Leverage

Yesterday on This Week, Robert Kuttner of The American Prospect balked at the administration's excuse for why it was powerless to stop AIG's bailout payments, i.e. a contract is a contract:

"Well, but they do have a little bit of leverage here. They're giving this company $185 billion and counting and it could say to the company, if you want to come back for more help, which the company will do, you might want to ask these executives to voluntarily forego these bonuses or you might want to fire these executives. [...]

When you put up $185 billion in installments, you can certainly say to these guys, if you want another penny...you really think AIG is going to say, ok we'll fall on our sword, we'll go bankrupt?"

Looks like the administration's new plan is precisely this. From WSJ (h/t TPM):

Monday afternoon, a White House official said the Treasury Department will use a planned $30 billion infusion into AIG to compel the company to repay the bonuses to employees of its financial-products group, which is responsible for selling the exotic financial instruments that brought the company to near-collapse.

The infusion, announced March 2, won't be finalized until the company and the Treasury work up repayment options, the official said. The bonuses to the financial-products division were "found to be completely unacceptable given that AIG is already surviving on taxpayer funds," the official said.

Update [2009-3-16 21:24:46 by Todd Beeton]:Barney Frank on Rachel Maddow:

We own the company. We are the majority owners. I think the federal government should now step in as the owner and say to these employees, our employees, bonus my foot! you messed up this company and whatever your contract said, it can't be interpreted to mean that we're going to reward you for losing money.

Update [2009-3-17 2:44:48 by Todd Beeton]:Josh Marshall calls this article"dispiriting." That's one word for it.

White House officials said the Treasury would recapture the bonus money by writing new requirements into a $30 billion installment of government aid scheduled to go soon to the ailing insurance conglomerate. The government has already provided $170 billion in taxpayer assistance to keep A.I.G from failing and now owns nearly 80 percent of the company.

But administration officials conceded that almost all of the most recent round of bonuses, totaling $165 million, had been paid last Friday, one day before the Treasury publicly acknowledged that it had reluctantly approved the payouts. The officials said that people who received the bonuses would probably be able to keep them.

By seeking to link repayment of the bonus money to the coming $30 billion in assistance, the administration seemed to leave open the possibility that the company would effectively be repaying taxpayers with taxpayer money. A Treasury official disputed that taxpayers would be repaying themselves, but could not specify how else the company would give back the money.

Tags: AIG, obama admi (all tags)

Comments

15 Comments

Re: Leverage

I put multiple comments late last year why the politicians of both parties did not insist on salary caps for execs? They had the leverage back then. Even now, they still have leverage, but not as slam dunk as it could have been back then. All they had to do was inform AIG that for them to get govt help, they would have to either fire execs, go bankrupt if the execs did not volunteer to renegotiate(in which case they dont get the money anyway). Why didn't they do this stuff  back then? People like me and others were screaming to use that leverage in November to  bring about concessions. That is why I felt like the far left and far right actually were conducting themselves better than the so called moderates when bailout money was being handed out.

OK what is done is done. Here is another tool government can use. HARASS THOSE EXECS BY ALL LEGAL MEANS NECESSARY. Warn them about it through informal channels. The IRS will audit the hell out of them and any minor slipup will get them the maximum legal sentence possible. Do it the way they did it with Capone. There has to be some carelessness with reporting company perks. There has had to be some improper crediting of personal expenses as  business. GO FOR THE KILL NOW.

by Pravin 2009-03-16 03:47PM | 0 recs
Re: Leverage

Short answer: because they know they don't have to do so. There are more than enough people here and else where willing to accept whatever is thrown out as "wow we are now getting something done" when nothing at all has really changed. I made the same comments you were making to multiple posters here. I got the same bulshit about the impossibility of renegotiation. Most of them, i don't think understand that this is only an issue if you do not renegotiate the contracts. Once you do, any legal hurdle is addressed. Where are these failed execs going to go if you say what you just wrote? No where. We maybe better off if they did leave based on the threat. The point is- there are some easy solutions in the form of renegotation that would really put teeth into the leverage the government has. They will never do it. And most will accept what ever crumbs are thrown at the public.

by bruh3 2009-03-16 04:02PM | 0 recs
by bruh3 2009-03-16 04:05PM | 0 recs
Re: Leverage

It is becoming more and more clear that the government has plenty of options to deal with AIG's profiteering executives, as the legislators who wrote the bailout bill and other legal experts are pointing out. But your suggestion shows another avenue available. AIG is now owned by us, the citizens of the U.S. These executives are our employees. The threat of the government putting their lives under the public microscope would be a powerful deterrent to any individual attempting to sue to get their bonuses. What kind of idiot thinks he can hold the American people hostage?

I defended Obama's choice of Geithner, and I defended the TARP program as necessary to restore the health of the financial system. I even made the argument that a few executives profiteering was a small price to pay for avoiding the suffering of a deep and prolonged recession. My argument is looking pretty weak right now. But it seems to me that the problem is that Obama, to date, has been unwilling to use the tools he has to deal with this crisis and all of its ramifications. If he were putting insolvent institutions into some form of receivership, rather than trying to preserve them as private entities, then he would have a lot more leverage over outrages like this, and over the looming outrage of 65% of the bailout funds to AIG going to foreign banks.

by souvarine 2009-03-16 05:56PM | 0 recs
Re: Leverage

From today's Washington Post:

Jonathan Macey, a professor at Yale Law School, said it was unlikely any AIG employees would end up suing the company for changing compensation contracts, mainly because their names would be revealed publicly in a lawsuit and they would then be excoriated.

by souvarine 2009-03-16 06:24PM | 0 recs
I'm not sure I believe that

I can't believe they would allow money to be taken from them at all, but if true, it's probably a result of the outcry in the past 48 hours.

And it makes me wonder, speaking as someone who has worked in press and communications, if this was the plan all along; "Let the public scream about the bonuses, intimidate AIG and allow it make it easier to take them away without a fight"

by DTOzone 2009-03-16 06:34PM | 0 recs
Re: Leverage

As pointed out at Talk Left by several commentors, this is still kind of crap. Essentially, the leverage was something you needed to use before hand. Now, it's the equivalent of saying they will get the bailout minus the money they paid in bonuses. The leverage should be used to make certain that the contracts are renegotiated going forward. for those who say no- remind them that it's their ups that lead us to this point, and show them the door.

More problematic to me is not AIG. AIG is representative of a mindset. That mindset has too much trust in the market to the do the right thing when the market views the right thing as self-interest rather than public interest.

This seems less than nothing as a gesture. What's needed is more bite, and less  bark. If you keep warning people how stern you are going to be, and then you aren't stern- they are just going to start to ignore you.

I complete agree with Pravin's post above. Use every means at the Govt disposal rather than these half measures because right now, as BTD says, the devil is in the details. We don't have those yet. They say repay the bonus, when the issue is changing practices. This does not force that. It is essentially tellinga bankrupted company that hey you can take less of the money we are using to prop you up as a penalty. The point is we are still propping them up, and they are still nto required to change practices, get rid of any bad management, etc. How is this better?

by bruh3 2009-03-16 03:57PM | 0 recs
Re: Leverage

If the bonuses have already been paid, someone will have to explain to me why it's not a useless exercise to force the company to "repay" the bonuses.  So instead of 30 billion in taxpayer funds, they get 29.8 billion, or whatever?  I am missing the point.

by Steve M 2009-03-16 03:59PM | 0 recs
Re: Leverage

No you are right. It's b.s. But it makes some feel like something is "getting done."

by bruh3 2009-03-16 04:04PM | 0 recs
Re: Leverage

This is from Brad Sherman's interview for TPM

We had a provision in there that said Treasury was supposed to establish, by regulation, standards for executive compensation. We required that to be done -- had it been done, it would have been binding, whether [or not] these contracts had been signed earlier. It's entirely within the power of the federal government to have contracts modified [at companies receiving public aid]. Nixon had contracts modified by the federal government. We gave a similar power to Treasury.

In other words Tim Geithner had the authority to stop these bonuses even before he released the money forcing AIG to modify the contracts. All these posturing about lawsuits after the fact is just that, posturing. Geithner is either culpable of malfeasance or he is just arrogantly negligent. Either way he is an embarrassment to this administration in this hour of crisis, because on the one hand he refuses to make the hard choice and nationalize these corrupt companies and on the other hand he advocates on shoveling more tax-payer dollars to buy off toxic debts. All the while these company execs enrich themselves on bailout money. Geithner's presence can no longer be justified, he should resign.

by tarheel74 2009-03-16 04:36PM | 0 recs
Barney Frank on Rachel Maddow

I thought the Barny Frank interview on Rachel Maddow was AWESOME!!  I just wish he had directly advocated for the FIRING of AIG personnel!

by viperlmw 2009-03-16 05:43PM | 0 recs
Re: Barney Frank on Rachel Maddow

What the hell was Frank doing the last 1 year? An amateur like I was able to guess that the talk about limits on exec compensation that was talked about during the bailout from lsat year was merely talk. I was able to predict that this would not have any real limits. I do not say this to brag, but to show how inexcusable it is for long time senators to not have been proactive about this.

This is not merely a failure of the executive branch but our other represenatives who should have had the experience to know execs will find every way possible to latch on to what they feel is due to them regardless of decency.

by Pravin 2009-03-16 09:45PM | 0 recs
Re: Leverage

So if it is as easy as you say to do, just fire the bums, then why is it not happening?  Maybe the easy answers are fantasy and wishing.

MAYBE things are harder than they look.  Really.  This sounds like my 8 year old throwing a tantrum because things are not the way she wants them.

Being able to just go in and radically alter the contracts of employees looks good AT THIS POINT against AIG, but who here wants to bet it would be used in the future by corporations or Republicans to whack unions or other "undesirables"?  Tread carefully...

by Hammer1001 2009-03-16 06:10PM | 0 recs
Re: Leverage

It is not happening because Obama wants to "retain a strong sense of private capital fulfilling the core investment needs of this country."

As for altering the contracts of employees, did you think this was something new? I take it you haven't followed auto industry employment contract negotiations lately. Or, for that matter, any union contract negotiations since Reagan broke the flight controllers union.

We are past treading carefully here, we are rapidly approaching complete public disgust. At that point Obama's ability to manage this situation with Congress's cooperation vanishes and the search for heads to figuratively put on pikes begins. AIG and Treasury's decision here, to go ahead with paying these bonuses, has dramatically increased the public backlash that will end with many of these employees ruined and imprisoned.

by souvarine 2009-03-16 06:57PM | 0 recs
Re: Leverage

Exactly, contracts are not as rigid as Summers insultingly puts it. Union contracts have been altered. When a company is in trouble, they try to renegotiate with others because all parties want to avoid a lose lose situation. The government could have easily told AIG that this was an rigid condition for the bailout. DO you seroiusly think many of those execs would have found something better in a recession? A lot of top execs have been losing jobs.Do not underestimate the power of getting blackballed reputationwise. If our powerful politicians want to make it known, they could do it. They have leverage to use.

by Pravin 2009-03-16 09:48PM | 0 recs

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