Languish.org

http://www.ft.com/cms/s/0/ed7e49fe-1191-11de-87b1-0000779fd2ac.html#

If you can access the full article through the link, click on the graphic on the top right corner - it is one of the most scary charts I have seen so far.

A good piece of this is being driven by a few big financials, but still it is an earnings catastrophe without recent precedent.  Over $20/share.

And this is just the 4Q numbers from last year.  The next couple quarters aren't exactly exciting much optimism either.

RIP capitalism.  :(

I am not worried.  Prosperity is just around the corner.

I've been assured by a friend that the reason this didn't happen earlier is Bush' massive military spending for the Iraq war, and Obama's cutting the military is driving us into a major depression.  At the same time she says that all fascist movements need a war to get their start and the re-expanding war in Afghanistan is how OBama is going to eventually seize power as a liberal socialist dictator.

I said before I wanted to see the US humbled - it's starting to look that way.  :-\





G.

Quote from: Grallon on March 16, 2009, 12:38:48 PM
I said before I wanted to see the US humbled - it's starting to look that way.  :-\

Yeah right.  If everyone takes a huge beating, that isn't very humbling, because they still remain as top dog.

Quote from: Grallon on March 16, 2009, 12:38:48 PM
I said before I wanted to see the US humbled - it's starting to look that way.  :-\

That is so astoundingly stupid.

As if this recession is somehow limited to the US, or that it hurts the US more than others, or even that it is somehow the fault of the US.

Incredible how ignorant and bigoted some people can be.

Quote from: Berkut on March 16, 2009, 12:49:48 PM


Incredible how ignorant and bigoted some people can be.

Preach on  :D




G.

Quote from: Grallon on March 16, 2009, 12:38:48 PM
I said before I wanted to see the US humbled - it's starting to look that way.  :-\


G.

http://news.yahoo.com/s/ap/20090316/ap_on_bi_ge/bernanke60_minutes;_ylt=At6__6r8yKbDIEwNiOV5l9qyBhIF (http://news.yahoo.com/s/ap/20090316/ap_on_bi_ge/bernanke60_minutes;_ylt=At6__6r8yKbDIEwNiOV5l9qyBhIF)
Bernanke says recession could end in 2009By JEANNINE AVERSA, AP                      

WASHINGTON – America's recession "probably" will end this year if the government succeeds in bolstering the banking system, Federal Reserve Chairman Ben Bernanke said Sunday in a rare television interview.
In carefully hedged remarks in a taped interview with CBS' "60 Minutes," Bernanke seemed to express a bit more optimism that this could be done.
Still, Bernanke stressed — as he did to Congress last month — that the prospects for the recession ending this year and a recovery taking root next year hinge on a difficult task: getting banks to lend more freely again and getting the financial markets to work more normally.
"We've seen some progress in the financial markets, absolutely," Bernanke said. "But until we get that stabilized and working normally, we're not going to see recovery.
"But we do have a plan. We're working on it. And, I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year."
Even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current quarter-century high of 8.1 percent, Bernanke said.
A growing number of economists think the jobless rate will hit 10 percent by the end of this year.
Asked about the biggest potential dangers now, Bernanke suggested a lack of "political will" to solve the financial crisis.
He said, though, that the United States has averted the risk of plunging into a depression.
"I think we've gotten past that," he said.
It's rare for a sitting Fed chief to grant an interview, whether for broadcast or print. Bernanke said he chose to do so because it's an "extraordinary time" for the country, and it gave him a chance to speak directly to the American public. (A transcript of the interview was provided in advance of the broadcast.)
Bernanke spoke at a time of rising public anger over financial bailouts using taxpayer money. Battling the worst financial crisis since the 1930s, the government has put hundreds of billions of those dollars at risk to prop up troubled institutions and stabilize the banking system.
Institutions that have been thrown lifelines include American International Group Inc., Citigroup Inc., Bank of America Corp., mortgage giants Fannie Mae and Freddie Mac and others.
Democrats and Republicans on Capitol Hill have questioned the effectiveness of the rescue efforts and have demanded more information about how taxpayers' money is being used.
Bernanke's TV interview seemed to be part of a government public relations offensive. Treasury Secretary Timothy Geithner appeared on PBS' "The Charlie Rose Show" last week, discussing the financial crisis and the Obama's administration's relief efforts.
The Fed chief on Sunday's broadcast repeated his ire over the AIG bailout, saying that over the past 18 months, that was the case that angered him the most. He says he "slammed the phone more than a few times on discussing AIG."
The government's four efforts to save the troubled insurance giant total more than $170 billion. A collapse of AIG would have wreaked havoc on the global economy, the Fed has said.
AIG ignited fresh outrage over the weekend with news that it's making $165 million in bonus payments to executives on Sunday, most of them in the unit that sold risky financial contracts that caused huge losses for AIG.
When the financial crisis intensified last fall, Bernanke and President George W. Bush's Treasury Secretary Henry Paulson rushed to Capitol Hill for help. That led to the swift enactment of a $700 billion bailout package in October. Since then, banks have received billions in capital injections in return for government ownership stakes in them.
Looking back, Bernanke said the world came close to a financial meltdown. Asked how close, Bernanke responded: "It was very close."
Bernanke admitted that the Fed could have done a better job of overseeing banks. Critics say lax regulatory oversight contributed to the crisis.
Bernanke said he believes all the big banks the Fed regulates are solvent. Big banks won't fail under his watch, Bernanke said — though, if necessary, the government should try to "wind it down in a safe way."

Quote from: Grallon on March 16, 2009, 12:38:48 PM
I said before I wanted to see the US humbled - it's starting to look that way.  :-\

G.

If anything, it looks like the rest of the world is being humbled.  US manages to come out least bad, even though it was the one that got the ball rolling.

From what I've seen, this thing is hurting the US less than it's hurting others.

Quote from: MadImmortalMan on March 16, 2009, 12:58:25 PM
From what I've seen, this thing is hurting the US less than it's hurting others.

Yep, thanks to the "dollar bubble", and the fact that established economies are usually less vulnerable to economic slowdowns.

USA! USA!

In fact, if you believe that the world economy really is a zero-sum game, then this recession is actually a very good thing for us.  Maybe the Wall Street bankers really do deserve their bonuses.

If Bernanke says the recession is going to end then we have nothing to worry about.

Everyone knows Fed Chairmen are never wrong.

Oh wait.

Wow Minsky, that graph stinks! It must be wrong... it just falls all the way down at the far right....    :-[    Numbers under it show a negative over 1400, which I guess are losses. That would appear to be nastily huge!

I hope it gets worse because I think it'd be fun to be a hobo. :)

Quote from: Caliga on March 16, 2009, 01:23:35 PM
I hope it gets worse because I think it'd be fun to be a hobo. :)

Wouldn't change your culinary habits much.  ;)

Quote from: Malthus on March 16, 2009, 01:27:01 PMWouldn't change your culinary habits much.  ;)

Precisely.  In fact I'd like to think I've been preparing for this eventuality for my entire life. 8)

Quote from: The Minsky Moment on March 16, 2009, 01:15:03 PM
If Bernanke says the recession is going to end then we have nothing to worry about.

Everyone knows Fed Chairmen are never wrong.

Oh wait.

Come on, he can't be wrong every single time, it's Bernanke, not CNBC.  Surely he's due to get one right.

Quote from: KRonn on March 16, 2009, 01:21:08 PM
Wow Minsky, that graph stinks! It must be wrong... it just falls all the way down at the far right....    :-[    Numbers under it show a negative over 1400, which I guess are losses. That would appear to be nastily huge!

The graph is very real - the numbers come straight from S&P.

The numbers underneath represent the *percent* change in earnings in different sectors.  Ie in the financial sector the change in earnings was over -1,400 percent.   ??? 

Quote from: The Minsky Moment on March 16, 2009, 12:26:55 PM
http://www.ft.com/cms/s/0/ed7e49fe-1191-11de-87b1-0000779fd2ac.html#

If you can access the full article through the link, click on the graphic on the top right corner - it is one of the most scary charts I have seen so far.

A good piece of this is being driven by a few big financials, but still it is an earnings catastrophe without recent precedent.  Over $20/share.

And this is just the 4Q numbers from last year.  The next couple quarters aren't exactly exciting much optimism either.

If I'm reading that right, one third of that total loss comes from one company - AIG.  And most of the losses in general come from financial services companies taking one time writedowns.

*IF* financial service companies have been honest and don't need to take a lot more writedowns then it sounds like this could be a one quarter only blip.  If.

 :)

http://www.youtube.com/watch?v=UgGe7VJHTts

Quote from: Barrister on March 16, 2009, 02:14:44 PM
If I'm reading that right, one third of that total loss comes from one company - AIG. .

The AIG loss is one-third of the net loss figure.  However, at least some reporting companies in the S&P 500 reported gains for the fourth quarter.  Thus the sum of the total amount of losses from those companies that reported losses is greater than the $180 billion number.   

The AIG loss is a big contributor, but there are many others who pitched in.

QuoteAnd most of the losses in general come from financial services companies taking one time writedowns

Take a look at the second chart.  The financial services sector clearly is big mover, but all sectors experiences very significant earnings declines.  Note that those numbers are "based on operating profits" and hence cannot be ascribed merely to one time writedowns.  Note that S&P also reports negative net OEPS as well ("operating earnings per share")

Quote*IF* financial service companies have been honest and don't need to take a lot more writedowns then it sounds like this could be a one quarter only blip.  If.

If that holds, and if deterioration in the real economy does not have additional knock-on effects on the consumer and industrial sectors.  There are grounds for some pessimism on both counts.

I don't think we are likely to see anothe -$20/share figure going forward, but S&P's projection of +8.75/share for the next two quarters looks unduly optimistic to me.

I've already used up my 10 allotted free articles.  :(

Quote from: The Minsky Moment on March 16, 2009, 03:10:43 PM
The AIG loss is one-third of the net loss figure.  However, at least some reporting companies in the S&P 500 reported gains for the fourth quarter.  Thus the sum of the total amount of losses from those companies that reported losses is greater than the $180 billion number.   

The AIG loss is a big contributor, but there are many others who pitched in.

We're doomed...

But hey, I liked the comment I heard on tv about the AIG spokesmen, guy is another "Baghdad Bob", defending "retention" bonuses to keep their good people. Seems at this point they'd be doing anything to push folks out of the company. That division getting the bonuses was the division that incurred the huge losses, according to the reports I saw. Sheesh... Good that their contract was structured in such a way that they got bonuses regardless of the outcome.

So at the same time the govt is saying AIG had contracts that we can't stop, they're going after the auto makers to change contracts with the unions, judges have been given authority to rewrite mortgage contracts, and so on. Lol... I just love how this is all working out. But rest assured, Barney Frank and other pols are hot on the trail of AIG! Lol. What I want to know is, who is hot on on the trails of the politicians, to call them to account for their actions, inactions, incompetence in these messes?  :-[

Lol....

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.

Quote from: Valmy on March 16, 2009, 12:29:04 PM
I am not worried.  Prosperity is just around the corner.

I am on the horizon!

Bye AIG!

QuoteObama berates AIG and vows to try to block bonuses

Joining a wave of public anger, President Barack Obama blistered insurance giant AIG for "recklessness and greed" Monday and pledged to try to block it from handing its executives $165 million in bonuses after taking billions in federal bailout money. "How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama asked. "This isn't just a matter of dollars and cents. It's about our fundamental values."

lol  :o

Quote from: Berkut on March 16, 2009, 07:28:27 PM
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.

Yeah, retention bonus, that's right...in the millions. That change of label just makes it all better. Hehe..

Quote from: garbon on March 16, 2009, 09:12:37 PM
Bye AIG!

QuoteObama berates AIG and vows to try to block bonuses

Joining a wave of public anger, President Barack Obama blistered insurance giant AIG for "recklessness and greed" Monday and pledged to try to block it from handing its executives $165 million in bonuses after taking billions in federal bailout money. "How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama asked. "This isn't just a matter of dollars and cents. It's about our fundamental values."

You know, I can find a lot to disagree with Pres Obama over his spending, budgets, agendas in the stimulus. But I find it annoying that a President has to berate a corporation for egregious behavior, mainly in the massive losses and mismanagement they incurred. A President shouldn't have to do that; a corp shouldn't be so negligent as to come to that. Not anger at the Pres, anger that it has to be done at the level of a President because of the bad actor CEOs.

But while AIG makes a great whipping post, a focus for people's anger, there remains the fact that we still have a lot of work to do to make things right otherwise, over and above AIG.

I have anger at the President. What exactly does he know about running a corporation?

Quote from: garbon on March 16, 2009, 10:04:49 PM
I have anger at the President. What exactly does he know about running a corporation?

Think it is fair to say that many of the CEOs of these companies don't know any better.

Quote from: Queequeg on March 16, 2009, 10:19:41 PM

Quote from: garbon on March 16, 2009, 10:04:49 PM
I have anger at the President. What exactly does he know about running a corporation?

Think it is fair to say that many of the CEOs of these companies don't know any better.

I'm pretty sure they do.

Quote from: Neil on March 16, 2009, 10:25:59 PM

Quote from: Queequeg on March 16, 2009, 10:19:41 PM

Think it is fair to say that many of the CEOs of these companies don't know any better.

I'm pretty sure they do.

Can't tell by what's happening now.

Quote from: katmai on March 16, 2009, 10:52:53 PM
Can't tell by what's happening now.

Well they are still in existence and found someone else to foot the bill. ;)

Besides, what exactly has Obama accomplished? Gave head to Nancy Pelosi? :x

Quote from: The Minsky Moment on March 16, 2009, 03:10:43 PM

The AIG loss is one-third of the net loss figure.  However, at least some reporting companies in the S&P 500 reported gains for the fourth quarter.  Thus the sum of the total amount of losses from those companies that reported losses is greater than the $180 billion number.   

The AIG loss is a big contributor, but there are many others who pitched in.

I think that is a very distorted figure.

AIG: $61.7 billion
Citi: $17.3 billion
GM: $9.6 billion
Ford: $14.7 billion
Fannie Mae: $25.2 billion
Freddie Mac: $23.9 billion

Those are Q4 losses. All of those are zombie companies that have ceased to have any meaningful market value and are only still in existence because the federal government is taking on the losses (Ford would still be around, for how much longer it can survive without the government we will see). Whether those companies record $50 billion in losses, $150 billion, or a $1 trillion is really irrelevant when examining the health of the S&P--in most economies they would have gone out of existence and not thrown off the statistics.

Hi Al!

Quote from: katmai on March 16, 2009, 11:19:28 PM
Hi Al!

Howdy. What the hell happened?

Quote from: alfred russel on March 16, 2009, 11:28:23 PM

Quote from: katmai on March 16, 2009, 11:19:28 PM
Hi Al!

Howdy. What the hell happened?

moldy can tell ya exactly, but had some hardware that the old database was on crap out. so the much talked about port over happened sooner than expected :P

Quote from: KRonn on March 16, 2009, 07:22:29 PM

Quote from: The Minsky Moment on March 16, 2009, 03:10:43 PM
The AIG loss is one-third of the net loss figure.  However, at least some reporting companies in the S&P 500 reported gains for the fourth quarter.  Thus the sum of the total amount of losses from those companies that reported losses is greater than the $180 billion number.   

The AIG loss is a big contributor, but there are many others who pitched in.

We're doomed...

But hey, I liked the comment I heard on tv about the AIG spokesmen, guy is another "Baghdad Bob", defending "retention" bonuses to keep their good people. Seems at this point they'd be doing anything to push folks out of the company. That division getting the bonuses was the division that incurred the huge losses, according to the reports I saw. Sheesh... Good that their contract was structured in such a way that they got bonuses regardless of the outcome.

So at the same time the govt is saying AIG had contracts that we can't stop, they're going after the auto makers to change contracts with the unions, judges have been given authority to rewrite mortgage contracts, and so on. Lol... I just love how this is all working out. But rest assured, Barney Frank and other pols are hot on the trail of AIG! Lol. What I want to know is, who is hot on on the trails of the politicians, to call them to account for their actions, inactions, incompetence in these messes?  :-[

Lol....

There are a lot of companies that structure white collar financial salaries so that bonuses are an ordinary part of income--even for relatively junior personnel. We could go into a long discussion of why things are that way, and I'm not sold that it is for the best, but it is the way things are.

Keep in mind that the story with AIG has been that the underlying insurance business was profitable but the holding company was not due to the credit default swap catastrophe. In honor of throwing the baby out with the bathwater, here is a short list of some key AIG departures in recent months:

Kevin Kelley, Pres/CEO of Lexington (Lexington generates about 20% of AIG's US P/C premiums)
John Bennedetto, Pres AIG Executive Liability
Doug Worman, Pres AIG Excess Casualty
David Hawksby, Pres of Onshore Energy
Frank Costa, Pres of Offshore Energy
William Lovett, Pres/CEO of US aviation

I recommend all the salary hawks to read this article:

http://www.businessinsurance.com/cgi-bin/article.pl?article_id=26792

Quote from: alfred russel on March 16, 2009, 11:28:23 PM

Quote from: katmai on March 16, 2009, 11:19:28 PM
Hi Al!

Howdy. What the hell happened?

The old server's hard drive went tits up.  This board is one of two I originally threw up to test out the SMF forum software, and got pressed into service as the "new" Languish.  It remains to be seen if this will remain the permanent Languish.

The other SMF forum has almost all of the user data preserved, but neither has the post database.  I have everything from the now-dead server and intend to resurrect the old board as a read-only archive, but its fairly low on my priorities at the moment.  Getting this board tweaked is a higher priority, as is getting back as much user data as possible.

Quote from: vonmoltke on March 16, 2009, 11:47:56 PM

Quote from: alfred russel on March 16, 2009, 11:28:23 PM

Quote from: katmai on March 16, 2009, 11:19:28 PM
Hi Al!

Howdy. What the hell happened?

The old server's hard drive went tits up.  This board is one of two I originally threw up to test out the SMF forum software, and got pressed into service as the "new" Languish.  It remains to be seen if this will remain the permanent Languish.

The other SMF forum has almost all of the user data preserved, but neither has the post database.  I have everything from the now-dead server and intend to resurrect the old board as a read-only archive, but its fairly low on my priorities at the moment.  Getting this board tweaked is a higher priority, as is getting back as much user data as possible.

It would be cool if the old forum was restored at some point, even if only the read only version.

Quote from: alfred russel on March 16, 2009, 11:17:25 PM

Quote from: The Minsky Moment on March 16, 2009, 03:10:43 PM

The AIG loss is one-third of the net loss figure.  However, at least some reporting companies in the S&P 500 reported gains for the fourth quarter.  Thus the sum of the total amount of losses from those companies that reported losses is greater than the $180 billion number.   

The AIG loss is a big contributor, but there are many others who pitched in.

I think that is a very distorted figure.

AIG: $61.7 billion
Citi: $17.3 billion
GM: $9.6 billion
Ford: $14.7 billion
Fannie Mae: $25.2 billion
Freddie Mac: $23.9 billion

Those are Q4 losses. All of those are zombie companies that have ceased to have any meaningful market value and are only still in existence because the federal government is taking on the losses (Ford would still be around, for how much longer it can survive without the government we will see). Whether those companies record $50 billion in losses, $150 billion, or a $1 trillion is really irrelevant when examining the health of the S&P--in most economies they would have gone out of existence and not thrown off the statistics.

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.

Quote from: MadImmortalMan on March 17, 2009, 12:10:49 AM
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. <_<

Quote from: MadImmortalMan on March 17, 2009, 12:10:49 AM
[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.

Quote from: MadImmortalMan on March 17, 2009, 12:10:49 AM


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.

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.

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.

Quote from: KRonn on March 17, 2009, 08:31:49 AM
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.

Quote from: Jos Theelen on March 17, 2009, 08:42:57 AM
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.

Quote from: DontSayBanana on March 17, 2009, 08:44:29 AM
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.

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.

Quote from: The Minsky Moment on March 17, 2009, 08:54:06 AM
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.

Quote from: Berkut on March 17, 2009, 09:04:38 AM

Quote from: The Minsky Moment on March 17, 2009, 08:54:06 AM
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.

Quote from: Berkut on March 16, 2009, 07:28:27 PM
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.

Quote from: The Minsky Moment on March 17, 2009, 08:54:06 AM
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.

Quote from: Malthus on March 17, 2009, 09:39:36 AM

Quote from: The Minsky Moment on March 17, 2009, 08:54:06 AM
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. 

Quote from: Berkut on March 17, 2009, 08:49:18 AM

Quote from: DontSayBanana on March 17, 2009, 08:44:29 AM
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. 

Quote from: Malthus on March 17, 2009, 09:36:53 AM
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.

The top 60 executives are not getting any bonuses.  This is all about the levels below the guys who set the strategy.

Quote from: The Minsky Moment on March 17, 2009, 09:44:47 AM

Quote from: Malthus on March 17, 2009, 09:39:36 AM

Quote from: The Minsky Moment on March 17, 2009, 08:54:06 AM
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.

I would not be so certain of that. I suspect there may be a strong element of self-dealing involved in the drafting of these contracts.

But in any event, the outcome of a breach of contract case is one thing and the sense of having a retention bonus is another.

Quote from: The Minsky Moment on March 17, 2009, 09:55:04 AM

Quote from: Malthus on March 17, 2009, 09:36:53 AM
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.

The top 60 executives are not getting any bonuses.  This is all about the levels below the guys who set the strategy.

Again, there is a strong element of collegial relationships among the managerial class - they may not be themselves personally benefitting directly from some company looting, just as the guys sitting on the Board of Directors may not get a personal kickback in the form of a brown paper bag full of dollars for rubber-stamping management; that's not how it works. More like one hand washing the other.

Edit: this is a case where I would really be tempted to relate war stories. Suffice it to say I've been involved in cases where this exact scenario has come up - more than once.

Quote from: MadImmortalMan on March 16, 2009, 12:58:25 PM
From what I've seen, this thing is hurting the US less than it's hurting others.

I'm entering into my 3rd record year here, things have never been so good since 1998, wich was the absolute best year before 2 years ago.

Quote from: Malthus on March 17, 2009, 09:56:35 AM
I would not be so certain of that. I suspect there may be a strong element of self-dealing involved in the drafting of these contracts.

There is the same element of self-dealing that is inherent in the broken corporate governance system, which as you point as a system wide problem.  I am not aware of any court that has ever invalidated an employee contract on that basis though. It would open up a huge can of worms to do so.

QuoteBut in any event, the outcome of a breach of contract case is one thing and the sense of having a retention bonus is another.

Well part of problem here relates to the terminology.  Would it seem so bad if the payments were called "deferred compensation"?  Because in substance that is really what is going on here.  Companies like to call these kinds of payments "bonuses" because in good times it makes them look magnanimous, and in not so good times, they can cut them without making it sound like they are cutting regular pay.  When these sorts of policies are being formulated, no one thinks about what it might look like in the event the company suffers horrific catastrophic losses and gets taken over by the government.   ;)

Quote from: The Minsky Moment on March 17, 2009, 10:08:56 AMWhen these sorts of policies are being formulated, no one thinks about what it might look like in the event the company suffers horrific catastrophic losses and gets taken over by the government.   ;)

Shame on them!

Quote from: The Minsky Moment on March 17, 2009, 10:08:56 AM
There is the same element of self-dealing that is inherent in the broken corporate governance system, which as you point as a system wide problem.  I am not aware of any court that has ever invalidated an employee contract on that basis though. It would open up a huge can of worms to do so.

Hell, considering how many worms have ALREADY been unleashed by this clusterfuck, a few more would hardly be noticed!  :D

Indeed, almost ANYTHING which would shake up corporate governance would at this point be a good thing. The problem appears that you in the US are using public funds in effect to prop up and underwrite the very practices which brought the whole system to the brink of disaster (if not over), without apparently making any fundamental changes to the system.

QuoteWell part of problem here relates to the terminology.  Would it seem so bad if the payments were called "deferred compensation"?  Because in substance that is really what is going on here.  Companies like to call these kinds of payments "bonuses" because in good times it makes them look magnanimous, and in not so good times, they can cut them without making it sound like they are cutting regular pay.  When these sorts of policies are being formulated, no one thinks about what it might look like in the event the company suffers horrific catastrophic losses and gets taken over by the government.   ;)

These are not so good times. Why are they not cutting them, if allegedly they can?

Quote from: Malthus on March 17, 2009, 10:24:25 AM

Quote from: The Minsky Moment on March 17, 2009, 10:08:56 AM
There is the same element of self-dealing that is inherent in the broken corporate governance system, which as you point as a system wide problem.  I am not aware of any court that has ever invalidated an employee contract on that basis though. It would open up a huge can of worms to do so.

Hell, considering how many worms have ALREADY been unleashed by this clusterfuck, a few more would hardly be noticed!  :D

Indeed, almost ANYTHING which would shake up corporate governance would at this point be a good thing. The problem appears that you in the US are using public funds in effect to prop up and underwrite the very practices which brought the whole system to the brink of disaster (if not over), without apparently making any fundamental changes to the system.

OK but put on your common law attorney hat for a second.  You have Guy 1 who has a contract that entitles him to payment of a sum certain in Q1 of this year.  He is not on the Board of Directors, has no contact with the BOD or the comp committee, and never even had contact of any of those people.  How do you prove self-dealing?

If the theory is that anyone who works in company where there are executive directors can be vicariously deemed to be part of a civil conspiracy to self deal, not only would you be creating a pretty far-out legal doctrine wholly without precedent, but you would basically be saying that every employee contract negotiatiated by a corporate entity is provisional and subject to ex post modification by a common law court upon application by the US government.

As nice it would be to see the courts stick to the bad guys, the subjective pleasure and schadenfreude that could be obtained is not really worth taking a cannon shot to the integrity of private contract, and the rule of law in general.

QuoteThese are not so good times. Why are they not cutting them, if allegedly they can?

They are cutting them.  But they can't claw back retroactively on that which has already accrued.

Is there difference in nature between this and reopening a collective agreement for a union ?

Quote from: Oexmelin on March 17, 2009, 10:44:08 AM
Is there difference in nature between this and reopening a collective agreement for a union ?

Collective bargaining agreements can only be modified in bankruptcy.  The agreements can also renegotiated under the threat of bankruptcy.  But where there is no Union, the company would have to bargain with each individual employee separately.

Quote from: Malthus on March 17, 2009, 09:39:36 AM

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.

I think the main problem is contractual obligations. They can't not pay the bonus because they'd be sued for it. Stupid to call it a bonus, though.

Quote from: The Minsky Moment on March 17, 2009, 10:48:42 AM
Collective bargaining agreements can only be modified in bankruptcy.  The agreements can also renegotiated under the threat of bankruptcy.  But where there is no Union, the company would have to bargain with each individual employee separately.

Thanks. It seems the tone is far from the same in these two cases though either because support for their plight is higher in management for the bonus-holders or because these bonus-holders are not held at gun-point by «it's either that or we close shop»...

Quote from: Oexmelin on March 17, 2009, 10:54:12 AM

Quote from: The Minsky Moment on March 17, 2009, 10:48:42 AM
Collective bargaining agreements can only be modified in bankruptcy.  The agreements can also renegotiated under the threat of bankruptcy.  But where there is no Union, the company would have to bargain with each individual employee separately.

Thanks. It seems the tone is far from the same in these two cases though either because support for their plight is higher in management for the bonus-holders or because these bonus-holders are not held at gun-point by «it's either that or we close shop»...

Well let's say AIG's financial whizzes were unionized.  They might collectively agree to modify their agreement to give up money in return for helping the company and getting some long-term job security. 

But they aren't unionized -- they are all at-will employees subject to getting the boot the second their usefulness to the company is at an end.  What happens is that skilled non-unionzed labor that knows it can put into that position, and thus often negotiates a form of security in terms of guaranteed payments up front, or upon termination.  Not likely they will give that up when there is no mechanism for collective action.

So we can blame this on UAW then?

Quote from: The Minsky Moment on March 17, 2009, 10:39:15 AM

Quote from: Malthus on March 17, 2009, 10:24:25 AM

Quote from: The Minsky Moment on March 17, 2009, 10:08:56 AM
There is the same element of self-dealing that is inherent in the broken corporate governance system, which as you point as a system wide problem.  I am not aware of any court that has ever invalidated an employee contract on that basis though. It would open up a huge can of worms to do so.

Hell, considering how many worms have ALREADY been unleashed by this clusterfuck, a few more would hardly be noticed!  :D

Indeed, almost ANYTHING which would shake up corporate governance would at this point be a good thing. The problem appears that you in the US are using public funds in effect to prop up and underwrite the very practices which brought the whole system to the brink of disaster (if not over), without apparently making any fundamental changes to the system.

OK but put on your common law attorney hat for a second.  You have Guy 1 who has a contract that entitles him to payment of a sum certain in Q1 of this year.  He is not on the Board of Directors, has no contact with the BOD or the comp committee, and never even had contact of any of those people.  How do you prove self-dealing?

If the theory is that anyone who works in company where there are executive directors can be vicariously deemed to be part of a civil conspiracy to self deal, not only would you be creating a pretty far-out legal doctrine wholly without precedent, but you would basically be saying that every employee contract negotiatiated by a corporate entity is provisional and subject to ex post modification by a common law court upon application by the US government.

As nice it would be to see the courts stick to the bad guys, the subjective pleasure and schadenfreude that could be obtained is not really worth taking a cannon shot to the integrity of private contract, and the rule of law in general.

QuoteThese are not so good times. Why are they not cutting them, if allegedly they can?

They are cutting them.  But they can't claw back retroactively on that which has already accrued.

The issue is much simpler here in Canada, as there is nothing here to constitutionally prevent legislation with retroactive effect modifying contractual rights - which I imagine would be a government "taking" requiring compensation under the Fifth Amendment to your Constitution.

There is thus no need to play russian roulette of unintended consequences with the common law. The fair and rational thing would be for the government to craft a legislative response to the crisis, requiring in effect a bankruptcy like review of certain dodgy transactions entered into by the management of companies requiring massive government bailouts - but unfortunately the drafters of your Constitution did not anticipate such massive public "givings", only public "takings".

Quote from: MadImmortalMan on March 17, 2009, 10:53:14 AM

Quote from: Malthus on March 17, 2009, 09:39:36 AM

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.

I think the main problem is contractual obligations. They can't not pay the bonus because they'd be sued for it. Stupid to call it a bonus, though.

That may well be true, but the issue I was answering was that payments of this sort (that is, to "retain" valuable employees who would go elsewhere if they were not paid the bonus) were in fact rational - which seems sort of difficult to support in this market.

Seems like a tall order to claim that they are not rational based on...what? That the market is bad?

I think that requires a greater level of information about AIG and their business than any of us possess, and at best presumes that the lowest denominator level of mass assumptions are all exactly correct. That seems very unlikely to me.

Hell, I worked for a company that paid out bonuses to people after going thought 33% lay-offs. That doesn't seem rational either, but in fact made perfect sense, if you understood the business we were in.

Quote from: The Minsky Moment on March 17, 2009, 10:48:42 AM

Quote from: Oexmelin on March 17, 2009, 10:44:08 AM
Is there difference in nature between this and reopening a collective agreement for a union ?

Collective bargaining agreements can only be modified in bankruptcy.  The agreements can also renegotiated under the threat of bankruptcy.  But where there is no Union, the company would have to bargain with each individual employee separately.

I do understand that there are contractual agreements that aren't so easy to break. And that it's easy to pile on these corps for these dealings, too easy a target perhaps. Or maybe not, depending on how things were done, given that govt money is being used.

But one thing I wonder with all of these, is when a company, and especially the division (Derivatives div of AIG in this case) that incurs the huge loss, is still in line for bonuses (retention, incentive, etc). Poorly done contracts, I'd have to think, since there isn't more in them tied to the actual performance and earnings. You'd think that an insolvent  corp wouldn't be giving out bonuses, and the employee contracts would reflect something along those lines. Because ordinarily, if not for govt bailout, they'd likely have to rethink and redo, or maybe not give the huge bonuses. I  know that's simplistic, and I'm just a chattering class, but the bottom line is massive failure by these guys but still, contracts legally binding have to be given out. Surely such contracts should be done better. Doesn't make sense. And now that these same guys have brought raze and ruin upon the economy, of course they're going to get slammed for everything, even if in a business sense some or all of it is legal and all.

Also reading the newspaper, it reports that the 165 million is just the first amount. That they'll be giving out well over 1 billion in variously worded type bonuses.

I'm sad that people are mad at Obama because he's not taking action (just talking) when really they should be annoyed that he made such stupid remarks lately.

Quote from: The Minsky Moment on March 17, 2009, 11:02:46 AM
What happens is that skilled non-unionzed labor that knows it can put into that position, and thus often negotiates a form of security in terms of guaranteed payments up front, or upon termination.  Not likely they will give that up when there is no mechanism for collective action.

That's a good general point.

Unless I am mistaken, AIG's bonus are not for termination ?

Quote from: KRonn on March 17, 2009, 11:15:37 AM
But one thing I wonder with all of these, is when a company, and especially the division (Derivatives div of AIG in this case) that incurs the huge loss, is still in line for bonuses (retention, incentive, etc). Poorly done contracts, I'd have to think, since there isn't more in them tied to the actual performance and earnings. You'd think that an insolvent  corp wouldn't be giving out bonuses, and the employee contracts would reflect something along those lines. Because ordinarily, if not for govt bailout, they'd likely have to rethink and redo, or maybe not give the huge bonuses. I  know that's simplistic, and I'm just a chattering class, but the bottom line is massive failure by these guys but still, contracts legally binding have to be given out. Surely such contracts should be done better. Doesn't make sense. And now that these same guys have brought raze and ruin upon the economy, of course they're going to get slammed for everything, even if in a business sense some or all of it is legal and all.

The what happens when you need a government bailout clause?

Quote from: Berkut on March 17, 2009, 11:15:21 AM
Seems like a tall order to claim that they are not rational based on...what? That the market is bad?

I think that requires a greater level of information about AIG and their business than any of us possess, and at best presumes that the lowest denominator level of mass assumptions are all exactly correct. That seems very unlikely to me.

Hell, I worked for a company that paid out bonuses to people after going thought 33% lay-offs. That doesn't seem rational either, but in fact made perfect sense, if you understood the business we were in.

The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

Quote from: Malthus on March 17, 2009, 11:26:19 AM
The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

Okay, drama queen.

... the executives could voluntarily waive the bonuses in order to escape the landmine of their contracts. any of them done that?

Sen Grassley has the answer:

http://www.msnbc.msn.com/id/29733519?GT1=43001 (http://www.msnbc.msn.com/id/29733519?GT1=43001)

Wow. :o

I love the entire witch-hunt vibe of this entire thing. It is so refreshingly medieval!

Quote from: Oexmelin on March 17, 2009, 11:19:39 AM

Quote from: The Minsky Moment on March 17, 2009, 11:02:46 AM
What happens is that skilled non-unionzed labor that knows it can put into that position, and thus often negotiates a form of security in terms of guaranteed payments up front, or upon termination.  Not likely they will give that up when there is no mechanism for collective action.

That's a good general point.

Unless I am mistaken, AIG's bonus are not for termination ?

No they are for "retention"

My understanding is that earlier last year, AIG as an entity started to coming to grips with the disaster that was their CDS portfolio.  They were concerned -- with some reason - that large numbers of employees in that division would simply walk out the door, leaving the company helpless trying to figure out what was in the portfolio and how to manage it.  So they set aside a chunk of "bonus" money for that group and guaranteed that those who stayed on to help work out the portfolio would get a share.

This may have been a pretty reasonable response at the time to deal with a urgent crisis, but it now looks rather ugly because it amounts to rewarding many of the same people who helped create the mess.  Then again - life isn't fair.

The government knew about this at the time of the rescue - the existence of the retention bonuses was discussed in press stories from last year - it just seems everybody kind of "forgot" about them until the payments were finally made this week.

Quote from: saskganesh on March 17, 2009, 11:33:14 AM
... the executives could voluntarily waive the bonuses in order to escape the landmine of their contracts. any of them done that?

IIRC Most of the top AIG executives agreed to waive their standard performance bonuses and take $1 in salary for 2009.

Quote from: garbon on March 17, 2009, 11:30:30 AM

Quote from: Malthus on March 17, 2009, 11:26:19 AM
The decisions in any individual case may indeed *be* rational. The problem is not the *content* of any one particular decision made by these companies - it is the fact that the decision-making capacity of those managing such companies has become rather suspect, due to systemic failures at every level in corporate governance.

To Martify up an analogy, this bonus issue is a skin blemish which is merely a sign, one of many and by no means the most important, that the patients - the companies at issue - are suffering from a serious and possibly fatal disease. You may well argue that the blemish in issue isn't a rotting pustule but rather a beauty mark, and as we are not physicians we can't really be sure; but the fact that the patients are in the terminal ward suffering from other far more horrible symptoms and require a steady IV drip of public funds merely to stay alive at this point makes one suspicious that the spots breaking out on the skin are not necessarily benign.

Okay, drama queen.

Heh, want to see drama? Read the chart in the OP.  :D

To state that these companies have collectively made bad decisions lately and there is something systemically amiss with corporate governance is merely to state the obvious.

Quote from: Berkut on March 17, 2009, 12:11:43 PM
I love the entire witch-hunt vibe of this entire thing. It is so refreshingly medieval!

Yes, like a tonic...or a salve upon the wounds.

So much fail, by so few, decimating so many!  Almost Churchillian!    :-\


Even as annoyed as I am with all this damage done to the economy, people, businesses, I still don't want to see Socialism, or govt taking over, or that kind of thing. Regulations and such, yes, but not the extremes in changes to business.

DOW is up over 1% today. Clearly the worst is over.

Quote from: Berkut on March 17, 2009, 12:11:43 PM
I love the entire witch-hunt vibe of this entire thing. It is so refreshingly medieval!

It is hardly surprising that corporate welfare cases awarding huge bonuses after accepting public bail-out money should attract political heat, and even buffoonery.

Quote from: KRonn on March 17, 2009, 12:32:40 PM

Quote from: Berkut on March 17, 2009, 12:11:43 PM
I love the entire witch-hunt vibe of this entire thing. It is so refreshingly medieval!

Yes, like a tonic...or a salve upon the wounds.

So much fail, by so few, decimating so many!  Almost Churchillian!    :-\


Even as annoyed as I am with all this damage done to the economy, people, businesses, I still don't want to see Socialism, or govt taking over, or that kind of thing. Regulations and such, yes, but not the extremes in changes to business.

Thing is, what we have here is in a way the worst of both worlds - socialism in the form of a massive gov't bailout, complete with positively libertarian lack of oversight.

Quote from: Malthus on March 17, 2009, 09:39:36 AM
[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?

You might be surprised about this.

There are still a lot of funds out there with investible cash.  And there are these multi-billion or trillion dollar securities portfolios that the government and the banks are going to want to liquidate.  The next stage is going to be vulture funds and the like buying pieces of these positions at a discount. The ones that will make the most money will be the ones that have the most insight and knowledge about these complex securities portfolios.  And what better way to gain such insight then to hire the people who put them together in the first place.

This is exactly the process of what happened in the "junk bond" crash of the late 80s/early 90s.  A lot of the Drexel Burnham guys who lost their jobs when their firm crashed underneath the weight of bloated junk bond portfolios got snapped up by hedge funds and other banks, where they assisted in buying back pieces or their old junk portfolios at deep discounts; within a few years they and their new employers had made a lot of money.

On Wall Street, the chips may shuttle back and forth wildly, and everyone keeps switching seats.  But the same faces can be found at the same tables playing the same game.

Quote from: Malthus on March 17, 2009, 12:29:48 PM
Heh, want to see drama? Read the chart in the OP.  :D

To state that these companies have collectively made bad decisions lately and there is something systemically amiss with corporate governance is merely to state the obvious.

There are many levels of corporate governance. To say that every single level failed is absurd.

Quote from: The Minsky Moment on March 17, 2009, 12:37:45 PM


On Wall Street, the chips may shuttle back and forth wildly, and everyone keeps switching seats.  But the same faces can be found at the same tables playing the same game.

... which goes back to the problems with corporate governance, and why massively bailing the system out without making any substantive changes to it seems to be a losing game.

However, the outlook certainly does not seem so very rosy:

http://www.theglobeandmail.com/servlet/story/LAC.20090317.RBROKERAGES17/TPStory/Business

QuoteIt's a sharp contrast with Wall Street, with the State of New York reporting that securities industry employment has plunged 8.4 per cent, from 213,000 jobs in mid-2007 to 195,000 last November. New York Mayor Michael Bloomberg is forecasting that things could get much worse, with 46,000 financial workers expected to be out of a job by the middle of 2010.

That's like a 21% decline projected; hard to believe that a "retention bonus" is truly necessary in this market.

Quote from: garbon on March 17, 2009, 12:42:52 PM

Quote from: Malthus on March 17, 2009, 12:29:48 PM
Heh, want to see drama? Read the chart in the OP.  :D

To state that these companies have collectively made bad decisions lately and there is something systemically amiss with corporate governance is merely to state the obvious.

There are many levels of corporate governance. To say that every single level failed is absurd.

What point are you attempting to make? That some manager somewhere has been competent?

Granted - that's not in dispute; but the massive financial failures could not have happened without a systemic lack of oversight in these firms. 

Quote from: Malthus on March 17, 2009, 12:50:04 PM
What point are you attempting to make? That some manager somewhere has been competent?

Granted - that's not in dispute; but the massive financial failures could not have happened without a systemic lack of oversight in these firms. 

Yes, your statement overreaches greatly; which I suppose is what led you into Marty analogy hour.

Quote from: Malthus on March 17, 2009, 12:47:51 PM
... which goes back to the problems with corporate governance, and why massively bailing the system out without making any substantive changes to it seems to be a losing game.

Which is why I was not a fan of the bailouts to begin with.  Congress et al. are so bad at managing their own affairs that there was no hope of them making appropriate changes to corporations. I think this most recent call for blood is evidence of that.

Quote from: garbon on March 17, 2009, 01:00:32 PM

Quote from: Malthus on March 17, 2009, 12:50:04 PM
What point are you attempting to make? That some manager somewhere has been competent?

Granted - that's not in dispute; but the massive financial failures could not have happened without a systemic lack of oversight in these firms. 

Yes, your statement overreaches greatly; which I suppose is what led you into Marty analogy hour.

It only "overreaches" if you are pathologically dedicated to putting an absurd interpretation on it.

Of course *that* wouldn't describe anyone posting *here* now, would it?  ;)

Quote from: Malthus on March 17, 2009, 01:03:04 PM
It only "overreaches" if you are pathologically dedicated to putting an absurd interpretation on it.

Of course *that* wouldn't describe anyone posting *here* now, would it?  ;)

It only overreaches if one doesn't buy into the particular shorthand of a given group.  Sort of the same issue that occurred with Vinnie yesterday when he tried to play the "Republicans are fundamentally opposed to science and education."

I think in a moment where many are out for blood, it's important to remember that not everyone is like that.

Quote from: garbon on March 17, 2009, 01:02:26 PM

Quote from: Malthus on March 17, 2009, 12:47:51 PM
... which goes back to the problems with corporate governance, and why massively bailing the system out without making any substantive changes to it seems to be a losing game.

Which is why I was not a fan of the bailouts to begin with.  Congress et al. are so bad at managing their own affairs that there was no hope of them making appropriate changes to corporations. I think this most recent call for blood is evidence of that.

Well, yes, exactly.

One suspects the howls of outrage will die down, be last week's news, and nothing much will really change.

The outrageous bonuses could be left to market forces - assuming that "market forces" were actually operating, which they are not, because the gov't simply hands over wads of cash. If "market forces" were in play, these guys would be lining up with the other unsecured creditors, not getting fat bonuses.

The fear is that if we let market forces wipe these guys out, the rest of us will be lining up for the soup kitchen right alongside these guys - but that may happen anyway.

Quote from: Malthus on March 17, 2009, 01:03:04 PM

Quote from: garbon on March 17, 2009, 01:00:32 PM

Quote from: Malthus on March 17, 2009, 12:50:04 PM
What point are you attempting to make? That some manager somewhere has been competent?

Granted - that's not in dispute; but the massive financial failures could not have happened without a systemic lack of oversight in these firms. 

Yes, your statement overreaches greatly; which I suppose is what led you into Marty analogy hour.

It only "overreaches" if you are pathologically dedicated to putting an absurd interpretation on it.

Of course *that* wouldn't describe anyone posting *here* now, would it?  ;)

Indeed it does - you.

The idea that a retention bonus MUST be irrational, absent any actual evidence one way or the other beyond gross generalizations that are nto relevant to the specifics of the issue, is rather absurd.

Quote from: garbon on March 17, 2009, 01:06:28 PM

Quote from: Malthus on March 17, 2009, 01:03:04 PM
It only "overreaches" if you are pathologically dedicated to putting an absurd interpretation on it.

Of course *that* wouldn't describe anyone posting *here* now, would it?  ;)

It only overreaches if one doesn't buy into the particular shorthand of a given group.  Sort of the same issue that occurred with Vinnie yesterday when he tried to play the "Republicans are fundamentally opposed to science and education."

I think in a moment where many are out for blood, it's important to remember that not everyone is like that.

Pfft. Having a Marty moment of your own?  :D

http://www.reuters.com/article/GCA-CreditCrisis/idUSN1548789520090316

Quote from: Berkut on March 17, 2009, 01:09:32 PM

Quote from: Malthus on March 17, 2009, 01:03:04 PM

Quote from: garbon on March 17, 2009, 01:00:32 PM

Quote from: Malthus on March 17, 2009, 12:50:04 PM
What point are you attempting to make? That some manager somewhere has been competent?

Granted - that's not in dispute; but the massive financial failures could not have happened without a systemic lack of oversight in these firms. 

Yes, your statement overreaches greatly; which I suppose is what led you into Marty analogy hour.

It only "overreaches" if you are pathologically dedicated to putting an absurd interpretation on it.

Of course *that* wouldn't describe anyone posting *here* now, would it?  ;)

Indeed it does - you.

The idea that a retention bonus MUST be irrational, absent any actual evidence one way or the other beyond gross generalizations that are nto relevant to the specifics of the issue, is rather absurd.

I take it you haven't actually BOTHERED to READ my posts.  ::)

QuoteThis 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.

and

QuoteThe decisions in any individual case may indeed *be* rational.

How does that square with your insistance that I said that "the bonuses MUST be irrational, absent any actual evidence one way or the other"?

There is "absurdity" here, and it is on YOUR part. 

[See I can use CAPITALS too!  :P]

Your token statement though doesn't match up with your entire argument. If you don't know if they are irrational and unjust, why are you going on and on about them being irrational and unjust based solely on a generalized view of the system and its well known failures?

That si what is missing from this little witch hunt - and actual *specific* information about the retention bonuses and the specifics of the business case for them.

That doesn't stop the masses from calling for a rope though.

Quote from: MadImmortalMan on March 17, 2009, 01:15:21 PM
http://www.reuters.com/article/GCA-CreditCrisis/idUSN1548789520090316

What do people think AIG was going to use all that money FOR?

Quote from: MadImmortalMan on March 17, 2009, 01:15:21 PM
http://www.reuters.com/article/GCA-CreditCrisis/idUSN1548789520090316

Yeah that was the point of  bailing out AIG in the first place.  It wasn't done for the sake of Ace Greenberg's pension.

Was no one paying attention when the first AIG bailout happened, and every major paper reported that Paulson's hand had been pushed by the European finance ministers?  Both the "retention bonuses" and the fact that Euro banks were into AIG for 10s of billions in contracts was already known in mid-September.

Either Congress is full of the biggest bunch of morons on the planet or there is a lot of faux outrage being thrown about.

Come to think of it, perhaps those two options aren't mutually exclusive.

Quote from: Malthus on March 17, 2009, 01:10:50 PM
Pfft. Having a Marty moment of your own?  :D

Not at all, comparing two discussions had on Languish that both involved "shorthanding" is not at all like a Marty analogy.

Quote from: The Minsky Moment on March 17, 2009, 01:30:01 PM
Either Congress is full of the biggest bunch of morons on the planet or there is a lot of faux outrage being thrown about.

Come to think of it, perhaps those two options aren't mutually exclusive.

:(

Quote from: Berkut on March 17, 2009, 01:26:05 PM
Your token statement though doesn't match up with your entire argument. If you don't know if they are irrational and unjust, why are you going on and on about them being irrational and unjust based solely on a generalized view of the system and its well known failures?

That si what is missing from this little witch hunt - and actual *specific* information about the retention bonuses and the specifics of the business case for them.

That doesn't stop the masses from calling for a rope though.

What "doesn't match up"? You claimed (using heavy sarcasm) I said something when in fact I provably said the opposite. THAT doesn't match up.

My argument is that there are systemic problems with corporate goverance. That is hardly a secret, or a call for a witch hunt.

As I've said (repeatedly now) the bonuses aren't in themselves the problem. At most, they may be a symptom of the problem - determining whether this is in actual fact the case would indeed call for an analysis of the business case.

However, it is hardly an unreasonable assumption based on the available evidence. Call it the civil standard, rather than the criminal. Balance of probabilities is that the payments were bad business.

What little we *do* know indicates that the market is not exactly jumping for financial types - the figures available show a projected 21% decline in employment in the relevant market (see my link above); much of this was known sone time ago. Maybe that market definition is over-broad and there is a real demand for these specific guys, I don't know (and I'm not claiming to know) - however, I haven't seen anyone else claiming that this is the case. Available information indicates that it is unlikely that execs from a failing business within an industry in deep trouble are unlikely to be in mass demand - but I'm no-where claiming the absolute certainly you ascribe to me.

Quote from: Berkut on March 17, 2009, 01:26:05 PM
That doesn't stop the masses from calling for a rope though.

And they'll get it.  I would imagine that the Democrats are hard at work writing legislation to tax those bonuses at 100%.

The self-dealing argument smacks of Marxist class analysis.  The simple overpaying argument is more reasonable, but like Berkut I don't know if AIG is paying just enough to retain people who will contribute to the bottom line or whether they're overpaying.  I am willing to defer to the Obama administration's decision on the issue, as long as he and his supporters accept any repercussions of their choice.

Quote from: Malthus on March 17, 2009, 01:47:55 PM

Quote from: Berkut on March 17, 2009, 01:26:05 PM
Your token statement though doesn't match up with your entire argument. If you don't know if they are irrational and unjust, why are you going on and on about them being irrational and unjust based solely on a generalized view of the system and its well known failures?

That si what is missing from this little witch hunt - and actual *specific* information about the retention bonuses and the specifics of the business case for them.

That doesn't stop the masses from calling for a rope though.

What "doesn't match up"? You claimed (using heavy sarcasm) I said something when in fact I provably said the opposite. THAT doesn't match up.

No, you said a lot of things, one of which was "the opposite" then proceeded to argue consistently that in fact it was reasonable to assume these payouts are irrational. In fact, you proceed to do so in the very same post.

Quote

My argument is that there are systemic problems with corporate goverance. That is hardly a secret, or a call for a witch hunt.

As I've said (repeatedly now) the bonuses aren't in themselves the problem. At most, they may be a symptom of the problem - determining whether this is in actual fact the case would indeed call for an analysis of the business case.

However, it is hardly an unreasonable assumption based on the available evidence. Call it the civil standard, rather than the criminal. Balance of probabilities is that the payments were bad business.

What little we *do* know indicates that the market is not exactly jumping for financial types - the figures available show a projected 21% decline in employment in the relevant market (see my link above); much of this was known sone time ago. Maybe that market definition is over-broad and there is a real demand for these specific guys, I don't know (and I'm not claiming to know) - however, I haven't seen anyone else claiming that this is the case. Available information indicates that it is unlikely that execs from a failing business within an industry in deep trouble are unlikely to be in mass demand - but I'm no-where claiming the absolute certainly you ascribe to me.

Then you have not looked, since the AIG execs said precisely that, I said that, and even JR said that.

It is not a question of whether the people in question will be in "mass demand" it is a question of whether or not AIG needs them to stick around.

Perhaps they do not - but then, you haven't provided a single piece of specific evidence that the people who decided they did need them are wrong (who almost certainly no more about what IAG needs than either of us). You simply state that generally the system is broken, so it is not unreasonable to assume that the decision makers in question are acting either irrationally or even unethically.

My point is simply that it is foolish to just assume that based on the bleating masses bitching loudly about something that has been well known for months now. You can as well question every single decision made - but to what point? AIG has already turned over most of their top executives - should they fire some more just to make the people crying for blood happy?

I can think of no better way to make this worse than it already is than to start making specific decisions based on generalized observations without actual factual backing.

Quote from: malthusAt most, they may be a symptom of the problem - determining whether this is in actual fact the case would indeed call for an analysis of the business case.

However, it is hardly an unreasonable assumption based on the available evidence.

These two sentences do not work together. You state that determining if in fact the case would require an analysis of the business case. This is true, and is in fact MY point.

Then you go to claim that it is not unreasonable to assume it is the case give the "available evidence", which is strangely absent. You jsut said that it would "require" an analysis of the business case, then turn around and say that even absent said analysis, we can simply assume it anyway? based on what? The general observation that the system has serious problems?

huh?

http://www.huffingtonpost.com/aaron-zelinsky/larry-summers-stop-the-ai_b_175151.html (http://www.huffingtonpost.com/aaron-zelinsky/larry-summers-stop-the-ai_b_175151.html)

Quote from: Neil on March 17, 2009, 01:48:21 PM

Quote from: Berkut on March 17, 2009, 01:26:05 PM
That doesn't stop the masses from calling for a rope though.

And they'll get it.  I would imagine that the Democrats are hard at work writing legislation to tax those bonuses at 100%.

Right you are:

QuoteTax AIG Executive Bonuses, Dodd Says
As public and political outrage grows over $165 million AIG paid as bonuses to executives while taking billions in taxpayer dollars, some in Congress want to tax the bonuses.
By Trish Turner

FOXNews.com

Monday, March 16, 2009

"It's an idea very much at the embryonic stage," said Senate Banking Committee Chairman Chris Dodd, D-Conn., "You can write a tax provision targeted specifically at 98 percent of the taxable proceeds."

Dodd said that "doesn't violate the terms of the contracts," referring to legally-binding agreements that appear to preclude government action.

Senate Finance Committee Chairman Max Baucus, D-Mont., says his staff is reviewing such a proposal. He called it a "worthy" idea but said he needs to know more about how it would work.

Dodd says this is something that "could happen fast. We could write this tomorrow."

Rep. Carolyn Maloney D-N.Y,  the chair of the Joint Economic Committee, is also calling for a 100 percent tax on bonuses not related to commissions. 

In a letter she distributed to fellow legislators for co-sponsorship, Maloney introduces legislation that will instruct the Treasury and the Internal Revenue Service to develop guidelines that tax at 100 percent any bonus compensation that is not directly related to a commission for any recipient of TARP funds where the government is the majority owner of the company.

"For a company that has required $170 billion in U.S. taxpayer assistance and is 80 percent owned by the United States government, this is clearly unacceptable," said Maloney.

When asked if he plans to write legislation to limit the Federal Reserve's unfettered ability to lend money without strings attached, so as to prevent the situation with AIG from happening again, Dodd would not answer directly, saying only, "We need to look at that whole debate about modernization of the system ... they've got to do a better job."

Dodd says he plans hearings into the AIG bonuses. The senator said he was told about the controversy on Thursday.

Oh my, that is just beautiful.

ex post facto

IMO, the stupidest reaction by far is calling for suicides of the AIG executives.  There is a lot of money to be made in staging public executions of AIG executives, and AIG does need to pay back the US gov't somehow.

Hell, we own AIG now, right?

If we think the bonuses show terrible management, why don't we just fire the terrible management?

That would make everything all better....right?

Quote from: DGuller on March 17, 2009, 02:04:19 PM
IMO, the stupidest reaction by far is calling for suicides of the AIG executives.  There is a lot of money to be made in staging public executions of AIG executives, and AIG does need to pay back the US gov't somehow.

Now, you're talking. Pay-Per-View executions for the masses.

Quote from: Berkut on March 17, 2009, 02:03:22 PM
Oh my, that is just beautiful.

From this day forward, the power of taxation will not be a necessary evil, employed in order to give the government the monies to operate the programs that Americans want or need.  Instead, it will be a weapon to punish those whom Congress feels have sinned.

After all, those executives did such a bad job, why not tax their salaries as well as their bonuses at 100%?

QuoteWASHINGTON (MarketWatch) -- Failed insurance giant American International Group Inc. paid "retention" bonuses of more than $1 million to 73 employees, including 11 who no longer work at the company, New York Attorney General Andrew Cuomo said Tuesday as political and public anger over the bonuses mounted.

Retention bonus for people who don't work at the company anymore?  ???

Quote from: Berkut on March 17, 2009, 02:06:49 PM
Hell, we own AIG now, right?

If we think the bonuses show terrible management, why don't we just fire the terrible management?

That would make everything all better....right?

I think we own preferred shares, which if I understand correctly means we don't have a say in managing the company.

Quote from: Admiral Yi on March 17, 2009, 02:31:51 PM

Quote from: Berkut on March 17, 2009, 02:06:49 PM
Hell, we own AIG now, right?

If we think the bonuses show terrible management, why don't we just fire the terrible management?

That would make everything all better....right?

I think we own preferred shares, which if I understand correctly means we don't have a say in managing the company.

No problem, Congress can just pass a law saying that THESE preferred shares get a vote.

In the interest of the public good, of course.

Quote from: Jos Theelen on March 17, 2009, 02:28:29 PM

QuoteWASHINGTON (MarketWatch) -- Failed insurance giant American International Group Inc. paid "retention" bonuses of more than $1 million to 73 employees, including 11 who no longer work at the company, New York Attorney General Andrew Cuomo said Tuesday as political and public anger over the bonuses mounted.

Retention bonus for people who don't work at the company anymore?  ???

I love the careful language there that implies that people got bonuses after they left - rather than what it really says, that people got bonuses and THEN left.

http://www.foxnews.com/politics/2009/03/17/recover-aig-bonuses-lawmakers-scramble-undo-protections-approved/

To Recover AIG Bonuses, Lawmakers Scramble to Undo Protections They Approved
Though Connecticut Democratic Sen. Chris Dodd is among those leading the charge on retrieving AIG bonuses, an amendment he added to the $787 billion stimulus bill last month created a roadblock to getting that money back.   

Hehe....   

Well, I don't like the bonuses but I don't like Congress's talk of heavy taxes on them either. As much as bonuses annoy me I'd have to think that short sighted attempts at preventing or taxing them, as posted earlier in this thread, makes some of us feel better, but it smacks of govt highway robbery added to the equation.

Congress helped make this financial mess, some of them probably blocking efforts at reform. And I think Dodd is one of them. Hmm.... Dodd, just go away anyway.

Quote from: Admiral Yi on March 17, 2009, 02:31:51 PM

Quote from: Berkut on March 17, 2009, 02:06:49 PM
Hell, we own AIG now, right?

If we think the bonuses show terrible management, why don't we just fire the terrible management?

That would make everything all better....right?

I think we own preferred shares, which if I understand correctly means we don't have a say in managing the company.

The preferred are convertible into common at the Treasury's discretion.

The reality is if the Treasury says jump, AIG management has to say "how high".  Treasury may choose not to exercise that power, but there is no question it is there.

Quote from: The Minsky Moment on March 17, 2009, 03:44:15 PM
The preferred are convertible into common at the Treasury's discretion.

The reality is if the Treasury says jump, AIG management has to say "how high".  Treasury may choose not to exercise that power, but there is no question it is there.

What's the deal on preferred anyway?  What function does it serve?  And why did the gubmint opt for taking preferred stakes in the financial sector?

Quote from: Admiral Yi on March 17, 2009, 03:49:21 PM

Quote from: The Minsky Moment on March 17, 2009, 03:44:15 PM
The preferred are convertible into common at the Treasury's discretion.

The reality is if the Treasury says jump, AIG management has to say "how high".  Treasury may choose not to exercise that power, but there is no question it is there.

What's the deal on preferred anyway?  What function does it serve?  And why did the gubmint opt for taking preferred stakes in the financial sector?

Preferred is a more senior form of equity - in a liquidation, the preferred are usually entitled to 100% before the common gets a penny.  Typically preferred stock has a minimum fixed divididend (ie a lot like a bond coupon) - the dividends on the preferred have to be paid out in fill before any dividends can be declared for the common.  Some preferred have "accumulation" rights - if the company is short on a dividend payment to the preferred - the shortfall is added on to the next quarter's obligation (accumulates). 

The government doesn't want to take control of day-to-day management, but it does want to get a financial return, rank ahead of the common shareholders, and reserve the right to fully take over if it wants to.  Preferred gives them all of that.

But preferred is not voting stock, right? And it usually has a fixed return not subject to normal dividends. It's kinda like a half-stock half corporate bond. The treasury would have to convert it to common in order to have the control to fire the execs I think.

From MSNBC:

Quote

House and Senate Democrats are currently crafting separate bills to tax up to 100 percent of generous bonuses awarded by companies rescued by taxpayer money.

AIG would not be the only firm named by either Democratic bill, but there was no question whose executives inspired the legislation.

"They're not going to get the financial benefit of those bonuses," said Senate Finance Committee Chairman Max Baucus, D-Mont.

In the House, Reps. Steve Israel, and Tim Ryan, both Democrats, introduced a bill that would that would tax at 100 percent bonuses above $100,000 paid by companies that have received federal bailout money.

Couldn't this cause a massive exodus of employees from companies that receive federal money? How can that possibly help companies that are on the brink of failure?

Quote from: Berkut on March 17, 2009, 01:58:23 PM

Quote from: malthusAt most, they may be a symptom of the problem - determining whether this is in actual fact the case would indeed call for an analysis of the business case.

However, it is hardly an unreasonable assumption based on the available evidence.

These two sentences do not work together. You state that determining if in fact the case would require an analysis of the business case. This is true, and is in fact MY point.

Then you go to claim that it is not unreasonable to assume it is the case give the "available evidence", which is strangely absent. You jsut said that it would "require" an analysis of the business case, then turn around and say that even absent said analysis, we can simply assume it anyway? based on what? The general observation that the system has serious problems?

huh?

Once again, you just aren't reading. Shit, the information you seek is in the very next paragraph.

QuoteWhat little we *do* know indicates that the market is not exactly jumping for financial types - the figures available show a projected 21% decline in employment in the relevant market (see my link above); much of this was known sone time ago. Maybe that market definition is over-broad and there is a real demand for these specific guys, I don't know (and I'm not claiming to know) - however, I haven't seen anyone else claiming that this is the case. Available information indicates that it is unlikely that execs from a failing business within an industry in deep trouble are unlikely to be in mass demand - but I'm no-where claiming the absolute certainly you ascribe to me.

Quote from: Berkut on March 17, 2009, 01:55:16 PM


Then you have not looked, since the AIG execs said precisely that

Oh yeah, an unbiased source.  ::)

QuoteI said that

Wait, *you* have made a positive pronouncement on the issue? Based on *what* exactly? Have *you* by chance done an analysis of the business case? Where is *your* data to back up your position ... ?

QuoteIt is not a question of whether the people in question will be in "mass demand" it is a question of whether or not AIG needs them to stick around.

Surely the one is key to the other. If there are no jobs available, then the company has a lot more bargaining power because the fear that these guys will be tempted away is less.

QuotePerhaps they do not - but then, you haven't provided a single piece of specific evidence that the people who decided they did need them are wrong (who almost certainly no more about what IAG needs than either of us). You simply state that generally the system is broken, so it is not unreasonable to assume that the decision makers in question are acting either irrationally or even unethically.

Damn it man, must you simply refuse to read what I actually write?

From me:

QuoteMaybe that market definition is over-broad and there is a real demand for these specific guys, I don't know (and I'm not claiming to know)

You repeatedly take the position I'm saying, well, the opposite of what I'm saying, and then getting mad at *that*.

I'm saying that, given what we *do* know, it isn;t an unreasonable assumption, and so far you haven't provided a scintilla of evidence to the contrary - other than a rather astounding level of quite unearned deference to the execs in question.

QuoteMy point is simply that it is foolish to just assume that based on the bleating masses bitching loudly about something that has been well known for months now. You can as well question every single decision made - but to what point? AIG has already turned over most of their top executives - should they fire some more just to make the people crying for blood happy?

I can think of no better way to make this worse than it already is than to start making specific decisions based on generalized observations without actual factual backing.

I'm not basing anything on the "bleating masses". I'm making the rather commonplace factual observation that, absent special circumstances, execs of a failing company in a failing industry where estimates are that over 20% of the workforce are going to be turfed from their jobs are hardly in a position to extract "retention bonuses" under normal market conditions. I fully accept that there may be cases where the execs in question are specialized or talented above the norm so that they would be in demand in spite of the general situation, but current performance of the company at issue hardly suggests that such valuable and unfungable talent was widespread at the place - and other that the execs themselves (and you!) I haven't seen any evidence that these particular guys were in such high demand. Maybe some exists and we will see it, if this story has legs.

Now, I'm starting to back off of the bonus stuff a bit, seeing it still as egregious in some cases but small doings and more like noise to deflect attention from the real issues. I'm becoming more disturbed with Congress members, bleating and railing against the AIG execs, or other business excecs. Yeah, the execs deserve some heat. But Congress made the policies, for years worked in conjunction with the industry. The bailout even had language to protect bonuses, and either these bonuses were known about for a while, and/or other bonuses had been given earlier. But now, as people get more angry, my take is that Congress comes out hard and tries to look like the outraged victim here. I do get that many Congress members are genuinely angry, but they better get braced for a lot more anger as some of the stuff in the various bills that have been signed come to light, rushed through without much debate or even being read by most of them!

And just think, Congress can't figure out how/why/where bailout money was spent. Yet the "Stimulus" bill contains massive amounts of public works project money for states and cities. Anyone care to guess how that's going to go along? Lol.. I envision a lot of small scale Boston Big Dig type projects.

A couple of links I found interesting, partly because of what they tell about the importance of saving AIG, and how much they do affect.  Also, interesting about the feeding frenzy that may affect investors that are needed to buy into AIG or other bailed out corps to insure success going forward.

http://www.msnbc.msn.com/id/29767653/
How the Fed failed to tell Obama about bonuses
Last-minute disclosure of AIG payouts exposes problems in key relationship
----------------------------------
http://www.msnbc.msn.com/id/29749994/

AIG firestorm raises alarm for other firms
Backlash threatens federal efforts to draw investors into recovery programs

Quote from: Malthus on March 17, 2009, 09:36:53 AM

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, whether or not it has an "air of reality", it is reality. There have been significant defections of key AIG personnel, a few of which I posted earlier in this thread, and there are currently aggressive recruiting efforts aimed at AIG workers.

Should that really be surprising? AIG was the premier company in its industry. Think about it from your perspective: if a couple of partners at your firm made some dubious decisions so that firm management was assumed by the government, even in this economy do you think there would be significant turnover if: pay packages were significantly reduced, large parts of the firm were about to be sold off or dissolved, pay that had already been given for services that were rendered was being clawed back, the firm was demonized by politicians and the press, and the government was bent on getting the names of employees into the press in an atmosphere where there are death threats coupled with "tour groups" visiting the homes of associates.

Quote from: alfred russel on March 21, 2009, 08:41:26 AMThink about it from your perspective: ... the firm was demonized ... in an atmosphere where there are death threats coupled with "tour groups" visiting the homes of associates.

He's a lawyer. It's his reality.

Quote from: The Brain on March 21, 2009, 09:00:41 AM

Quote from: alfred russel on March 21, 2009, 08:41:26 AMThink about it from your perspective: ... the firm was demonized ... in an atmosphere where there are death threats coupled with "tour groups" visiting the homes of associates.

He's a lawyer. It's his reality.

If there were tour groups visiting the homes of lawyers in Toronto, the tour would be longer than most activists' attention span.