Populist Outrage Over AIG Bonuses Scaring Private Investors Away From Buying Toxic Assets
from the backlash... dept
Before anyone gets that upset, I'll say that I'm pretty much in exact agreement with Adam Davidson from NPR's Planet Money when it comes to how to feel about the AIG bonuses that were big in the news last week. It's definitely disgusting and troubling to see the money handed out that way, but it's really a tiny sum in the big scheme of things, and there are a lot bigger and more important things that the government should be focused on. Besides, the populist anger is really misplaced -- often directed at the current management or the recipients of those bonuses, rather than those who put in place the contracts that made those bonuses required. But, the very fact that Congress spent so much time on it highlights something we warned about earlier this year: as soon as the government steps in to help a business, it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued. That will certainly limit what many companies are willing to do.And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess.
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Filed Under: bonuses, economy, populism, private investors
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Re:
As has been said, whomever made those contracts with the bonuses *required* to be paid, and whomever signed those contracts to make them binding, is entirely the person(s) whom should be the focus of the anger.
Really, there should of been a clause that if the company was not doing well enough the bonuses would not be paid. The same reason that clause was not put in the contract is the same reason why no one would have an issue with that: AIG is "too big to fail" and "could never do poorly".
That arrogance is partly why all these firms are having issues; they confused it with confidence.
But yea. There should of been an escape clause and for the companies that didn't have an escape clause for those bonuses, they just should not have gotten any tax payer money. "Too big to fail" is going to do more damage to the economy from us trying to save them than anything else.
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AIG bonus's just a scam by congress to hide their 81B set-asides
Like those lying, cheating money suckers care about the taxpayers!!!!
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$0.02
But, I will have this to say: People only have themselves to blame. They deserve this and every other bad news to come out from the government spending.
Why? Because they did nothing to voice their objections regarding the bailout. When congress first denied it, people should have taken action to write their senator(s) to also deny it.
The people of this country decided to sit back and do nothing. That is, until a "savior" came along requiring votes to take office.
Now, they're doing what they've always done: whine and bitch about it.
My stance has always been to let these companies fail, and yes, I've voiced my objection to the bailout.
Little good it did, but I'm only one person.
Imagine what would have happened if everyone got involved?
The politicians, after all, are supposed to be working for our best interests.
An interest no longer about the people, but for those who line those contribution pockets.
So, to those who are angry at AIG but did nothing: Shut the hell up. Your punishment for doing nothing.
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Not for nothing Mike but I've heard this same argument from the Wall Street apologists on various news programs. These companies had pretty much unfettered freedom and it was abused to the point that it basically crippled the economy.
The "populist view" happens to come from the people financing this whole mess. You might want to be a tad less elitist.
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Re:
First Congress writes a special provision into a bill that tells you to keep bonus contracts. Then, a couple months later, Congress acts completely surprised and outrages, starts holding hearings, and then demands their money back.
So, as a business, you should be scared of dealing with the government.
You don't have to be an elitist to pay attention and direct outrage toward the government for passing out money like candy and then getting pissed about it in the same breath.
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int molehill = 165,000,000;
int mountain = 170,000,000,000;
if(molehill != mountain)
{
molehill = mountain;
}
Like a magician, we're being distracted by one hand, while the left hand is doing all the 'work'. "Now for my next trick, I'm going to make ANOTHER TRILLION DOLLARS disappear."
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Re:
While this is true, and the source of all of these problems is the fact that bailout money was given to start with, I think it's highly important that these bonuses get covered by the media, etc. From a symbolic standpoint, they encapsulate everything that is wrong with these bailouts, and in a way that the public can understand. If the money was just disappearing into the AIG black hole, the people would assume that the government was doing something to help. With the bonus fiasco, they can now see the failures of the plan at work in easy to understand terms ("Oh, you drove the company into the ground? Here's a million bucks").
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Re:
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Re:
XKCD sums up your point nicely:
http://www.xkcd.com/558/
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Sadly, true.
Other problems, besides the difficulty of getting people to work at a gov't-held company when the terms of employment include "some public pillorying may be required" and "compensation may or may not be awarded, and if awarded, may be taxed at a bazillion percent":
a) The AIG bonuses represent .001% of a "winner-take-all, steal what you can, while you can" mentality. Executive compensation, as currently administered, does not serve the economic interests of the nation, the fiduciary interests of the (often widely dispersed) owners or the long-term well-being of the companies involved and their employees. Screwing over a few execs at one company is just populist bread and circuses.
b) Throwing out contracts at the whim of the government means throwing out the rule of law. How far down the road of the Zimbabwe Model do we want to go? Adding zeroes to our currency to "beat inflation"??
c) When our government "deals with" any issue like this, it is a certainty that among the "dealers" will be the very people most involved in creating the problem (by ommission or commision). In this case, the same "bipartisanship" that gave us the ill-planned and costly Iraq War, gave us the market distortions of PC lending and mindless Fanny Mae Freddie Mac investment in derivatives. So that's bad, mmm'kay?
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And then we are surprised that they do a similar thing again?
The company deserves to go bankrupt.
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It really pisses me off when the the CEO gets big bonus because there resource based company makes record profits (the CEO had little to do with the high prices of resources). Now this year the prices are crap so to keep the CEO around they give them another big bonus but also layoff hundreds of good hard working individuals to make the books balance.
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Mike, you seem to miss the point.
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I mean - seriously; invest in a company that's ran themselves into the ground and then when the government bails them out; they blow money on resorts (don't forget the first big waste of money) and then they get more money and pay big bonuses?
High risk is one thing; outright stupidity is another.
I really don't think anyone who cares about their investments will ever invest in AIG again.
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In there current state these "semi-failed" companies were always going to battle to attract the best and the brightest...the bonus issue will now make it even more difficult.
Bailing out failed companies was not a very bright idea to start with...making it difficult for these companies to operate seems even more stupid.
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Glenn Greenwald
This is the source of the populist anger. Capitalism does not reward failure. We are giving corporations the wrong incentives when we allow this type of unchecked and excessive compensation to occur. If anything, we need more public outrage.
That said, I don't see why anyone would be upset if you bought toxic assets off of a corporation. I'm sure the average American understands the difference between the people who made the mess and the people who are helping to clean it up. Those who fear public backlash are likely looking for an excuse to rag on the taxpayers that are upset with them. It's a defense mechanism.
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The real problem with the bonus's...
"Something given or paid in addition to what is usual or expected."
Where in the financial sector bonus basicly means
"Expected salary paid as lump sum for tax and financial reasons"
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The Stink in DC
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There's been lots of criticism, even the Govt and the Prime Minister have weighed in over it.
The fact remains that it's a bit late now to be complaining about this, it's a product of how financial organisations have been allowed to operate. Goodwin has insisted on keeping his pension despite many calls to forgoe at least some of it. But he's got a right to that money, however much it might leave a bad taste in the taxpayers mouth.
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These aren't bonuses as we know them, Jim
These people broke the world economy with their greed, they shouldn't be rewarded, they should be prosecuted on the behalf of the other 99.5% of us.
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Outrage not enough
http://www.rollingstone.com/politics/story/26793903/the_big_takeover/
It's really good and explains why AIG is so important to this mess and how THE ACTUAL PEOPLE getting these bonuses deserve them (NOT) and just how screwed up the actual "bail out" is. It ought to be called a PARDON rather than a bail out.
If you are upset about the bonuses wait till you read this.
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1. The government knew about the bonuses and allowed them when the bail-out was crafted.
2. The government is rather fond of expressing outrage about problems they themselves have caused, and are quite skilled at deflecting blame for political purposes (think Fannie, Freddie, HMO's, etc.).
3. The bonuses are part of a contractual obligation, and the punitive confiscation law passed by the House is unconstitutional and will almost certainly be overturned by the Supreme Court.
4. Many of the divisions within AIG WERE profitable...it was really just one unit (engaged in derivatives) that dragged the whole company down. Who has taken the time to figure out if the execs receiving the bounuses are part of the former group, or the latter?
5. As the article points out, the $165 million is a small share of the total bailout. If Washington wants to "feel better" about bailout money being used for bonuses, just deduct that amount from the total eligible for bailout. Or, inform AIG that they have a choice - let the bonuses stand and forego future assistance, or convince the execs to return them in exchange for "goodwill" (i.e., bargin).
I'm still laughing.
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Re:
OTOH, I haven't bothered to verify that.
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Here's the deal...
So I definitely think people's anger is misplaced big time, they should be angry that the government is bailing out failing businesses. That is wrong, wrong, soooooo wrong!
If a business is failing that's the market's way to telling that organization that it's ineffecient, and they'd better change things to become more effecient or leave the market and let effecient businesses handle things.
If you keep a failing business afloat then you're ignoring the market's messages, which is bad in the long run. Companies won't learn their lessons, they won't have as much incentive to make good business decisions if they can just get bailed out by a government that steals from its citizens and bails them out.
This whole thing is disgusting, with bailouts of our failed banking system that doesn't operate in the free market, to the bailouts of companies that scream "we're too big to fail!"
Bullcrud...no company is "too big" to fail.
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no way to modify past agreements
That is the way it should be, unless we are talking about renegotiating contracts of those dastardly unions in the automotive industry. Well those guys are just regular workers so there shouldn't be a second thought to changing their contracts.
To all who can't see the obvious, there is a stark double standard when it comes to regular workers and so-called elites.
btw, AIG isn't in bad shape because of invisible market forces, it and a large number of banking institutions are in trouble because they were allowed to be incredibly stupid with their money and business practices. This was because of a lack of regulation. Regulation that hindsightedly Alan Greenspan now sees as necessary.
So we allow that stupidity to enter us into a new great depression (thank you Hoover) or 'we' (the government) do something about it.
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Bullshit
Bullshit. Complete and utter bullshit. The fact that no one wants to buy toxic assets has exactly ZERO to do with the reaction from the American people and congress to AIG's bonuses. They don't want to buy them because they are toxic. They didn't want to buy them before the AIG fiasco, they don't want to but them now, there is no real benefit to them buying them, but they are being pressured to do so. Of course they are looking for any reason, other than "we don't want to" to say no.
It would certainly give a company pause in taking free money from the goverment, but that is certainly not a bad thing. I WANT companies to be extremely desperate before accepting bailout money. The more strings the better.
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Smoke and Mirrors
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Now why would a group of union employees picket? Obviously their union heads told them to, they don't just sit around thinking "who should we picket next, unless its Trump, that's probably usual.) Why would their union leaders tell them to picket in front of AIG? AIG throws hotels and restaurants lots of business, so that is kind of their customer. Their union heads must have gotten a call from someone telling them to get their members to protest.
Now, who would have made that call? I am pretty sure that the service employee unions are not big supporters of the Republican party. Must have been the democrats.
Now ask yourself why when Obama is saying that taxes on the bonus are a bad idea (yet it passes the house) what is actually going on?
What you are seeing is theater, it is a set up for what comes next. Nationalized banks. Nationalized Wall Street, Nationalized health care. This is the game plan folks. Get people screaming about one thing that sets up the master plan.
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To John Dole
You're partly right in your assessment, that AIG and others aren't in bad shape because of "invisible market forces". They're in bad shape because the government keeps interfering with said "invisible market forces".
More regulation is NOT needed. We already have a heavily regulated economy as it is, and look what happened.
And banks and other institutions weren't just making bad investment decisions on a whim, the government was forcing banks to loan money to people that they wouldn't have loaned to in a free market.
Alan Greenspan made the remark that he saw a flaw in the free market system, but we don't have a free market in this country!
A truly free market doesn't have a money czar like Greenspan at the head of it to mess with interest rates, and in this case lower them abnormally thus sending the wrong signals to investors in the marketplace.
A free market doesn't have 4 congressional committees over-seeing the "unregulated" Fannie Mae and Freddie Mac.
If the free market were allowed to actually function in this country we would have much less catastrophic recessions and depressions.
Government interference in the marketplace is what caused our current financial crisis, which Ron Paul and others warned about (you know, people that actually understand economics). Anyone that says it was the free market at work has been listening to Barney Frank, the idiot of the ages, far too much.
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Correct
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Some regulations
Where are the perp walks, and Madoff doesn't count.
It seems every few years, (eg Junk Bond scam, Saving & Loan scam, EnronArthur Anderson scam) we have some form of finacial FRAUD scheme and only a few scapegoats are displayed to appease the masses.
Then again, you wouldn't hear a peep out of me if the bailout bill had component that using the term "Free Market" results in immediate commitment and be placed on some common-sense offender list.
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