses paid to AIG executives were almost certainly bad contracts from an economic point of view, but legally they may be just as valid as any others (I qualify this statement only because we haven't actually seen the contracts). If the government passes a tax of this nature, it is not only failing to protect those contracts but is actively seeking to circumvent them.
"What is the highest excise tax we can impose that will stand up in court?", Max Baucus suggested today. "Let's find out."
Legal? Perhaps. Constitutional? Probably. But Congress's intervention in the Terri Schiavo case was probably constitutional as well. Nevertheless, it represented a gross overreach of the chamber's authority, and ultimately undermined, at least a little bit, the rule of law.
When historians look back on this period, this is not likely to be seen as one of our prouder moments. Moreover, I wonder if it does not augment the view that the financial crisis was perpetuated by a few bad apples, when the real causes were far more systemic, and systemic reform will be required avoid their recurrence. If the public needs some way to crucify CEOs and other high-paid executives who had their fingers on the button when the economy went to hell, let's at least find a way that doesn't tempt fate with the rule of law.
139 comments
I'm not so sure that taxing 98% of the bonuses would be legal. Extreme taxation akin to taking the property outright might violate Due Process.
In any event, I agree this episode does not make us look good as a country.
this is americas let them eat cake moment.
it may not be marie antoinettte's necklace, but symbolic just the same.
class warfare is here.
Erm, yes and no. They are targeting very specific entities in any potential legislation, so in that sense it shares similarities with the Schiavo case.
On the other hand, there seems to be some confusion over whether they'd be taxing employees who received the bonuses individually or if the language would target the corporations themselves, including any company that in the future takes government bailouts as well. Which is a little different and not... entirely unwarranted. It probably should have been done in the original bill last fall, but better late than never, I guess?
I agree it's pretty indicative of the massive problems within the corporate culture itself. The fact that no one thinks there is anything wrong with rewarding people huge amounts of money, regardless of how the company itself is doing, regardless of how their actions may have led to the current problems within that company, points to some hefty institutionalized issues and I'm not sure there could ever be an easy fix for that.
Nate, thrilled to hear you say this, as I've been alarmed at what I've seen coming from other quarters.
In my mind, I liken it (a bit) to the suspension of habeas corpus in the interest of promoting America's security under the Bush administration.
That wasn't justified, and neither is suspending the enforcement of legal contracts in the interests of the country's economy.
While you can certainly argue significant differences in degrees, the analogy is striking to me.
Lee
Don't cry for me AIG........
C'mon Nate. The person who led this outrage, was none other than raging moderate, Josh Marshall
I love this site, but maybe you should refrain from legal analysis. This has absolutely nothing to do with constitutional provisions re bill of attainder, contract, or even due process or rule of law. There is still room for discussion of policy and politics, though.
As much as I enjoy the "Eat the Rich" sentiments, I worry that the Dems are stepping into a political trap.
The more Dems offer these taxes as punitive, the more that plays into the Repubs narrative that 'taxes are bad.'
This seems to also fly in the face of Obama steering the definition of 'tax' back toward funding public projects. In other words, Obama wants us to see taxes as our contribution to social welfare. Using taxes as punishments erodes that new definition.
Is nobody else made deeply uncomfortable by this idea?
Only in America do we let the rich fuck us over -- & then wring our hands over whether we should let the rich keep fucking us over.
I'm sickened by this constant defense of "contracts." The 70-yr-olds with pensions at the UAW had contracts, too. And they had to change them. Why is it that the only contracts on the planet that can't be touched belong to traders?
The contracts might have been meaningless.
If the government hadn't bailed out AIG, the employees would probably have been at the back of the line with other unsecured creditors, waiting for their bonuses.
AIG was really hurting -- they need even more money now, right?
Perhaps I should start a business and hire my wife and promise her a huge bonus and then get the government to bail me out.
What?
This is a GOOD decision.
The only problem is that 2% of a multimillion dollar bonus is still too damn much.
It's just plain democracy.
Had AIG gone bankrupt, there would have been no bonuses.
AIG gladly accepted the money. They didn't have to. It should come with strings. Plenty of strings.
There is no possible rationale by which the taxpayer should be required to pay extortionate bonuses, in excess of salary, unrelated to equity or debt claims on AIG.
If there is, then the taxpayer cannot ever intervene in the financial system.
Only a madman could term the prevention of a small group of individuals from becoming wealthy by grabbing taxpayer dollars as seven figure "bonuses" after literally driving a major company into bankruptcy as "class warfare" or an attack on "the rich".
I'm a capitalist. I'm an entrepreneur. The idea that taxpayer dollars should be used to pay seven figure "bonuses" to failed speculators is ludicrous.
This ought to be one thing that liberals and conservatives can AGREE on.
Here's the only similarity I can see to the Schiavo case - giving out these bonuses is as much of a waste of my tax dollars as it was when "W" needlessly flew back to Washington in a helicopter during the Schaivo insanity.
loomis and cms-
agreed. legal contracts have been trashed for eons-including right here in the USA. i could care less about the AIG contracts.
laws have been changed for eons also.
the poor have been told to shut up for eons also.
and for eons there comes a time when the poor tell the
landowners to shove it.
there are a lot of poor in america
right now
And really, to compare this situation to Terri Schiavo (negatively) is too much. In the Schiavo case, Republicans were trying to insert themselves into a deeply personal, painful family matter. In this case, the people who are primary owners of a corporation are trying to make sure certain employees of said corporation are not overpaid. It happens all the time in business.
I'm deeply troubled by this. We need to let it go at this point. The public shame is enough at this point. A 98-100% tax would be really great news for any republican running in 2010-2012. Imagine the ads they'd put out.
The intent of the bailout was not to provide the people who ruined the lives of hundreds of thousands of people millions in extra cash.
The intent of the retention contracts presumably is to reward and keep people who help AIG be profitable.
I hope the government does what it can to uphold the intents as best as possible and not let some narrow interpretation of the contracts reward the people whose fraud cost our country so much. The money could better be used in so many other places where the government also has obligations (even contractual ones).
Yes, I agree, protecting contracts is important, but presumable it is better to protect their intent rather than reward people for abusing them in unforeseen ways. Let’s not reward people for writing deceptive and disingenuous contracts which poorly serve one party’s interests. Surely that is not behavior we want to promote.
derivative -
EXACTLY. And if that's the precedent, then that will always be done and the taxpayer can never bail anyone out.
Sorry, I do NOT want to pay you a seven figure sucker's wad for blowing up the company. That's what your shareholders were for (in your opinion).
My democratically elected representatives have the right and DUTY to manage how my tax dollars are spent.
If I could get my hands on the dickwad who collected the 6.4M bonus, why, I'd deliver him the sternest lecture on personal responsibility that I could possibly ad lib.
I would care about your points if this wasn't a business riding on the back of the American taxpayers who are both rich and poor and niether group benefits from huge bonuses to employees who have had such horrible collective performances. This isn't about populism or clas warfare, that' a second thought rationalization meant to undermine the backlash and justify upholidng these unreasonable bonuses. It's about time for the government to start holding people accountable, and with this and their pay freeze they are giving me hope, although hope is the lowest form of comfort.
Why not just stop bailing out AIG, let it go into chapter 11 bankruptcy and let the recievership sort it out?
cms has it exactly right.
I had this same discussion earlier today (mercifully sans Terri Schiavo). All these complaints about how horrific it would be if the government changed or abrogated those contracts are too little, too late. Depending on who's doing the complaining, it's also too hypocritical.
I seem to recall very strident demands that the UAW and GM abrogate their obligations (directly resulting in worker pay reductions from prior contractual levels) as a political condition of receiving bailout funding. Now suddenly the exact same concept would be a political fiasco on par with Terri Schiavo because it would affect financiers? Preposterous.
The horse is already out of the barn; it's too late to shut the door now.
It seems there's probably quite a bit of room in the law, as it currently stands without intervention from Congress, to undo these contracts.
http://roomfordebate.blogs.nytimes.com/2009/03/17/when-bonus-contracts-can-be-broken/
hellanicus-
of course it is class warfare.
big bonuses have been talked about in american corporations for years. why the big deal now?
because of the economy. because people are losing there only home
and there jobs. in good times people would have joked about it and they did.
these guys are getting millions for less than nothing.
I don't see this as a Terri Shaivo moment at all, and I'm much less populist than a lot of people.
The reality is this is a largely symbolic move, and when so many critical substantive issues on the table, one symbolic populist measure to soothe tensions is fine.
I also don't see Terri Schiavo to be on the same level as Katrina and Iraq in terms of what I think undid the Republican party.
I'd also like to quote Go from the last AIG thread:
"Did you see Barney Frank on Rachel Maddow tonight (I mean, not literally "on", but on her show)? He made a brilliant point: you can't promise these guys exorbitant bonuses when they do well but not punish them when they fail. Then they make big risks because the bad consequences don't affect them. They're gambling everything for their company--including all of the employees and other corporations and aspects of the economy that depend thereon--but nothing for themselves. That's the primary reason why this system needs to be eradicated."
Why stop the bonuses?
Because it's not their money to give out. It's ours. And if they force the issue and try to steal the money from us, they shouldn't whine when we take it back.
A relevant clip from CNN.com..
"AIG paid 73 employees bonuses of more than $1 million, New York Attorney General Andrew Cuomo informed Congress in a letter Tuesday.
Congress is looking at ways to deal with the outrage surrounding AIG's controversial bonuses.
Cuomo also wrote that 11 of the employees no longer work for the company. The largest bonus paid was $6.4 million and seven more people received more than $4 million each.
"Until we obtain the names of these individuals, it is impossible to determine when and why they left the firm and how it is that they received these payments," Cuomo wrote to a congressional committee."
The key difference with the Schiavo incident is the public is really angry about the AIG bonuses. The public was angry at the Republicans about the Congressional intervention into what most considered a private matter.
I suspect Congresscritters are getting an earful in their in boxes these days about this matter and they all want to do something about it. I think they are genuinely panicked by the public reaction and anger.
Nate, I'm worried that your site is on the verge of jumping the shark. The farther you stray from your strength, statistics, the more I wonder why I come back to this site. I've already dropped from daily visits to weekly, given the number of comments here it seems that a lot of others have too, and I might be dropping even farther.
Here's hoping you go back to what you're very good at.
"Nevertheless, it represented a gross overreach of the chamber's authority, and ultimately undermined, at least a little bit, the rule of law."
Here's the difference. I'm not sure if this will come out right but, let me see if I can get the words our correctly.
THOSE FUCKING ASSHOLES ARE MAKING MILLIONS AFTER COSTING THE US TAXPAYER BILLIONS, AND THEY AREN'T EVEN FUCKING AMERICANS. THEY HOLD ZERO LOYALTY TO THIS COUNTRY.
Those dickheads over there are probably laughing thinking they stiffed the lazy yanks. I'm telling you, this is how those bozo's think.
I'm not suggesting the administration just start negating contracts but, if they find a means to get the money back legally, they will have bi-partisan support and support of a LARGE majority of the U.S. This is nothing like Schiavo.
Can any journalists out there find out WTF is happening with the FBI investigations that started back in September? I mean, if those bozo's did commit fraud, they are all going to be dragged into court and AIG, if they lose, will most likely have to pay back every single cent of these bonuses plus any other penalties incurred.
I would prefer to see that all bonuses be "withheld" until the government is paid back. It seems like a better incentive to stay with a company to help it out is to make sure that your money will vest, right? Bonuses given last year sure aren't incentive to stay around this year - I'd argue the exact opposite. Meanwhile, given that the bonuses might not have ever been paid without the government bailout, it seems like they are still better off than they would have been without a bailout at all.
Well, there are two sides to a contract, and I don't see how the would-be bonusees could possibly have fulfilled their obligations under those contracts seeing as how they all belong to the financial products group that brought AIG to its knees. Am I correct to assume that it's still constitutional to fire non-performing employees for cause?
I think your worries Nate are pretty much spot on. I think rule of law is extremely important, whether it has to do with wiretapping, or arbitrarily breaking contracts of people we don't like.
Another point to make is that is a bonus that is contractually obligated really bonus? Isn't it really just a salary paid at the end of the year?
I've thought for months that Congress should tax these bonuses, and all like them (Merrill etc.), at a very high rate. The highest marginal rate has been 97% so obviously making it 100% is not a big deal.
I'd take it much further though. Taxpayers should think like insurance companies and financial institutions they have to bail out. When there are a bunch of accidents in a particular area, the insurance premiums go up. Why not apply this principle to the entire financial sector? Since the financial sector has imposed such a high cost on the country, the country should impose a surcharge on all income of those working in the sector to "make up" for the losses the country has had to absorb.
For almost 30 years businesses have been looting pension funds and ignoring contraction obligations to workers and retirees almost at will, with substantial support from the federal government.
But contracts become sacred when a self-dealing malefactors of great wealth are parties to them.
Another U of Chicago load of crap from Nate Silver. Someone should lock him in the basement and only let him out when statistics are needed. Same for Chuck Todd, it seems. Two very limited technicians who lack in any insight. jumped the shark is right.
Donald said...
When there are a bunch of accidents in a particular area, the insurance premiums go up. Why not apply this principle to the entire financial sector? Since the financial sector has imposed such a high cost on the country, the country should impose a surcharge on all income of those working in the sector to "make up" for the losses the country has had to absorb."
I like this idea. It's just our Government being capitalistic right? Our Government can be capitalistic right?
I couldn't disagree more thoroughly. Perhaps it is the government's job to honor contracts, but it is also the government's job to pass legislation. And legislation can legally change contracts, under the guide of the Constitution.
Otherwise why couldn't Dick Cheney sign a 30 year federal contract with his defense consultant cronies knowing that Congress could never invalidate the terms? It is absurd to say that if 2 entities sign a piece of paper nothing can ever be done about it. That's where checks and balances come in. If it interferes with the public good, it is not only the right but the duty of the legislative branch to renegotiate or invalidate these bad contracts.
Bonuses are supposed to be a reward for good work, and businesses are supposed to work as a team, so if individuals were so busy competing with each other instead of helping each other out, and the business as a whole was failing to the point of needing bailouts, no one should get a bonus. If you don't think your organization is functioning properly, then change jobs. It's really that simple, and this is one of those rare instances where I strongly disagree with your analysis.
If all of the supposed "top minds" at these various institutions left, I'm fairly certain we'd be better for it. And if that makes me a raving lunatic populist, so be it.
I understand Nate's point, but the point about the UAW contracts rebuts it quite well.
Why CAN'T the government tell AIG that if the executives don't give back at least SOME of the money, the government will take back the bailout. OR take $165M back from the bailout.
I've said elsewhere that when you think about it, what the CEOs are getting is so negligible compared to the size of the bailout. $165M out of $170B is actually less than 0.1% of the money. But as Barack said the other day, it's the principle. Even $1M is more than most people in this country ever even DREAM of owning.
While I think no one who played a significant role in running the company into the ground should get government bailout money as a bonus, levying any extra tax on that money seems not only wrong, but illegal. Seems to violate the whole "equal protection under the law" thing to me.
All this focus on bonuses is wasting everybody's time. They're a drop in the bucket. And the reason executive compensation got so out of control in the financial sector is simply because that sector has been hugely inflated until recently. They were awash in money, so they squandered it. And naturally that habit will take some time to break.
I'm annoyed and disappointed at our Representatives for putting so much emphasis on a tiny part of the problem in our financial industry, but I guess it shouldn't be a surprise that House members have little understanding of the issues and like to go for the cheap shots. At times like these you see why it's considered the lower chamber.
Screw that, Nate. There's been a class war going on for decades now, and it's about fucking time we started shooting back.
Well, Nate. This is probably a real eye-opener for you. People are polarizing around this issue. The lynch mob mentality is taking hold. They're even starting to snarl at you for daring to question their right to hang 'em high.
This in and of itself proves your point. But DANG, don't you love that it gives you a chance to prove your contrarian stripes? I know I do!
Stick to your guns, mate.
There is a legal way to break contracts for a firm whose liabilities exceed its assets. It's called receivership, or bankruptcy. I definitely believe that these bonuses are inappropriate. But I think the government has put itself into a bad position by not formally forcing AIG into receivership. If AIG were bankrupt, this kind of issue could be decided by a judge, using principles developed over the course of centuries. Instead, we're winging it. It's very Bushian.
AIG shareholders need to start suing the executives EN MASSE. What the freak are they waiting for? More arse-poundings?
So, what about firms such as Wells Fargo that were basically forced to accept TARP money?
They are not in deep trouble, are operationally profitable, and will be trying to pay back the TARP money asap.
Would bonuses to their employees be taxed at 98 or 100%?
I think that would be very problematic.
AIG's masters of disaster do not deserve 'retention' bonuses. For one thing, who the heck would hire them away???
But there are plenty of folks at Wells and other banks that are originating loans, doing business, and trying to keep what is left of the economy moving.
Are they to have their bonuses confiscated?
In an earlier comment, Lee remarked of the tax-the-bonuses proposal:
"In my mind, I liken it (a bit) to the suspension of habeas corpus in the interest of promoting America's security under the Bush administration."
Have to disagree there! Figuring out a way to tax or otherwise get back these bonuses is not even a teeny tiny bit like a situation where one can be thrown into jail with no right to appear before a court to contest one's detention.
IANAL, but from what I can gather there do seem to be a number of (possible) options for abrogating these contracts. This tax proposal doesn't sound all that great to me, but I don't think the options are as limited as Nate seems to suggest. And I would be curious as to what he has to say about the UAW contracts mentioned by others here.
We own 'em.
We tax 'em.
A REAL proposal to deal with out of control exec compensation would be to eliminate the deductability of pay packets for execs that exceed some basic multiple of their entry level employees (20 or 25x).
Companies would be free to pay their bosses more, but pay and bonuses over, say, a quarter or half a million per year would could not be expensed against taxable income for the firm.
I disagree, Nate. It's a bold action, but this bold action is both justified and popular. You aren't going to see a populist backlash in favor of the AIG executives anytime soon, so it's not going to turn into a Schiavo scandal.
I'm with Nate on this one and I am aghast at some of the reaction here. I did not merrily vote out Republicans to vote in a bunch of people who, like the Republicans, fly by the seat-of-their-pants, passing laws willy-nilly.
I believe we rightfully opposed the Bush administration's war because it was the right thing to do, not because Hussein was an angel or deserving of any quarter. It took some backbone to stand against that war back then, with the flags unfurled and the patriotism charges flying.
Where is that backbone now? The AIG folks deserve absolutely no pity or quarter, but ramrodding legislation down the pike just to vent our spleens is the type of action the Republicans would take. I thought most of us on that side of the aisle here were trying to fight that type of government, that type of thought process, that type of society, not simply trying to replace Visigoths with Vandals.
Some of the people here would be well-served to remember that lynch mobs didn't just unjustly punish the innocent, but the guilty as well and the unused nooses can just as easily leave us swinging later.
The bonuses show that Treasury didn't do things right. It should have put AIG through a bankruptcy and agreed to stand for some but not all of the debts. It would have wiped out these bonuses, too. (Contracts fall in bankruptcy, folks.)
The credit default swaps should have been dishonored in bankruptcy. With a notnioal value of $62 trillion, they could wipe out the US economy. And naked co-parties (buying the fail side without owning the other side of the transactions) were gambling and we allowed them to do it.
So, AIG should have been put through a forced receivership and bankruptcy similar to what happened to WaMu. But Henry Paulson (and, yes, sadly, Timoth Geithner) were too stoopid to do it.
Sad.
The tax only gets at the people who sold the CDS instrucments as they were supposed to. But, in the evd, they added no value to the world economy. So I say, tax 'em. But nothing over 92% is going to meet constitutional muster.
Friends are being told that they are taking unpaid furloughs, thanks in some indirect sense to AIG and cohorts. Is it fair for the country, via Congress, to reduce the bonuses my friends' taxes have given to the bums, returning that to the Treasury? Certainly. Does it set a valuable precedent? Certainly. "Make fools of the taxpayers to the point of public outrage, and expect to get only $20k in undeserved bonuses"; if that's the best we can do, go for it. The AIG-executive contracts are not being touched - the bonuses have been awarded by AIG - but we are able to follow the money a bit further and return it, Robin Hood style.
A 98-100% tax would be really great news for any republican running in 2010-2012. Imagine the ads they'd put out.
I can picture it:
Democrats wanted to tax AIG millionaires, 98% on bonuses they "earned" bankrupting their company and sending the economy into a tailspin. Lilly-livered liberals. I wanted the AIG crooks to kill themselves. Vote for me, Chuck Grassley, this November.
As far as I'm concerned, pre-existing contracts should be upheld. I think it's ridiculous that anyone would be due a bonus when the company is losing money hand-over-fist, is being bailed-out by the US taxpayers, etc., but if the measurements defined in the contracts are being met, the company has no right to withhold the bonuses.
I do, however, think that any measurements involved in bonus payouts (or the like) be *pre*-bailout (i.e., if the company was losing $150B and the government gave them $170B, the bonus calculation should be on the $150B loss, *not* the post-bailout $20B "profit").
What offends me most is that policy makers are spending so much time and energy on a trivial issue. The AIG bonuses represent 1/10 of 1% of the money given to AIG.
I can understand the outrage among the public, but it sickens me to see Congressmen tripping over each other to see who can scream the loudest about bonuses. They should be finding ways to solve real problems. I know, Obama said it's the principle, but let's worry about how to fill the hole in the financial sector before we worry about fairness.
I'm sorry, but I can think of a dozen issues that should be a higher priority right now.
After all, isn't it the same argument regarding mortgages. There are bound to be a few people bailed out who were knowingly living in houses they had no business buying, but putting a floor under the housing market has to come before fairness.
First, what questions were asked of AIG when the original money was given to them by the Fed?
Based on what those questions were (if any), I would hope that one of the questions was "What are ALL the liabilities that you owe, or may owe, as of now." If AIG 'forgot' to list these bonuses, they lied, and the persons who provided the list of current liabilities could and should be tried for lying to the government.
If the question was NOT asked, the Fed person or persons who made the arrangements to give money to AIG should be tried for dereliction of duty and for not taking proper protection of the taxpayer money. For some of you it may be difficult to believe, but government employees can and have been tried on just such charges.
Another question now would be what exactly did the contracts state? If they were explicit 'retention bonuses', but now several people took the money, but are no longer working for AIG, then prosecute them for breach of contract - with the 'them' being the employee AND the company personnel who authorized payment, as the (nor former) employee did not stay with the company, so what is up with the 'retention' part of the contract?
If the contracts were not explicitly written as 'retention bonuses', then the US government, as de facto owners of AIG, needs to tell anyone and everyone who even hinted that they were 'retention bonuses' that their services are not needed, as of the end of yesterday's workday. If they don't want to leave their jobs, then they need to find some way, without any taxpayer funds involved, to return the money to the AIG accounts, and return a similar amount to the US taxpayers.
Why? Simple. They lied to us.
If the difference needs to be taken from the salaries of the CEO, CFO and/or Board members, so be it. If the company and/or officers need to borrow the money privately, so be it.
And before ANY more money is given to any more corporations, a complete and totally independent audit of the company needs to be a prerequisite. That audit needs to include a specific inquiry of any and all liabilities that are now owed, or might be owed, under pain of perjury and/or making false statements to a federal government representative or agency.
FDR taxed the rich at 90+ percent. Reagan was a Robin Hood who robbed the poor and gave to rich and Bush finished the job.
The reason for the Great Depression and the current depression is income inequality. Time to shift some of the 90% wealth held by 10% to the 90% of the rest of the country.
Taxing excess bonuses is a good start.
MiM said:
"Based on what those questions were (if any), I would hope that one of the questions was "What are ALL the liabilities that you owe, or may owe, as of now." If AIG 'forgot' to list these bonuses, they lied, and the persons who provided the list of current liabilities could and should be tried for lying to the government."
I would guess that if such an accounting was provided, bonuses were just lumped in under compensation, without being itemized. In the scheme of things, it's such a small number I doubt Treasury even thought much about it.
These bonuses are nothing, what AIG executives should be in prison for is selling insurance (credit default swaps) for which they didn't hold enough cash to back up. As far as I'm concerned, that's fraud.
That kind of behavior is the reason we're in this mess, and I wish there were more attention on it than on these silly bonuses.
The public shame is enough at this point.
Give me tens of millions of dollars and I'll manage to live with the public shame. Do you honestly think any of these guys care what we think of them?
A 98-100% tax would be really great news for any republican running in 2010-2012. Imagine the ads they'd put out.
I'm sure the Republicans will be falling over themselves to express sympathy for the AIG scoundrels. No doubt they'll stand hand in hand with them at campaign rallies.
Jake Tapper has a decent timeline of what happened regarding the AIG FP compensations here.
What worries me is this bit.
"the Senate unanimously approved an amendment restricting bonuses over $100,000 at any company receiving federal bailout funds, but during the closed-door House and Senate negotiations the provision was stripped out and replaced with a measure by Dodd exempting bonuses agreed to prior to the passage of the stimulus bill on February 11, 2009."
I sure hope whoever got that taken out has every day American citizens in their bests interests and not being influenced too heavily by lobbyists.
Silver keeping it REAL in this piece.
These are not retention bonuses, some of them are being paid to people already gone. They added retention as a half-assed defense.
The US government(i.e. the people of the US) are the majority owner of AIG. Why is it if I wanted to sell out and offer my company up on the stock market or foolishly allow a VC company to fund me, they have near total say in my company. Yet some how the people don't in this case?
Robert Reich said it best: "If they are too big to fail, then they are too big". Time to let the justice department break these immoral giants up.
The person who said that we are wringing our hands over allowing those who fucked us, to continue to fuck us is spot on.
The corporations, through decades of brainwashing, have set the citizens of the US up are their serfs. As Jello Biafra said many years ago, corporation have replaced the national diety(the flag) as something to never be desecrated or questioned.
Myself, I knew we were in trouble when I bought a Honda Accord in 98 or so. It was built in the US by workers making a good wage. A blue collar worker questioned my purchase, and I told him it Americans built it and he said some thing to the effect of: "Yeah, but the executives are all Japanese". That is when I knew the US was done.
Welcome to the United Corporate States of America.
Tribe said that a constitutional law could be written. It would not focus narrowly on one group and would manifesty have fiscal policy, rather than punishment and condemnation, as its aim. He did not -- indeed, could not, given the above criteria -- give his blessing to any actual plan that has been proposed.
The notion that "contracts don't matter" is a lot like Bush's contention that Treasury notes (I think it was) were just pieces of paper. It shows a fundamental misunderstanding of our system. It's sad that that this attitude seems prevalent on the Left. Contracts aren't inviolable, but they can't be abrogated unilaterally without damages except under special circumstances.
These laws, constitutional or not (and I think not) would set a horrible precedent. You're not alone in that intuition.
Forgot to add, there is more than 1 republican and not moderates, who have suggested the tax as well.
They should be finding ways to solve real problems. I know, Obama said it's the principle, but let's worry about how to fill the hole in the financial sector before we worry about fairness.
I agree like writing regulations to put these scumfucks on a short leash forever.
"That kind of behavior is the reason we're in this mess, and I wish there were more attention on it than on these silly bonuses."
There are ongoing investigations occurring from both the FBI and the SFO
smk22 said...
I would guess that if such an accounting was provided, bonuses were just lumped in under compensation, without being itemized. In the scheme of things, it's such a small number I doubt Treasury even thought much about it.
Proper vetting of what AIG provided would be to compare anything AIG provided to the Fed (it was NOT Treasury who gave them the first pot of money, but the Fed) against filings made by the corporation with the SEC and other regulatory agencies, and the report provided to the stock holders. Remember, many bonuses are structured to avoid labeling them as 'compensation', as compensation is reported to the stockholders, but bonuses are not.
I don't care how big a company is, a charge of more than $150 million is hard to hide as 'compensation' when other documents wouldn't show it. Also remember, AIG was originally intending on giving out as much as $450 million in bonuses, but 'cut them back' because of pressure put on them.
"There are ongoing investigations occurring from both the FBI and the SFO"
I know LDOF, I just worry that the public is missing the real problem because the bonus issue makes better political fodder in the media and on the Hill.
Maybe I'm too much of a cynic or paranoiac, but I worry that we'll miss an opportunity to make sure no insurance company is allowed to do this again, because we're too preoccupied with twisting the legislative system into a pretzel to recover a pittance.
I'd prefer to have some proscriptions at this juncture. The Bushes, Cheney, Murdoch, Scaife, the Waltons... Let people understand what class warfare REALLY means.
What is shocking is the treasury is only going to withhold the $165 billion or so from the next bailout, which is $30 billion.
Why not cut them off, put them in backruptcy and fire the entire AIG executive staff while building criminal cases against them?
Well, Nate. This is probably a real eye-opener for you. People are polarizing around this issue. The lynch mob mentality is taking hold. They're even starting to snarl at you for daring to question their right to hang 'em high. This in and of itself proves your point. But DANG, don't you love that it gives you a chance to prove your contrarian stripes? I know I do! Stick to your guns, mate.
Talk about a no-content, all-rhetoric post. jesus.
There are probably a few other options open here without getting congress involved.
1) If the government's share of AIG is in voting shares, call a shareholder vote and kick the board out. This wouldn't void any of the employment contracts, but it would certainly open the door to a renegotiation...
2) Recipients of bonuses could "voluntarily" donate them to a worthy non-profit. Say the federal deficit reduction fund?
The AIG argument is the sanctity of contracts - the payees had a contract, they worked under it, they deserve to be paid. http://finance.yahoo.com/career-work/article/106755/The-Case-for-Paying-Out-Bonu ses-at-AIG;_ylt=AmHdhBFl2euDWPDBuOeg9n27YWsA
That reasonably applies to guys too little to have much say in the contract. However, there's another idea that trumps contract sanctity - self-dealing and fraud. A contract obtained by fraud is void and unenforceable.
So there's a simple way out on this: define "little guy" as someone who was given a standard contract identical to what many other people got. Honor the contracts of the little guy. Define big guy as anybody who was well-enough placed to have negotiated a custom contract for himself. Replace all those contracts with the best "little guy" contract in use in the big-guy's business unit.
End of argument.
It's embarrassing how bereft of ideas our senators are and how lacking in professionalism or maturity. Can you blame Obama for not wanting to spend more than a couple of years there?
Of course, everyone is infuriated with AIG. But our senators are supposed to be leaders. And their big idea is to enact a law that applies to specific individuals. How about using some muscle to break this company up into managable pieces where some of them can fail? I want to see this company managed into a position where we are not at their mercy and it seems to me there should be a way to do that.
I don't see a 100% tax on bonuses over $100,000 as a punishment for these guys. It's just the proper prevention of an improper reward. It's indisputable that AIG would be bankrupt but for the taxpayer intervention. You don't see any Lehman Brothers people getting bonuses.
Those AIG bonuses are the best thing that ever happened to the opportunists who populate Capitol Hill.
What a priceless opportunity to posture and with a little luck maybe even fool the multitudes into believing that anyone in the legislative branch gives a flying fart about looking out for the best interests of their constituents.
These panderers all know perfectly well that year end bonuses in the financial services industry have always been very much de rigeur, and about as merit-based as the tips paid to a shapely cocktail waitress.
By choosing to honor these utterly routine contracts, AIG was simply signaling to everyone on The Street that it still harbored hopes of retaining whatever is left of its status as a full fledged member of the finance community.
And considering that the employees have already been paid, OF COURSE taking back the money would be Attainder, Ex Post Facto, and denial of accrued wages due.
Dick Blumenthal: AIG's Legal Reasoning For Bonuses Is "A Joke"
Blumenthal is the Attorney General for the state of Connecticut, where AIG's financial products unit is based.
http://blogs.courant.com/capitol_watch/2009/03/richard-blumenthal-aigs-legal.html
If Blumenthal is correct, Congress doesn't have to do anything. Blumenthal is the one who goes to court, gets a judgment against the AIG's contracts, and thus force the receivers of the bonuses to return the money.
By choosing to honor these utterly routine contracts, AIG was simply signaling to everyone on The Street that it still harbored hopes of retaining whatever is left of its status as a full fledged member of the finance community.
Just because unethical behavior is what sets the status on wall street, doesn't mean these scum fucks can do it with Government money.
The people own AIG now. Can't you bankrupt MBA morons get that through your thick skulls?
No one, and I mean no one is due a bonus when your company has lost billions in the last year and only still exists because of taxpayers.
Snowman,
If the folks at Wells Fargo are caught up in this, maybe they should renegotiate the balances of their bonuses over $100k to be paid out later, after the government is paid back. Then they wouldn't get hit by the 100% tax on bonuses over 100k.
None of the pissed off (and pissed on) populists would get angry about that and it would be a limited burden for them versus losing it. For that matter, the AIG folks could do the same without angering everyone. Then they would have a real incentive to fix things.
> By choosing to honor these utterly routine contracts, AIG was simply signaling to everyone on The Street that it still harbored hopes of retaining whatever is left of its status as a full fledged member of the finance community.
That would fly in the face of other clear signs that the government appears to be attempting a somewhat ordered dismantlement of the company. This isn't just lipstick on a pig, this is really expensive MAC lipstick on a pig attempting to convince people it is a fookin' runway supermodel. :(
Nate,
I know exactly how you feel. I look around and get this gut feeling that this is driven by mob lynching mentality run amuck. I really, really hope in what MiM is talking about is correct, that there are other clear means towards the ends. The US government has effectively bought this sucker, time to pry it out and air out some of the rot. But the route of an obviously highly targeted, retroactive, and punishment-spirited taxing is hardly the way to get out of the rut of spending 7-8 years treating the spirit of the Constitution as toilet paper. :/
Time to think about going forward. That plays so well into your post of another $1 million tax rung.
BTW here in Canada when the Executive/Legislative Branch (in practice one-in-the-same here) has something that it believes to be very obviously in the grey margins regarding the Constitution it goes about trying to figure that the ground rules by a more direct means. It'll often ask the Supreme Court's opinion on the matter before passing the law to avoid this "create the law-law has effect-court finds the law full of shit-repeals the law and tries to undo the effects" cycle. The law can still be challenged on Constitutional grounds but a lot of the sussing out of contentious points has already been done.
Is there any precedent for that sort of hypothetical questioning in the US? Rather than having some internal memo, drafted by random lawyer X, that is plainly full of shit yet is guiding day-to-day secret actions by the Executive.
No further bailout of AIG (the impending necessity of which is a given) will be possible without some accommodation of the public anger. After all we live in a democracy and Congress cannot and will not rule against the people on matters like these. And without a further bailout the financial system will collapse.
I do not see how a – narrowly tailored - 90% excise tax would be unconstitutional, or how it would undermine the rule of law. Without taxpayer money there would not be any contract to enforce as AIG would have been bankrupt a long time ago.
Congress should pass a law that makes clear that 'non-competition' clauses in contracts are legal.
In the broadcasting business, almost all contracts contain a non-competition clause, meaning when a person leaves one station or network, they cannot work for a set amount of time with a competitor.
For instance, Baltimore's channel 2 had an on-air news reporter who left for channel 13. She couldn't appear on air on channel 13 until a set period of time had elapsed. A few years later, the main weather person on channel 11 left for channel 2. He couldn't appear on air on channel 2 until a set period of time had elapsed.
The effect is the same as a retention bonus - the person can't leave unless they factor in the penalties of leaving. With a 'retention clause', they risk losing lots of 'bonus' money. With a non-competition clause, the 'recipient' company has to pay the person, but doesn't get their services for a set period of time.
I know the trolls will come up with a 'restraint of trade' or other such tripe argument. Go ahead, it won't work, as the broadcasters have been taken to court, and the courts have ruled that the broadcasters are NOT breaking any law when they have such clauses.
The point being, a restaurant patron cannot retroactively expect a refund of a gratuity already paid to a waiter, not even if the meal ends up making everyone sick with food poisoning.
Not even if the restaurant happens to be the beneficiary of a taxpayer-funded small business bailout. (I can just hear Chuck Shumer outraging about that one).
Mike in Maryland: what does this case have to do with the legality of non-competition clauses?! Of course they are legal and nobody would want to change that. We are talking about paying retention bonuses to people who drove the company into bankruptcy were it not for taxpayer money. (Oh, and by the way,bonuses were paid to 52people who have left AIG!). If these people have contractual rights, that's fine. But where there is no money there is no contract to enforce. AIG is BANKRUPT a few times over!
newyorker2874999, you have the wrong analogy. The people who get sick in the restaurant DID get a refund because the government bailed the restaurant out, and government money went to the patrons to satisfy their claims. Now the waiters get paid a "healthiest restaurant of the year award" with government money!
> what does this case have to do with the legality of non-competition clauses?! Of course they are legal and nobody would want to change that.
Yes that seems very OT to me too but no, they are often found unenforceable (depends on the jurisdiction, industry, and other factors). That's why I have always refused to sign those boiler-plated ones that are dreamt up by some ass-covering lawyer. I don't sign crap I know is unenforceable and that I have no intention of adhering to.
Dwight, to come back to your earlier comment: no, there is no "advisory opinion" available from the US Supreme Court (or any other federal court). Generally, the US system is concerned with individual "cases", and where there is no case, no judge can adjudicate...
Nate - I respect you immensely but as a law school survivor I feel like you're missing the mark on contract enforcement. I can see about 10 different ways Congress (or the admin) can legally unravel these compensation schemes BUT the dispositive fact is that contracts are thrown out by judges everyday on insanely weaker legal and/or economic grounds. Contract law is economics almost all the way back to its (U.S.) inception.
G said...
Mike in Maryland: what does this case have to do with the legality of non-competition clauses?
AIG and other companies state that they need the retention bonuses to keep their 'key' employees from going off to other companies. If they don't keep those 'key' employees, it will hurt the company they left. That is the same premise as the non-competition clauses used in the broadcasting industry. It has also been a historically used clause in the print media also. That's why is so rare to see a reporter for one publication leave one publisher one issue, and appear in the same or similar position in a competitor's publication the next issue.
Mike in Maryland, how do you explain that 52 people were on the bonus list that have LEFT THE COMPANY?! It seems obvious to me that the "retention" rationale was made up after the fact... I guess they had trouble basing it on profitability... ;-)
The money from our pockets should be going toward things that help the economy recover. PERIOD! Further enriching a bunch of wealthy people does NOT help the economy recover! We should get that money back and spend it on useful things. If we give money to companies, it should come with strings attached, one of them being NO BONUSES.
> Generally, the US system is concerned with individual "cases", and where there is no case, no judge can adjudicate...
Is there anything actually blocking this happening? Or is it just tradition not to? SCOTUS already includes "bonus material" in their rulings talking about hypothetical situations beyond the scope of the particular case they are hearing. This is a fairly natural extension of that, though I could see it not being given full weight of precedent, or out of bounds for using as precedent, because it hadn't gone through the riggers of two competing sets of arguments being made before the court.
Maybe that's it, the highly combative "two enter, one leaves" mentality baked right into your culture? *shrug*
> AIG and other companies state that they need the retention bonuses to keep their 'key' employees from going off to other companies. If they don't keep those 'key' employees, it will hurt the company they left. That is the same premise as the non-competition clauses used in the broadcasting industry. It has also been a historically used clause in the print media also. That's why is so rare to see a reporter for one publication leave one publisher one issue, and appear in the same or similar position in a competitor's publication the next issue.
For a non-compete clause to be enforceable the pay typically needs to be commensurate. Meaning you are back to big bucks anyway. If you are looking to enact legislation that would strip that requirement, I call that outright folly.
> Mike in Maryland, how do you explain that 52 people were on the bonus list that have LEFT THE COMPANY?! It seems obvious to me that the "retention" rationale was made up after the fact... I guess they had trouble basing it on profitability... ;-)
Bonus triggering date and payout date aren't necessarily the same.
Dwight, the limitation of the role of SCOTUS derives directly from the Constitution. According to Art. III, §2:
“The judicial Power shall extend to all CASES, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made,...."
John Jay, the first Chief Justice, clarified this restraint early in the Court’s history by declining to advise George Washington on the constitutional implications of a proposed foreign policy decision.
Bill of Attainder? Who cares! Well, here's ONE practical import to consider. If they have to sue the government to get your bonuses back and the case is tied up in court for years and they have to spend millions of dollars in attorney fees to litigate it and then GOOD!
Let the bastards dare sue in federal court screaming about their "vested contract rights!" Let us identify which highly paid employees of firms are daring to contest this!
The elite business class have constituted themselves as an untouchable aristocracy in this country for far too long.
They fire everybody else but notice that the top management never gets touched! They run these huge corporations into the ground, then turn around and fire all the little people who do the work.
SCREW THEM. There is NO comparison to Terry Shiavo! In that case Congress uselessly intervened in a family's decision to terminate a brain-dead family member. The matter had been properly adjudicated by the courts.
Here NOTHING has been adjudicated. Congress is simply using the taxing power to grab back bonuses of the most highly paid employees of companies who have to be bailed out by the government!
They should not only tax the bonuses 100%, they should make them 100% subject to withholding! Make sure the "let them eat cake" scumbags never touch a dime!
NOTICE: Whenever the government does something that screws over ordinary Americans by the millions, you never hear a peep. But, let the elite top 1% EVER have anything happen to THEM and there's screaming from the rooftops about the "sanctity of contract" or some other such swill.
AIG was insolvent. The only reason they aren't bankrupt is that they were too big to fail and had taken on too much risk.
It makes no sense to say that if they were bankrupt there would be recourse that there isn't otherwise, when it is the reckless and probably criminal acts of those receiving the bonuses that created such a situation.
AIG is de facto bankrupt and Geithner is the trustee. The TARP money is postpetition financing. This is the reality, even if the legal fiction is otherwise. Congress could always amend bankruptcy law and create a chapter AIG, and, if the bonus tax doesn't fly, I'd expect that to be the next step.
Also given the investigations in progress, which will likely lead to criminal charges and eventual disgorgement, AIG could withhold the bonuses for cause. The money that was supposedly earned to justify the bonuses was a fraudulent illusion, and AIG has counterclaims and possible offset.
Hooray! It's class war! To the barricades! The most important thing now is definitely not to find some way of propping up an economy that's tanked by trillions, but to grab a few million back off these bastards who stiffed us, the People.
Good luck with that. Good luck creating a special new tax in Washington directed at a bunch of non-domiciled guys in London who already have the money tucked away in a Swiss canton front owned by a 2-man company in the Cayman Islands. I hope it allows you to continue pretending to yourselves that the sh*t you're in is the result of the rich defrauding you - not the rich taking stupid risks while 'you the People' put a decade on the slate, borrowing your money from developing countries and then giving it back to them in return for cheap flat-screen TVs to fill your massively mortgaged houses that you only ever thought you could afford because you were prey to the exact same delusion, in simplified form, as Alan Greenspan, Dick Fuld and the evil bastards at AIG.
Y'all should read Eliot Spitzer's take on what's going on with AIG: mostly it's about reimbursing AIG's counter-parties, with AIG passing everything through to entities that also got other bailout money already. All the focus on bonuses is just diverting our attention from the larger action here.
"On Thursday and Friday, administration sources said, Geithner urged Treasury Department lawyers to try to figure out a way to block the bonuses. But the lawyers ultimately came to agree with AIG's lawyers; that their hands were tied."
Well, HERE's a thought! Make public the names of every bastard who dares sue the government over their "vested bonus rights!" Hound them publicly and put their faces on a wall of shame on the internet. Let them receive death threats. Let's see how they like living with public hatred.
Then tie them up in court for years.
Ultimately, what's "legal" doesn't matter. As a practicing attorney, I learned long ago that there are NO rights beyond what you can afford to pay a lawyer to enforce. Normally, that only screws over the poor. That's the way the system is designed.
Even the very senior executives will have trouble funding multi-million dollar lawsuits for years to collect their fees! Then tie them up in appeals for 3-4 years, and put the money in escrow with the Courts. Force them to litigate to the very end, and make them the subject of very PUBLIC pressure by naming names and putting their faces out in public!
These corporations act like feudal barons totally disregarding OUR rights and we can't afford to do anything about it. Now the shoes' on the other foot!
In short, go to the mattresses with these scum and see if they really dare keep fighting this.
"The consequences to the land-rapers and other bastards is obvious, and highly desirable. These scum should be broken and driven across the land."
-- Hunter S. Thompson.
A very similar situation exists here in the UK, with the government fuming about trying to reclaim the (admittedly enormous) pension of the Royal Bank of Scotland's retired chief executive.
To an extent, it's just unhelpful populism, which distracts from a) the wider causes of the problem and b) the fact that these same executives were, not too long ago, lauded for the actions for which they are now condemned.
Nah, in fact they almost passed a tax like this with the stimulus. Make the tax 89% and it easily passes muster.
In other news, I participated in this poll and the questions were completely biased against EFCA and thus the results are conpletely biased crap. It was an anti-union anti-EFCA repub lie:
http://www.rasmussenreports.com/public_content/business/jobs_employment/61_say_secret_ballot_is_fair_way_to_vote_for_a_union
WAY TO GO SCOTTY RASMUSSEN! YOU WILL GET US INTO ANOTHER WAR IF YOU KEEP TRYING!
Woohoo! Lets slow down and get it right!
http://www.politico.com/news/stories/0309/20150.html
What does this tax proposal have to do with a contract between a company and an employee, which could never guarantee any particular tax treatment of a payment from the company to the employee? The proposal seems like an eminently sensible rate of tax on an eminently appropriate source of income from companies being supported by the government. It seems no more anamalous than many other de facto tax rates on income or gains from various sources.
There are a couple things a lot of people are failing to mention.
First, Congress and the President knew about these retention bonuses when they approved the bailout money. The argument at the time was that, if we were going to give billions of dollars of bailout money, we better make sure the top execs are going to stay.
Now, when it's time to pay the bonuses and public opinion is against it, Obama and Congress are suddenly shocked by it.
Second, AIG gave Obama a lot of money for his campaign. Approving the bonuses was political payback. With his poll numbers on the decline and public rage over bonuses, he's now forced to backpeddle.
A scary quote from Barney Frank:
"The federal government is a major owner of this company. We're the owners, not just the regulators, Barney, D-Mass., said Wednesday on CBS's "The Early Show."
This is excatly what conservatives have warned about. The bailouts have been about power from the beginning. Congress' job has never been to own companies, but here we are.
Not all signed contracts are legal, if they are signed with the intent of committing fraud on a third party. AIG may have known it would be bailed out and signed these contracts with the intent of defrauding the US Govt, or defrauding its shareholders for that matter. There is evidence in the fact that they called them "retention" bonuses while paying millions to people that don't work there, and millions to people that resigned immediately after getting the bonus.
If they were not retention bonuses, and they were obviously not performance bonuses, then apparently they were just a collusion so friends could embezzle money from AIG with no justification.
Managers are supposed to represent shareholders, and when they fail to do that the company and the managers can be sued. It may be entirely legal for you to sell your home to your buddy for $1 (if you own it), but it is not legal for a hired manager to pay his cousin $20,000/hr for "strategic advice" or some other fig leaf. This is essentially theft and can be treated as such.
One of these recipients got $6.4M, 40 of them got over $2M. Without demonstrable and tangible benefit derived from these payments (which I do not believe can be shown), at best they are a dereliction of duty on the part of the management that signed these contracts, and at worst a criminal fraud, from which we can recover both the ill-gotten gains by bonus recipients and prosecute the management. They should be held personally responsible by the SEC on behalf of shareholders: 79.9% of which is the US Government.
Investors bailing out companies force contract renegotiations all the time. I agree the government shouldn't be passing a law to do it. Instead, ending the million dollar bonuses should have been a condition of the bailout and should be a condition of any further bailouts.
As we're speaking about taxes again, Nate, any chance of a follow up post to your "The Missing $1,000,000 Tax Bracket" post? One thing you didn't discuss is the EFFECTIVE tax rate paid by the superrich. I used to work in tax in a firm with numerous clients earning tens of millions a year but paying effective tax rates of 10% or less (through use of property investments and trusts). If you want to see real outrage, post a statistical analysis showing the effective tax rate paid by individuals earning $20M/year. The superrich may be in the same tax bracket as those earning $357,700, but I'd be willing to bet their effective tax rate on average is not much more than the tax rate for individuals earning $10,000/yr.
Bill of Attainder? Who cares!
Well, people who want a just government, which I would still hope is most people on this site. That's not some obscure dusty legal mumbo-jumbo but something that protects the very relationship between or legislative and judiciary branches of government.
Like it or not, rights only stay rights when we protect them of those who, on the face of it, would seemingly least deserve it. That means protecting the right to free speech of people who say vile nasty things. Protecting criminals from illegal searches and seizures and cruel and unusual punishment. And yes, protecting guys who enriched themselves at the public trough from the legislature handing out punishment rather than laws.
So, as I asked earlier, am I wrong? Was the goal a fairer, more just and responsible government or to simply get to be the ones that get to act like Bush?
The bonuses should be withheld on the basis of possible fraud--then drag out the resolution for years and years. As Hank Greenberg (founder of AIG) said last night on Charlie Rose, it is ludicrous to think the employees involved will go somewhere else if not paid these bonuses. (This is the idea behind "retention bonuses".) Even if they do quit, there are tons of highly talented people in Wall Street who have recently lost their jobs, who would jump at the chance to fill the AIG positions.
At worst, give the greedy bastards this ultimatum--renegotiate your "contract" (like the auto workers did, and AIG itself to creditor banks) or take the bonus and be shown the door.
There never was any class war ever. The Ruler/s Always Ruled and the rest were ruled by the Ruler/s.
Rule of Law? It's made for the people to keep people and classes in their place. The law is made to rule and people must be ruled. The Ruler/s will not have it any other way.
The Rule of Law=Blindfold for the People (the ruled).
To keep the ruled in their place we must or should Unilaterally Seize All Assets from the Excectives of AIG (their family and close knit friends too) and place the assets in our national treasury.
Then Fire all the AIG Exectives and thier Lawyers for having made such contracts (Can anyone publish a copy of it?). Since positive reinforcements appear to have been in the contracts shouldn't there have been any Negative reinforcement in their contracts to cover loss by the firm during their stint?
I don't get this. The same politicians who approved the bailout of AIG, are now saying oopsies. I also agree with Nate that the Govmt should NOT intervene in contracts after the fact - that should have been a pre-condition to the initial bailout.
My public company pays out a *mix* of company, Business Unit and individual bonuses. If this were the case at AIG, employees who did perform, while the company tanked, would have seen their bonuses halved, not zero'd.
> “The judicial Power shall extend to all CASES, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made,...."
John Jay, the first Chief Justice, clarified this restraint early in the Court’s history by declining to advise George Washington on the constitutional implications of a proposed foreign policy decision.
Ah, so it's a very early on interpretation and definition of the role. Of course what I'm talking about is less an official power. It's like "What's the role of the Vice President, according the the Constitution?" Sit around and look pretty/goofy till the Pres buys the farm.
Anyway, thanks for the explanation.
> I don't get this. The same politicians who approved the bailout of AIG, are now saying oopsies.
They were sold "sign over the money and [Paulson] will handle it properly". *shrug* The first pass was a rush job because time was important. The true depth of AIG was not known.
> and millions to people that resigned immediately after getting the bonus.
That part is very normal for retention bonuses. They are paying backwards. That doesn't invalidate the rest of your post though. If they were also set backwards, or at least partially backwards, or with foreknowledge and intent as you suggest, then that's a different matter.
Right now it's speculation because there aren't any details made public. Which I suspect we are going to get down to eventually.
@Weatherlee:
I don't get this. The same politicians who approved the bailout of AIG, are now saying oopsies.
Right, the politicians told by Bush, Paulson, industry, and economists that if they didn't act soon we would enter a great depression. AIG is a public company with tens of thousands of outstanding contracts. Just reading the titles would have taken too long and been uninformative anyway; they didn't have the time to peruse the details of key employee contracts.
They were defrauded. It isn't "oopsie," it is outrage at being ripped off by somebody they were trying to save from disaster. It is like a fireman getting his pocket picked and his watch stolen by the guy he is carrying out of the fire.
I also agree with Nate that the Govmt should NOT intervene in contracts after the fact - that should have been a pre-condition to the initial bailout.
Again, no time. And not all signed contracts are legal. You can't sign a contract designed to defraud or rip off shareholders or investors or the government and then point at it as if it shields you. The Management of AIG has a legal and fiduciary responsibility to shareholders and investors, and can be prosecuted for violating it.
My public company pays out a *mix* of company, Business Unit and individual bonuses. If this were the case at AIG, employees who did perform, while the company tanked, would have seen their bonuses halved, not zero'd.
I have worked for public companies and I have been a C-level officer in a regular corporation; and if your company was in the red and facing bankruptcy, it would make no difference who performed and who didn't. No bonuses, even if it costs us the employee.
And since 40 of these recipients received over $2M, halving their bonus for destroying their company is hardly sufficient from our point of view. If AIG is truly legally bound to pay these bonuses because they did not include any caveats to protect them in the case of insufficient funds or disastrous performance (and that premise is looking doubtful anyway) then they are legally responsible for fiduciary malfeasance and the SEC can go after both the money and the private holdings of AIG officers that signed these contracts.
Congress should pass a law that makes clear that 'non-competition' clauses in contracts are legal.
Terrible idea.
They are very damaging to society.
These AIG folks are disgusting. This should not be tolerated in our democracy. THe goverment should tax those bonuses at 100% and then some. They should seize assets. These are criminals and they need to get them for every last penny they have and redistribute it to those of us who've been lied to and fucked over.
I can't believe sellouts like Nate are even wavering on this. Where's the justice? Where's the fairness? These are guys are worse than the Rushpukelicants! Most of them probalby are discutting scum from the Party of Cheney! ALl the more reason to burn them at the stake.
I'm serious, though, a 100% is only just with taxpayers owning 80% of this shitty company. Take the bonuses. Take their other assets! And give it back to us the people!!
We demand fairness!!! Kill these bastards. LIterally kill them!!
Hogwash. The government voids contracts all the time when FDIC takes over failing banks. I don't see how this is any different. The govt should in this instance have the right to void the contracts outright, and if it's too late for that, to recall the money. What the hell kind of "bonus" is agreed upon in advance of actual performance results anyway?
If AIG had been an individual person, arranging to make a contractual payment while lacking the funds to fulfill that obligation would be viewed as a form of fraud, and the contract would be void.
AIG arranged to make this contractual payment when they absolutely did not have the funds to pay them, so if this contract is still considered to be valid and binding, this only indicates that the system is broken and needs to be corrected, as large corporations such as AIG should be held to a higher standard of responsibility than individual citizens, not a lesser one.
Glenn Greenwald also had a good point: As part of the bailout package with the auto companies, the unions were forced to agree to concessions in their existing contracts.
Why is there sanctity around AIG's bonus contracts, but not GM's with the UAW?
uhm... if it's legal/constitutional to do so, then (by definition) how does it "undermine the rule of law"?
What do you do about the people in Congress including Obama who knew darn well that these contracts were due to be paid?
This is not all of the sudden a big surprise. Dems and Repubs alike knew all about this.
The "rule of law" sounds nice in principle but the
bailout has been run as a pragmatic operation on dubious legal grounds from the outset, eg the use of fed funds without
congressional approval in the early moments of the rescue.
This probably isn't particularly unusual either for urgent operations (eg military) or cases involving such huge amounts of money.
One has to wonder if its not more appropriate for an issue like this
to be decided via public hearings; let the AIG people involved make their case in public. If its going to be difficult for
them to convince the public now --given the general mood, the amount they stand to gain may make it worthwhile to try. (I doubt they really have a case that would stand any test of
"the spirit of the law", and maybe not even "the letter", but I'm willing to listen.)
j-swift
Grog,
I think that democracy is supposed to be a participation sport and not an observer sport. You can't just kick back and rely on anyone that gets elected to do everything you'd want them to. Frankly, they're not psychics. Unless you let them know what you think about the issues, it's physically impossible for them to know.
Listen, I live in a state where one of my Senators and my Congressman both have ideologies that are diametrically opposed to my own. If you sat me and David Vitter down and asked us both to comment on the issues of the day, you probably would not find a single issue that we agree upon. And yes, I do want to see him lose his job come the next election.
It's nothing personal, though. I'm not going to blow up on the guy or yell rudely at his staff or punch him in the nose or anything. Sure, I'll do whatever I can to get someone in his place that I agree with, but I don't hate the man.
I felt the same way about Bush. And likewise with the Congressmen and Senators and Obama, I understand that I have a duty to inform them, through emails, letters to the editor, phone calls, demonstrations, donations to lobbyists that support my position, all that stuff-of my position and how strongly I feel about it. I intend to hold Obama accountable if he does not act, just as I did to Bush.
However, he's only been in office for less than two months, and I think we can give him a little more time before we start nailing him to the wall on things. Bush got away with murder (literally) for years before anybody said anything. You can back off and let Obama do his thing for the first hundred days before you lose your shit on him. For the time being, convey your message on what exactly it is you'd like for him to do to the White House comment line, emails, demonstrations, donations to whatever group you think best represents your position-just don't make it personal. When you turn into Rick Santelli, you come across as a clown prone to histrionics and incapable of effective action.
@Statler:
You are a better man than I, Statler, because I do hate Bush. I don't hate him for his ideology, I hate him for the same reason I hate certain people I actually know: For lying, for misleading, for manipulating, for crass self-interest, for his obvious willingness to laugh and take delight in the pain of others, whether it is his death row inmates as governor of my state or filming a joke in the Oval Office about not finding WMD after he had sent soldiers to their deaths on that lie.
Bush is deserving of raw hatred.
Nate,
(sorry if there were multiple posts--there were some tech problems on the comments page)
It would seem you and the President are on the same page again.
Obama also issued a warning about the go-go mentality gleaned from the boom years. He said the problem goes deeper than "outrageous" bonuses.
"Just as outrageous is the culture that these bonuses are a symptom of, that has existed for far too long: excess greed, excess compensation, excess risk-taking," he said. "As we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in the country and have now resulted in crisis can't be the model for economic growth going forward."
He is definately into fixing what got us here in the first place.
Kudos to you and 538.com.
Chad
Jax, FL
roastedreligion.blogspot.com
beavis said...
Congress should pass a law that makes clear that 'non-competition' clauses in contracts are legal.
Terrible idea.
They are very damaging to society.
Exactly how? Especially since the courts have ruled that non-competition clauses are legal?
We have surely reached a strange point in our history, when insurance companies are arguing contracts must be upheld under all circumstances, and banks are pleading for more time to pay back loans. It is truly opposite world...
Nate, I think you have an excellent point about the proposed remedy - if it is not a bill of attainder, it is frighteningly close - but personally, I'm pleased to see the outrage bubbling up and hope it can be channeled productively.
The lesson I'd like to see us take away from this is that our leaders' (or our own, collectively) hesitation to have government intervene "too much" led us into a situation where we gave away lots of money with little to no control over what happened. This has been obvious since Bailout 1.0, but is really being underscored by the current fracas. Takeaway: when government gets involved, it needs to be bold - no half measures - and don't cave to the people who try to make it timid.
I understand the concerns raised, but if AIG and others were allowed to die a natural death, they would be bankrupt and wouldn't the contracts be effectively torn up?
An artificial circumstance seems to demand an artificial solution.
Nate, your argument is bullshit, because we own 80% of the stock in AIG. Nobody owned 80% of Terry Schaivo. AIG is a piece of government property. Why would you equivocate that with a human being?
All you have to do is google "AIG Retention Agreement" and you will find the contract published on the net. I have yet to see any commentary from anyone who has actually read the contract, even thought it is easily available. The bonuses paid were only paid to employees of AIG-FB which had nothing to do with the current crisis. People were asked to stay through the year and then paid bonuses if they did not leave the company until the requested services were completed. The bonuses were paid AFTER the services were rendered. Retention, or "stay," bonuses are commonplace. They are generally offered to experienced people who agree to remain on the job for a specified period of time. They are often used in merger and/or acquisition situations where people with expertise are asked not to leave the company until the merger or acquisition is completed. There is a very ignorant, angry mob developing in the country and in the media that smacks of the French Revolution.
Instead of taxing it so heavily why not just ban it?
Why doesn't Obama just declare the bonus receivers as enemy combatants?
I am worried about this.
Why do we decide to spend $170 billion to save this company but then start a war against the senior people in this company. The best people at this company will have no problem with finding a similar paid job at a financial institute that did not receive bail out money and this will leave us with a company run by only the people that are so bad at their job that they could not find a job anywhere else.
This does not seem to be a position we would like to be in after spending so much money.
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Nate compares this to Terri Schiavo, but I think a more apt comparison is to Joe McCarthy. What went on at the hearing on Wednesday was a witch hunt complete with a demand to "name names". There have been all kinds of charges thrown around that the people involved have done bad things, but no concrete evidence. As far as I can tell their "crime" was to take extrodinarily well paying jobs, do those jobs satisfactorily according to AIG management and get paid.
The "official" complaint seems to be that these people individually are responsible for the meltdown at AIG and so they should have been fired or at least not be well paid. I don't know whether this is true, and neither, I imagine, does anyone outside AIG But that seems to me to be a judgement that AIG management needs to make on an individual basis and not a judgement that Congressional committees should be making. There has been a lot said about the Government owning the company and therefor they have the right to this kind of information. That's true, but I can't imagine any private owner of a company behaving the way Congress has been behaving. Holding individual employess up to public ridicule is lousy management in general, but holding them up to public ridicule en masse is goes beyond lousy management into insanity.
But I suspect that what really offends people is the that anyone should be paid as well as these people are being paid. But what purpose would be served if Barney Frank got their names and made them public. I suppose
@jerry:
But I suspect that what really offends people is the that anyone should be paid as well as these people are being paid.
You suspect wrong. What offends us is that these people are getting paid millions of dollars from a bankrupt company on the basis of having generated profits they did not generate.
What offends us is that AIG states explicitly their pay is based on merit and they are talented people that must be retained, and there is a fundamental disconnect because the god damn company ran $200 billion dollars into the red.
I don't care if people make millions, some people have extraordinary talent and deserve it. Julia Roberts, Warren Buffett, Steve Jobs, singers and songwriters and screenplay writers -- They deserve millions for creating millions in value.
What bothers us is these jokers at AIG that are supposedly paid on merit actually get paid the same amount either way; no matter what they do. This isn't merit pay, this is simple graft.
It is dishonest and undeserved, and now that we own 80% of AIG, it is our money and not the shareholders money, and we have a right to hold the management passing out our money for no good reason to task.
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