First Collective Quarterly Loss in Recorded History for S&P 500

[Baron von Schtinkenbutt]

Now we've got a banking bounce on the upcoming profitable quarters of Citi and BofA, and I suspect that a lot of their cash flow is coming from debt repayment from AIG, who, in turn, got the cash from our tax money. I don't think we're at the bottom. Nobody's lending yet except the Fed.

Well, they'd better hurry up.  I have a condo to offload.

[dps]

[Nobody's lending yet except the Fed.

Actually, as best as I can tell, credit is still pretty cheap and readily available.  In fact, it's probably still too cheap and easy to obtain.

[alfred russel]

Now we've got a banking bounce on the upcoming profitable quarters of Citi and BofA, and I suspect that a lot of their cash flow is coming from debt repayment from AIG, who, in turn, got the cash from our tax money. I don't think we're at the bottom. Nobody's lending yet except the Fed.

It might help their cash flow, but the repayment of debt wouldn't improve their profitability in Q1 2008.

[KRonn]

http://www.msnbc.msn.com/id/29731643/

AIG's turmoil depletes Obama's political capital
Anger over bonuses paid to AIG execs blows back on president, initiatives

As to the link I posted, I'm annoyed at government's actions but I'm not feeling the anger as much with the Obama admin over the AIG (or any other corp) debacle. The article states there's some considerable blow back on Obama. I am angry over the Obama admin and Congress for failing to put restrictions and guidelines on how some of the money could be used, but otherwise I'm realizing that the government is trying to take on a difficult problem and I don't expect miracles. In my view, where Pres Obama (and the Dems in Congress) erred was by pushing through the massive spending agenda, over and above the economic issues.

As for trying to save some corporations, I'm of mixed mind and can understand that the govt feels a need to avoid these big corps going bankrupt, because of the economic impact. (Of course, it goes without saying that the CEOs and some of the execs will need to spend time in Gitmo.)   

And it just keeps adding up for AIG. I saw on the news that AIG bailout money, in the billions, was funneled to French, German and other nation's banks/institutions. Some criticism of that coming out now - US bailout going to foreign concerns. I'd like to assume that's part of business but I can't give them too much of a break, given their track record of massive failure, impacting the nation's financial health.

[Jos Theelen]

European banks bought risky mortgages from US home-owners. Because they were risky, they insured them at AIG. And now, when those mortgage-payments stopped, the insurer has to pay. Hence the billions from AIG to those European banks. Of course AIG can refuse to pay. In that case they are broke.

[DontSayBanana]

http://www.msnbc.msn.com/id/29731643/

AIG's turmoil depletes Obama's political capital
Anger over bonuses paid to AIG execs blows back on president, initiatives

As to the link I posted, I'm annoyed at government's actions but I'm not feeling the anger as much with the Obama admin over the AIG (or any other corp) debacle. The article states there's some considerable blow back on Obama. I am angry over the Obama admin and Congress for failing to put restrictions and guidelines on how some of the money could be used, but otherwise I'm realizing that the government is trying to take on a difficult problem and I don't expect miracles. In my view, where Pres Obama (and the Dems in Congress) erred was by pushing through the massive spending agenda, over and above the economic issues.

As for trying to save some corporations, I'm of mixed mind and can understand that the govt feels a need to avoid these big corps going bankrupt, because of the economic impact. (Of course, it goes without saying that the CEOs and some of the execs will need to spend time in Gitmo.)  

And it just keeps adding up for AIG. I saw on the news that AIG bailout money, in the billions, was funneled to French, German and other nation's banks/institutions. Some criticism of that coming out now - US bailout going to foreign concerns. I'd like to assume that's part of business but I can't give them too much of a break, given their track record of massive failure, impacting the nation's financial health.

Yeah. There's a lot of blowback. From what I've gleaned, AIG is in a unique position, contractually, because Treasury loaned unilaterally even before the institution of TARP, so there's less teeth to go after AIG's retention bonuses; they should have put it under TARP retroactively to mess with executive pay.

Also, I'm not buying the whole "retention bonuses." As has been mentioned, a large part of said bonuses are coming from the very division that screwed up with CDSes. Why they feel they need to reward those people for staying, when no sane company should touch them with a telephone pole, is beyond me.

[Berkut]

European banks bought risky mortgages from US home-owners. Because they were risky, they insured them at AIG. And now, when those mortgage-payments stopped, the insurer has to pay. Hence the billions from AIG to those European banks. Of course AIG can refuse to pay. In that case they are broke.

Indeed - from a business perspective, this is a non-issue. AIG insured them, so of course they are paying them off for their losses - that is the point of insurance.

Listening to people bleat about this is annoying. We bought AIG, basically, so now we own their debts - even the ones to cheese eating surrender monkeys.

[Berkut]

Also, I'm not buying the whole "retention bonuses." As has been mentioned, a large part of said bonuses are coming from the very division that screwed up with CDSes. Why they feel they need to reward those people for staying, when no sane company should touch them with a telephone pole, is beyond me.

You don't ahve to "buy it", since it has nothing to do with you, and is nto dependent on your purchasing.

A retention bonus is given because you need (or think you need) some people to stay when otherwise they might not. You can argue that perhaps this was an error, but then you put yourself into the position of claiming expertise on AIGs business over and above the people who run AIG. While those people have not exactly proven their brilliance, I am hesitant to pretend that *I* would know whether or not retaining those employees was important enough to justify the bonus payout - I simply do not know.

The entire bonus issue is such a red herring - political circus, mob and pitchfork bullshit. It makes for good theater for all the little politicians to stand up and importantly shake their fists at the injustice of it all, and the masses lap it right up.

[The Minsky Moment]

You could fire all these guys, but then you would just have to hire a bunch of new guys to run the same portfolio.  After search and transition costs were paid, would the Treasury still be ahead net?  And then what you have done is replace all the people who actually know the portfolio intimately, which a bunch of people who know nothing and have to start from scratch.

[Berkut]

You could fire all these guys, but then you would just have to hire a bunch of new guys to run the same portfolio.  After search and transition costs were paid, would the Treasury still be ahead net.  And then what you have done is replace all the people who actually know the portfolio intimately, which a bunch of people who know nothing and have to start from scratch.

Exactly - AIG said that the reason they need to keep these people is that this damn mortgage swaps are insanely complex (which has been the problem from the get go) and who are they going to find that understands them any better?

It isn't a matter of what is fair - just what is needed. I don't much like the injustice of it, but I can certainly understand the reasoning behind it.

[dps]

You could fire all these guys, but then you would just have to hire a bunch of new guys to run the same portfolio.  After search and transition costs were paid, would the Treasury still be ahead net.  And then what you have done is replace all the people who actually know the portfolio intimately, which a bunch of people who know nothing and have to start from scratch.

Exactly - AIG said that the reason they need to keep these people is that this damn mortgage swaps are insanely complex (which has been the problem from the get go) and who are they going to find that understands them any better?

It isn't a matter of what is fair - just what is needed. I don't much like the injustice of it, but I can certainly understand the reasoning behind it.

Sure, and if we hadn't bailed them out, it would be none of our business, really.  But since we did give them a big heaping helping of taxpayer money, well, people are naturally going to bitch about it.

[Malthus]

They are not getting bonuses for doing a good job - they are retention bonuses - basically a bonus given to people who you do not want to leave.

Perhaps that is not a good idea, but the issue is simple: they signed a contract that says if they stuck around, they would get bonuses of X, Y, and Z. So barring bankruptcy or something like that, they will get said bonuses. Nation of laws and all that.

The notion that there is a need to pay large bonuses to keep on key execs of organizations which are only kept alive through large infusions of taxpayer cash during a mega recession lacks somewhat of an air of reality.

The impression is that the management - the same management that ran these companies into the ground - is, in effect, drafting these contracts to itself while wearing its (collective) "management" hat, and then gratefully accepting such deals while wearing their (individual) "employee" hats, in effect looting the corpse (or better, the body in a coma on public taxpayer life support) while the looting is good, knowing that if they get the axe chances of further employment on such lucrative terms elsewhere is slim to none in this economy.

This impression may be wrong of course - it could well be the case that the valuable and unique skills of these persons is just what is needed to turn these businesses around, and so a retention bonus is a wise and far-sighted investment, negotiated at arm's length with only the best interests of the shareholders in mind.

It will be a tough sell given recent history, though.

[Malthus]

You could fire all these guys, but then you would just have to hire a bunch of new guys to run the same portfolio.  After search and transition costs were paid, would the Treasury still be ahead net?  And then what you have done is replace all the people who actually know the portfolio intimately, which a bunch of people who know nothing and have to start from scratch.

Or you could simply say to these guys "you are not getting a bonus. If you don't like that, find a job elsewhere that pays better".

What are the chances that masses of disgruntled financial types from insolvent companies would find alternative lucrative jobs in this economy? Is there someone out there just dying to hire them?

My impression of the financial sector is that it is laying off folks in droves, even senior positions.

[The Minsky Moment]

You could fire all these guys, but then you would just have to hire a bunch of new guys to run the same portfolio.  After search and transition costs were paid, would the Treasury still be ahead net?  And then what you have done is replace all the people who actually know the portfolio intimately, which a bunch of people who know nothing and have to start from scratch.

Or you could simply say to these guys "you are not getting a bonus. If you don't like that, find a job elsewhere that pays better".

And then you get sued for breach of contract and lose. 

[Malthus]

Also, I'm not buying the whole "retention bonuses." As has been mentioned, a large part of said bonuses are coming from the very division that screwed up with CDSes. Why they feel they need to reward those people for staying, when no sane company should touch them with a telephone pole, is beyond me.

You don't ahve to "buy it", since it has nothing to do with you, and is nto dependent on your purchasing.

A retention bonus is given because you need (or think you need) some people to stay when otherwise they might not. You can argue that perhaps this was an error, but then you put yourself into the position of claiming expertise on AIGs business over and above the people who run AIG. While those people have not exactly proven their brilliance, I am hesitant to pretend that *I* would know whether or not retaining those employees was important enough to justify the bonus payout - I simply do not know.

The entire bonus issue is such a red herring - political circus, mob and pitchfork bullshit. It makes for good theater for all the little politicians to stand up and importantly shake their fists at the injustice of it all, and the masses lap it right up.

One major problem with the industry as a whole is corporate governance. There is supposed to be a Board of Directors who does know this stuff, but in all too many cases they have proven toothless - in effect rubber-stamping whatever management wants. That's part of what got us into this mess.

The problem is a cultural one: the same sorts of people sit on boards of directors and act as executives in management. There is a very strong element of "I'll scratch your back, you scratch mine". Add to that the fact that the businesses are complex and there is a lack of accountability.

The bonus issue is merely an (apparent) egregious example of a more widespread problem - that in effect no one is really watching management, who is then free to in effect write their own contracts for themselves, leading to ever-swelling executive compensation totally divorced from performance.