Edward Liddy, the CEO of AIG went to Capital Hill today to face the anger of the American Public, he was there to answer questions and educate us on what AIG is doing with our money and why. Like most of you I was deeply disturbed by AIG’s use of their Federal Reserve and TARP funds. The idea that this company would take $165 Million in bailout money to pay executive bonuses seemed outrageous and ridiculously shortsighted. I should have known better than to jump to conclusions, the media is always slanted one way or another and when we rely on them to give us the whole truth we are more often than not left wanting.
Let’s look at what Edward Liddy outlined for us…
Sell off assets to pay back the money owed quickly
Get the company back on its feet and profitable
What does AIG owe:
$160 Billion available to them…. they have only taken $80 Billion of that money
$40 Billion in TARP
$40 Billion taken from Federal Reserve
The Fed bought $50 Billion in AIG financial assets 40 to 60 cents on dollar, making them and us an investor. Assets are performing and paying out, we are basically a “patient” investor waiting to the return on our investments.
Fed has 79.9% stake in AIG
$80 Billion target to payoff, we can do it but we will need help from the markets
Why is AIG paying bonuses?
According to Edward Liddy the Federal Reserve has always known that $165 million was going to pay bonuses and it was agreed that the risk was too great not to pay the promised bonuses. Why would the Federal Reserve agree to paying executive bonuses and why was this not made public from the beginning?
AIG made retention contracts with those executives in the financial services division that were necessary to wind-down $2.7 Trillion in AIG business. These employees were contracted to manage and close out their book of business to AIG’s satisfaction and will not have a job when their work is completed. These were not performance bonuses but rather a …”please stay to help us clean up our company even though you will not have a job after” bonus. To me it sounds no different then offering a severance package. These employees will not have a job once their tasks are finished and having AIG on their resume will may make it difficult to find another job. These retention funds will give them a cushion in their transition.
There is currently $1.6 Trillion left of the 2.7 in actively traded business that needs to be managed every day, if this business is not handled it could bring this company down. AIG needs to properly close down their financial services division and so they made an agreement with those employees that handle AIGFP to keep them from leaving and tanking this company in the process.
I think that this plan was poorly executed on AIG’s, the Treasury’s, and the Fed’s part and shows just how easy we forget. All three of these entities are currently run by some highly intelligent people and the fact that no one thought that offering $165 million in bonuses without any explanation would come back and bite them really surprises me.
After hearing Liddy’s explanation, a man by the way who is making $1 a year for his efforts, I understand why they agreed to the retention bonuses. I do wonder if it had to be that high, if there was any room for negotiation in those payouts, but I understand the reasoning and the necessity for their risk assessment.
I am shocked that Capital Hill wants the names of the payees, there is no reason for that. I think a list of employee positions and amounts are warranted, but not their names. The public is very upset and I think that puts those employees at risk. It is AIG’s leadership, the Fed’s , and the Treasury that needs to be called to account not the employees.
The fact that AIG is asking for half of the retention payments back and that some are not only agreeing to it but offering to pay a 100% back is commendable! They are turning this ship around, on track to pay back the American public, and could not have done any of this without the aid of these employees.
Where should AIG go from here?
The most important thing is that, after all the money that has been thrown at this company, it should not be allowed to go under! We need to take the emotional aspect out of this and look at the best way to get this company solvent again. If AIG does not pay back their creditors, foreign and domestic they will be forced into bankruptcy. If they do not manage and close their AIGFP division properly they could under and if the American public does not start looking at this objectively there will be no one who will buy the assets they need to sell to pay us back.
As a way around this bonus debacle the House is talking about introducing a bill to tax executive bonuses. The tax would be up to 90% on those that receive bonuses who work for organizations that have partaken of TARP funds, $18.4 Billion in bonuses have been paid out to date by recipients of TARP funds. I think 90% is drastic and that taxes should not be not be used as a punishment. This is in my opinion oversteps and is a dangerous precedence for how our government uses their power. There is a legitimate reason that we pay taxes, this is not one of them. The contracts were valid and it is the governments job to protect….which is what they should have done when they agreed to the bailout. The automakers are renegotiating their contracts and this could have been done with AIG.
At this point I see a lot of posturing on the Hill and not a lot of good government, the damage is done and we now need to try to rectify this in a way that does not do us more harm. One way is what Liddy is doing now, which is asking that part of that money be returned and on the bonuses that have not been paid out they should be renegotiated to warrantable and reasonable payouts. The American public needs to put on their business owner hats and decide what’s best for our investment.
What do you think?
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