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In Defense Of AIG's Workforce

A person knowledgeable about the inner workings of AIG over the last decade sends me this e-mail:

They guy who deserves 95% of the responsibility for doing subprime with FP [Financial Products] which caused the disaster was the CEO [of FP] Cassano who is long gone. FP (Financial products division) had at its peak maybe a trillon dollar notional of derivatives many of which were unique, complex transactions. Only a small portion of the work to unwind is dealing with toxic stuff. How you unwind the rest could affect the company (taxpayers) by billions of dollars if you are not smart. (compared to 160mm [in bonuses])

[MORE . . .]

Out of 400 employees I doubt there are more than handful who had any real connection to the subprime losses. When Cassano left they basically said weíll guarantee you your decent 2007 bonus for 1 or 2 years depending on if you stay. I doubt anyone there makes more than 100k so bonus really means compensation. In the meantime everyone left lost deferred bonuses worth 1-2 years full pay for anyone highly paid and half the retention bonus (so cut the published numbers in half I think) because they were subject to 50% deferrals for high earners.

If they hadnít done the retentions, anyone good would have left. In Sept [2008] at the time of the bailout if they said they werenít paying retentions, all the valuable players would have left. And yes the good ones could get jobs in a heartbeat.

Securities firms only have one product Ė the ideas of the employees. If you donít have smart motivated people your asset doesnít have much value. You can let everyone leave but if (big if) you do a good job hiring, youíll still wind up paying others the same or more and it will take longer to figure it all out. And theyíll be from Lehman, Bear, Merrill . . .

If you really donít like paying the bonuses, instead of taxing them, Iíd strike a deal to pay half in stock at the average price since Sept. and say you canít sell until the taxpayer is repaid.

The taxpayers are into the company for 100+ billion. We should all care about them doing the best possible job and paying us back. If thatís not what we want, we should have let them file.

An informed perspective from someone who knows about AIG and has no dog in the fight anymore. Am I convinced? Not particularly but honestly, this is chump change relatively speaking. The big question is the counter party payouts. To me this bonus furor is mostly a distraction specifically UNLESS the larger question of who is really benefiting big from the bailouts and not getting any scrutiny or making any concessions becomes front and center.

So far precious little has been heard on the subject.

Speaking for me only

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  • Display: Sort:
    Too big to fail, (5.00 / 3) (#3)
    by jondee on Tue Mar 17, 2009 at 03:07:11 PM EST
    too big to exist.

    Isnt that more or less what Teddy Roosevelt was intimating a hundred years ago?

    oops (none / 0) (#41)
    by sj on Tue Mar 17, 2009 at 04:06:11 PM EST
    Didn't see this.  Completely agree.

    Parent
    I don't really get it (5.00 / 1) (#4)
    by Steve M on Tue Mar 17, 2009 at 03:09:47 PM EST
    This person is talking about people who don't even make 100k.  Andrew Cuomo is saying, based on the subpoena responses, that these are people who make millions.  Something doesn't mesh here.

    I am skeptical of any argument that the bonuses are 100% defensible simply because AIGFP seems very reluctant to make that argument in public.

    Base salary (5.00 / 1) (#5)
    by Big Tent Democrat on Tue Mar 17, 2009 at 03:10:50 PM EST
    The bonus was the "real salary."

    To be fair, "not a lot" to this person is "a whole lot" to most people.

    Parent

    Well gosh (5.00 / 1) (#6)
    by Steve M on Tue Mar 17, 2009 at 03:13:10 PM EST
    What a weird business model.

    Parent
    Pretty common I thought (5.00 / 1) (#7)
    by Big Tent Democrat on Tue Mar 17, 2009 at 03:16:07 PM EST
    on Wall Street. At least it used to be.

    Parent
    I dunno (none / 0) (#11)
    by Steve M on Tue Mar 17, 2009 at 03:20:34 PM EST
    Everyone I come into contact with does pretty well on just commissions, although the bonuses are big too of course.  I guess it depends on exactly what your job function is, but gosh, don't you like to have a fairly solid handle on how much you're going to take home from year to year?

    Parent
    Like a guaranteed retention bonus? (none / 0) (#16)
    by Big Tent Democrat on Tue Mar 17, 2009 at 03:30:39 PM EST
    Well (none / 0) (#22)
    by Steve M on Tue Mar 17, 2009 at 03:38:17 PM EST
    the dividing line between "compensation" and "guaranteed bonus" is rather obscure even to this legalistically-inclined lawyer.

    Parent
    The date when you get it (none / 0) (#23)
    by Big Tent Democrat on Tue Mar 17, 2009 at 03:43:05 PM EST
    is the difference.

    Parent
    salary, bonuses and commissions (none / 0) (#61)
    by Bemused on Tue Mar 17, 2009 at 04:30:19 PM EST
     are all "compensation" and all taxed in the same manner under current law. Even a non-guaranteed bonus is compensation subject to the same tax rules as straight salary.

      I think the guy in the email just used the term loosely when he mentioned $100K compensation meant $100K salary.

     

    Parent

    Man, some smart (none / 0) (#37)
    by gyrfalcon on Tue Mar 17, 2009 at 04:02:42 PM EST
    business reporter at the Times or something really needs to do a good big take-out on compensation practices -- and terminology -- in these outfits.  It seems completely insane to me, but maybe it's slightly less insane if one has the whole picture industry-wide.

    I'm gut-level opposed to the idea of anybody getting paid in seven or eight figures.  But if that's become standard practice in the financial services industry or Wall Street or whatever we're calling it, we need to know that in order to have any kind of rational perspective on these AIG payments.

    Parent

    retention bonus = hush money? (none / 0) (#111)
    by lambert on Tue Mar 17, 2009 at 09:15:43 PM EST
    That's what it sounds like to me -- and exactly what it would have been to my relatives on the entrepreneural side of the family.

    Sort of like a "consulting contract." Except bigger and better.

    Parent

    I wonder how many of those poor AIG (none / 0) (#59)
    by hairspray on Tue Mar 17, 2009 at 04:29:06 PM EST
    employees are already stinking rich from the years before 2008?

    Parent
    Fairly Certain (none / 0) (#38)
    by CST on Tue Mar 17, 2009 at 04:04:24 PM EST
    It's still common.  At least that's what I hear from friends who work(ed) there.

    Parent
    A whole whole lot... (none / 0) (#12)
    by kdog on Tue Mar 17, 2009 at 03:22:58 PM EST
    "Don't even make 100k"...damn, somebody get these workers on food stamps before they starve!...:)

    Parent
    It's a different world (none / 0) (#15)
    by Big Tent Democrat on Tue Mar 17, 2009 at 03:30:05 PM EST
    I am not defending it, just trying to describe it.

    Parent
    I know.... (none / 0) (#20)
    by kdog on Tue Mar 17, 2009 at 03:37:21 PM EST
    just backing you up with a little joke...it is a different world.

    Parent
    If the smart people allowed (5.00 / 1) (#9)
    by ding7777 on Tue Mar 17, 2009 at 03:20:16 PM EST
    Cassano to book a trillon dollar of toxic paper... those "smart" people don't deserve bonuses.

    The people above him (none / 0) (#40)
    by gyrfalcon on Tue Mar 17, 2009 at 04:05:37 PM EST
    which would be, I believe, the top executives at the AIG holding company, have either been fired or left and/or have voluntarily not taken the bonuses to which they were entitled by their own contracts.

    So your wish is granted.

    Whoever the "smart people" were above him at the time he was doing his jig need to be prosecuted, IMHO.

    Parent

    That's good to know (none / 0) (#100)
    by ding7777 on Tue Mar 17, 2009 at 07:11:44 PM EST
    Let me get this straight (5.00 / 2) (#10)
    by Bemused on Tue Mar 17, 2009 at 03:20:29 PM EST
      An evil genius built a bomb while the other good geniuses sat idly by without saying anything. Now that the evil genius is gone it's not fair to cause the good geniuses any hardship and besides if we don't let them have what they want they'll let the bomb explode.

     

    This doesn't convince me. (5.00 / 2) (#17)
    by Maryb2004 on Tue Mar 17, 2009 at 03:31:44 PM EST
    And his final paragraph ignores reality:

    We should all care about them doing the best possible job and paying us back. If that's not what we want, we should have let them file.

    No one cared about saving AIG.  No one believes AIG is going to pay us back.  We'll be lucky if we can sell off a few divisions and get back a tiny fraction of what we've put in.

    The ONLY reason to save AIG was to save the rest of the financial system which we were told would come crashing down if AIG went under.  That's still the reason why we are told we can't let them go under.

    Me likey. (5.00 / 1) (#19)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 03:36:40 PM EST
    I'd strike a deal to pay half in stock at the average price since Sept. and say you can't sell until the taxpayer is repaid.

    Also and related, one of the ideas floating around TL these past few days (not from BTD) is to tax the bejesus out of all the bonuses of AIG and all the wall street finance wizard types and/or anyone making over $X.

    What I think we're forgetting is that we live in a world market. If you remove these people's ability to earn big here, they'll go to Europe or Asia or wherever and earn big there.

    I can't see that being good for the home team.

    how (none / 0) (#25)
    by Bemused on Tue Mar 17, 2009 at 03:45:50 PM EST
      We are not talking about people moving capital here. We are talking about employees receiving compensation.

      I'm not quite so convinced that in this job market all these people have lucrative jobs waiting for them in a heartbeat-- domestically or abroad. Were that the case then why are they so worried?

    Parent

    Sorry, a little too cryptic for me. (none / 0) (#29)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 03:51:46 PM EST
    I really don't understand why you think that if their opportunity to earn big money here is removed that they won't go to where they can earn big money.

    Parent
    I think (none / 0) (#32)
    by Bemused on Tue Mar 17, 2009 at 03:56:12 PM EST
      some of them would go if it were an option, but I'm not convinced it is an option for the vast majority. As i said these are not capitalists who can move their capital out of low-performing assets to higher performing ones abroad. These are people selling their labor. Where  are these employers eager to fork over huge sums to AIG executives?

    Parent
    Exactly (5.00 / 1) (#34)
    by CST on Tue Mar 17, 2009 at 04:01:36 PM EST
    Also - where would they go that has a large financial market and better tax rate than the U.S.?

    It's not like there is a major financial market in the Cayman Islands and it's not like Europe doesn't have high tax rates.

    Parent

    You gotta be kidding me. (none / 0) (#52)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 04:15:08 PM EST
    These are people selling their labor. Where  are these employers eager to fork over huge sums to AIG executives?
    Although if you read my comment you'll understand that I was referring the desire to raise taxes on many, many more that just the AIG execs, I will respond specifically on the AIG execs.

    One of the biggest, most dominant insurance/financial co's in the world, until the hedge fund part of it screwed the pooch. Yes, the AIG execs are highly skilled and hugely marketable. Why do you think they were paid so much?

    Parent

    Because they are in a field (5.00 / 1) (#63)
    by Bemused on Tue Mar 17, 2009 at 04:33:52 PM EST
     where outrageous levels of compensation used to be much easier to find than they are now after the industry has suffered massive wounds and public and government attention has become focused on the excesses.

     

    Parent

    Well, (none / 0) (#67)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 04:42:01 PM EST
    I think they're a whole lot more marketable than you do.

    I guess we'll have to agree to disagree.

    Parent

    I dont think having AIG (none / 0) (#115)
    by Amiss on Wed Mar 18, 2009 at 12:19:00 AM EST
    as a former employer on your resume right now would be a very big incentive for anyone to hire you.

    Perhaps I am wrong as I am on so many things in this crazy world today.

    As an aside, I found it quite funny and quite sad in a way that the AIGFP division in Connecticut is now being heavily guarded due to a great many threats

    Parent

    They're not going to make big money here (none / 0) (#47)
    by Cream City on Tue Mar 17, 2009 at 04:11:35 PM EST
    now or soon.  So from what you say, the sort that can make big money elsewhere already are updating their resumes and packing up their desks, anyway.

    Parent
    Assuming facts not in evidence. (none / 0) (#60)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 04:29:11 PM EST
    Unless you want to quibble over the definition of "big money."

    Wall street fin types have always made "big money" compared to the rest of us shlubs.

    Of course they have to live in the NY metro area and work their a$$es off 10-12 hours/day, but hey, they chose that life...

    Parent

    Give. Me. A. Break. (5.00 / 1) (#71)
    by nycstray on Tue Mar 17, 2009 at 04:51:10 PM EST
    Of course they have to live in the NY metro area and work their a$$es off 10-12 hours/day, but hey, they chose that life...

    How do you explain all the lower salaried folks that work their a**es off and live here? Absolutely no justification for the Wall St salaries. Next!

    Parent

    You really think (none / 0) (#76)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 05:01:55 PM EST
    my comment was an attempt to justify their salaries? Wow.

    Parent
    Uh, your last paragraph could read that (5.00 / 1) (#78)
    by nycstray on Tue Mar 17, 2009 at 05:05:11 PM EST
    way, yes.

    Parent
    I guess. Or it could be read (none / 0) (#86)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 05:17:46 PM EST
    as an aside to the main point that
    Wall street fin types have always made "big money" compared to the rest of us shlubs.
    and as a not too terribly serious comment about how that's a rat race life that's chosen of free will. And a bit of a gratuitous slam at the NYC area (which I left decades ago for the warm and sunny climes of SoCal)...

    Parent
    I'll be in the mountains of NoCal (none / 0) (#92)
    by nycstray on Tue Mar 17, 2009 at 05:34:20 PM EST
    next fall. Quietly working away in a cabin at the same work I'm doing here. Too much traffic in SoCal for my taste (and the Bay Area for that matter!).

    Enough people are serious that they need to make outrageous salaries to live here, hard to know when one isn't  ;) We even get them in my field and it always amazes me. They want how much on zero experience?! lol!~

    Parent

    Just using your term (none / 0) (#72)
    by Cream City on Tue Mar 17, 2009 at 04:52:07 PM EST
    and what news stories and New Yorkers and other Easterners here tell us -- that $100,000 is apparently not "big enough" money there.

    I never will make anywhere near that much, even by the time I retire . . . and that retirement date now is pushed back several years by this debacle.  And I live in what is considered an expensive state, and in its most expensive city, considered one of the top 20 most costly in the country.  I do know the standards are different there -- where people I know seem to expect that they will have to have what we would call mansions, with more bedrooms and bathrooms than I can imagine.  All that cleaning to do!  But they hire help, too.

    Btw, I saw a report that the 10-12 hour day is becoming all too standard in the U.S., too -- as I know it has been for some time for me and most people I know.  But it has spread to people not in the professions; I just read a report of an interesting case in which an hourly worker finally is suing for having to carry a Blackberry and be at his employer's 24/7 call.  A case to watch.

    Parent

    contention that wall st types have essentially always made "big money" compared to the rest of us average Joes and Janes. I think you're not...

    Parent
    Let em go then (none / 0) (#123)
    by ruffian on Wed Mar 18, 2009 at 01:14:19 AM EST
    You really think they were paying their fair share of taxes anyway?  Somehow I doubt it.

    Parent
    Find me (none / 0) (#26)
    by CST on Tue Mar 17, 2009 at 03:48:26 PM EST
    a country who's financial market is doing well.

    Also, I think everyone realizes this is a temporary tax, to get the people who have benefited most from the bailout to pay for it more.

    So you are gonna move because you are afraid the temporary tax will become permanent?

    You might as well be afraid of the potential laws passed in other countries.

    Parent

    a temporary tax, to get the people (none / 0) (#43)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 04:06:36 PM EST
    a temporary tax, to get the people who have benefited most from the bailout to pay for it more
    You really must be joking. The tax on 160mm will pay for the 170B AIG bailout?

    And, as I think we've seen here, financial markets "doing well" is not a requirement for earning big money...

    Parent

    That's not really what he said (5.00 / 1) (#49)
    by Bemused on Tue Mar 17, 2009 at 04:11:43 PM EST
      He didn't imply the bonus money in toto, let alone taxes on it, will pay for the bailout. He simply expressed his idea that people who made such good money working in an industry that has failed and is now receiving help from you and I might fairly be required to make a larger sacrifice than they seem willing to make.

    Parent
    Exactly what I meant (none / 0) (#51)
    by CST on Tue Mar 17, 2009 at 04:15:05 PM EST
    Except not a he :)

    Parent
    sorry (5.00 / 1) (#73)
    by Bemused on Tue Mar 17, 2009 at 04:55:43 PM EST
     We can communicate instantaneousdly with strangers around the world and  still need a gender neutral third person singular pronoun.

    Parent
    Neuter gender (none / 0) (#121)
    by cal1942 on Wed Mar 18, 2009 at 12:50:03 AM EST
    I'm saying we better be careful how we play this - driving smart, driven, educated people out of the US, if it comes to that, would not seem to be a particularly wise move.

    Parent
    Not for nothing bro... (none / 0) (#75)
    by kdog on Tue Mar 17, 2009 at 05:01:04 PM EST
    Most of the uber-shady division of AIG works out of an office in London...the "London Casino" as it is called in financial circles.

    I assume the US citizens working there pay US taxes, but the fringe economic benefit to their outlandish compensation...their discretionary spending...is being done in London.

    Is it worth the responsibility of bailing them out?  Sh*t, if you believe the world needs an AIG , let 'em be the UK's problem...no?

     

    Parent

    As a general matter (none / 0) (#80)
    by Democratic Cat on Tue Mar 17, 2009 at 05:06:57 PM EST
    US citizens who live abroad pay taxes where they live, not to the US.

    Parent
    is that I cast a pretty wide net in my original comment:
    Also and related, one of the ideas floating around TL these past few days (not from BTD) is to tax the bejesus out of all the bonuses of AIG and all the wall street finance wizard types and/or anyone making over $X.
    and most of the responses have been concerned with a few very specific fish...

    Parent
    the tax proposal (none / 0) (#85)
    by Democratic Cat on Tue Mar 17, 2009 at 05:16:12 PM EST
    Is problematic because of all the different fish with different situations. I don't agree with the general idea, and then to try to operationalize it in a fair way is, I think, quite difficult.

    Parent
    Gotcha.... (none / 0) (#87)
    by kdog on Tue Mar 17, 2009 at 05:18:10 PM EST
    "Tax the bejesus outta" doesn't float my boat either...if you're against the AIG or anybody elses way of doing business just stop giving them money.

    Parent
    All good. (none / 0) (#88)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 05:19:58 PM EST
    As far as sacrifices (none / 0) (#117)
    by Amiss on Wed Mar 18, 2009 at 12:29:43 AM EST
    As far as I can tell, Wall Street et al have seemed to make the very LEAST sacrifices among Americans. I do recall Obama making a speech telling us that ALL of us would have to make sacrifices, that includes the Janes and Joes of Wall Street as well.

    I just dont think huge retreats at luxury resorts or gigantic super bowl parties or golfing retreats are sacrifices at all.

    Parent

    Financial markets (none / 0) (#54)
    by CST on Tue Mar 17, 2009 at 04:16:20 PM EST
    These bonuses were promised in early 2008, when the financial markets were doing relatively well.

    Parent
    Then let them do to the rest of the world... (none / 0) (#108)
    by lambert on Tue Mar 17, 2009 at 09:10:24 PM EST
    ... what they've done to us.

    Parent
    no they won't. (none / 0) (#120)
    by cpinva on Wed Mar 18, 2009 at 12:41:49 AM EST
    What I think we're forgetting is that we live in a world market. If you remove these people's ability to earn big here, they'll go to Europe or Asia or wherever and earn big there.

    where, exactly, are they going to go, to "earn big there"?

    if they could, they'd have done so already, and avoided all the hate and discontent they're getting here. except, the same "crash and burn" is happening all over the world; there is no safe, highly paid haven for them to leave for.

    as well, since these are essentially insurance contracts, based on toxic assets, unless the values of those assets suddenly rise in value, how are these people going to manage their way out of this?

    the value of the contracts is only as good as the value of the underlying assets. since those AIG employees have zero control over the value of those assets, i am at a loss as to what manner of prestadigitation they are going to perform, to save those contracts.

    please contrast and compare.

    Parent

    This part (5.00 / 1) (#21)
    by eric on Tue Mar 17, 2009 at 03:38:06 PM EST
    FP (Financial products division) had at its peak maybe a trillon dollar notional of derivatives many of which were unique, complex transactions. Only a small portion of the work to unwind is dealing with toxic stuff.

    I don't believe this.  The writer also refers to "subprime losses".  The giant s**tpile, as Atrios calls it, is a lot more than just the "subprime" loan problem.  I thought we had gotten past just blaming subprime borrowers for this.

    A large part of the big s**tpile (none / 0) (#24)
    by gyrfalcon on Tue Mar 17, 2009 at 03:45:21 PM EST
    is derivatives and credit default swaps and securitizations and the like based on those subprime loans.  IOW, he's not talking about the loans themselves, but the ricochet effects throughout the financial system of having those loans fail-- which is what we've been watching for the last year.

    Parent
    and (5.00 / 1) (#28)
    by eric on Tue Mar 17, 2009 at 03:49:32 PM EST
    derivatives and credit default swaps on normal, non-subprime loans, too.  That's my point.  I understand the Jenga affect, but we should be honest about the fact that subprime was only part of this.

    Parent
    Agreed entirely (none / 0) (#31)
    by gyrfalcon on Tue Mar 17, 2009 at 03:55:40 PM EST
    It's stunning that (none / 0) (#116)
    by cal1942 on Wed Mar 18, 2009 at 12:27:20 AM EST
    sub-prime borrowers should have ever been considered responsible. Or rather, that anyone would think to place the blame on borrowers.  That's been a ridiculous claim of conservatives not unlike the conservative claim that welfare recipients destroyed the work ethic of the entire nation.

    It's always been a ridiculous idea that a group of people widely seperated by geography, unaware of one another, somehow conspired to outsmart all the slick educated folk in finance, marketing and mathematics who populate the nation's financial institutions.

    Parent

    There is the whiff ... (5.00 / 1) (#46)
    by Robot Porter on Tue Mar 17, 2009 at 04:08:53 PM EST
    of the "Nuremberg Defense" to the way these guys make their case.

    Who killed Cock Robin? (none / 0) (#50)
    by jondee on Tue Mar 17, 2009 at 04:12:13 PM EST
    Or, more recently, Davey Moore.

    Parent
    The difference being (none / 0) (#53)
    by gyrfalcon on Tue Mar 17, 2009 at 04:16:14 PM EST
    that the people who gassed people to death knew precisely what they were doing and what the effects were.  Nice and clear and clean.

    In this case, there weren't vast legions of worker bees who in a position to grasp the complexities of the financial position of the company, and most had no reason whatsoever not to believe management when it told them and the public and its investors that it had everything under control and could support these oceans of crap.  Besides, they were all making money hand over fist, so everything must have been not just OK but wonderful and glorious.


    Parent

    I'm not blaming the AIG workforce (5.00 / 1) (#102)
    by Militarytracy on Tue Mar 17, 2009 at 07:38:27 PM EST
    but that subprime bunk I'm getting mightly flippin sick of and it runs only second to the Fannie and Freddie bunk.  What does this emailer have to say about............

    "The particular risks that brought the company (AIG) to the brink of bankruptcy seem to lie not with its core insurance businesses but with its derivatives-trading subsidiary AIG Financial Products. AIG FP, as it's called, merits a mere paragraph in the nine-page description of the company's businesses in its most recent annual report. But it's a huge player in the new and mysterious business of credit-default swaps: derivative securities that allow banks, hedge funds and other financial players to insure against loans gone bad."

    Time, September 17, 2008

    And How about this brush with burning reality from Connecticut Man1

    While it may look superficially similar to the recent implosions of such investment giants as Fannie Mae, Freddie Mac and Lehman, the takeover and bailout of AIG is quite different, and means that the market is entering the next and even more dangerous phase. What is driving the fall of AIG - and potential government losses that may far, far exceed the $85 billion bailout announced late on September 16th - is not mortgages or real estate (directly), but fears that AIG's huge, global credit-default swap positions will unravel. The $62 trillion dollar credit derivatives market is 50 times the size of the subprime mortgage derivatives market, and is indeed larger than the entire global economy. Unfortunately, few people understand credit derivatives, or the full risks to the United States and global markets and economies. In this article, I will take a Credit Derivatives Primer that I published in the spring of 2008 - which anticipated this exact type of event - and update it for the current situation. Through reading this article, you should be able to greatly increase your knowledge of what credit derivatives are, and why they are a far greater danger than subprime mortgages. We will end with introducing some concepts about how individuals can protect themselves and even profit from these unprecedented market conditions - something you won't find in recent financial history or conventional investments. ...snip... On September 1st, few knew that AIG, the largest insurance company in the world with over $1 trillion in assets, was in deep trouble. By September 12th, the rumors about major trouble were everywhere. By September 15th AIG's corporate life expectancy was being measured in days, and the question was: bankruptcy, buyer or bailout? By the evening of September 16th, the federal government had massively intervened, making an $85 billion loan to AIG in exchange for a controlling 79.9% equity share of the company. Welcome to the brave new world of credit derivatives driven collapses. A world that is far more dangerous than the world of subprime mortgage derivatives. A complex world that because of its sheer size can potentially cause more damage in a matter of days than the subprime mortgage derivatives caused in their first year in the headlines.
    Go to the following link and apply what you learned from the horse race to it remembering that a credit derivative is just a bet or a side bet. Bets where the oddsmakers start messing with the odds in unreal ways: The people that were selling and buying these scraps of paper, their managers, partners and firms profiting from and behind it all are negligent in their dealings - criminally negligent, IMHO - AND the Feds that backed all of this are equally criminal. But whom exactly will all of the taxpayer money benefit? A little clue to Joe and Suzy Sixpack: Unless you own a bank or one of these other failing businesses, it ain't you! They gambled, they lost... And now they want you to pay off their gambling debts.


    Responsibility of employees for orgs nature (5.00 / 1) (#113)
    by Rick B on Tue Mar 17, 2009 at 11:00:51 PM EST
    Within a very short time after taking an organization over, the personality of the CEO is overlaid on that organization. Anyone who goes to work there does so knowing the nature of that org, or they quickly learn it. Those who don't like the nature of the organization have the choice of staying and buying in or of moving on.

    Those employees who worked at financial products did so for the benefits of working in that organization. They could have moved on if they disapproved. But they were given opportunities for gain most of them were unwilling to leave. As Josh Marshall is beginning to document, there was also criminal conduct happening, and while Caccano may have known and approved, he certainly didn't do it by himself. He just set the tone.

    So while the CEO has first responsibility for the tone he or she sets, everyone who stays or comes in later quickly becomes similarly responsible for the nature of that organization. The military is to some extent an exception, but even there most officers and NCOs can arrange a transfer out. The legal doctrine of Employment at will that applies in America works both ways, both for the employees and for the employer who hires them.

    That makes every employee of financial products responsible for destroying AIG as a going concern. That fact cannot be redefined away, as much as they would all like to do.

    It is my opinion that everyone who worked there is going to find it is a major blot on their career. In fact, many of them will never work in the securities industry at a significant level again except for similar crooks. I personally think some of them have gotten together and pulled a scam on AIG top management, and together they and AIG top management have pulled a scam on Geithner and the top government Treasury and White House people. The scam was wrapped up in that memo that Marcy Wheeler deciphered a few days ago and which convinced Larry Summers to announce on the Sunday show that as much as they didn't like it, the contract to pay the bonuses had to be honored. That scam was designed to provide walking-away money for people who will not be able to find future lucrative jobs that can replace the one that had at AIG.

    Yes.... (none / 0) (#1)
    by kdog on Tue Mar 17, 2009 at 03:01:08 PM EST
    we should have let them file...I think that is painfully obvious at this point.

    Now whether our investment in AIG, at the barrel of a gun, is worth trying to salvage at this point is another question...I'm willing to write off my share of the bailout for AIG as long as we don't give them another dime....cut our losses.

    kdog, for crying out loud (none / 0) (#30)
    by gyrfalcon on Tue Mar 17, 2009 at 03:54:51 PM EST
    This isn't some standalone manufacturer, or even the regional bank down the block.  Its holdings and debts and financial inter-connections are wide and deep through the world financial system, not even just the U.S.  If it goes down, it will pull most of the rest of the financial system down with it.

    Do a little, just a little reading up on AIG's business, and then go look at what happened when Lehman, minuscule by comparison, was allowed to fail.

    Parent

    I'd be willing to bet (5.00 / 1) (#36)
    by eric on Tue Mar 17, 2009 at 04:01:56 PM EST
    that kdog doesn't care if it all comes crashing down.

    Parent
    More than anything... (5.00 / 1) (#83)
    by kdog on Tue Mar 17, 2009 at 05:09:48 PM EST
    I care about doing what is right and come what may.

    Propping up AIG and the culture they represent is not right.  I can imagine a world where they have to file for bankruptcy like everybody else...I'm confident we will survive.  I'm less confident we will survive if we keep handing out billions of dollars to save AIG and the culture it represents.

    Who's right, simple fools like me or brainiacs like andgarden?  I wish I could tell ya...

    Parent

    Chaos (5.00 / 1) (#118)
    by cal1942 on Wed Mar 18, 2009 at 12:32:35 AM EST
    will only leave the type of people who originated this mess in even firmer control.

    Parent
    Pay me now... (none / 0) (#109)
    by lambert on Tue Mar 17, 2009 at 09:12:02 PM EST
    ... or pay me later. Eh?

    Parent
    Too big to fail (5.00 / 1) (#39)
    by sj on Tue Mar 17, 2009 at 04:05:00 PM EST
    I accept that because it's been said over and over again, and I don't have the necessary expertise and knowledge to challenge the statement.  Fine.

    But it seems to me that if something is too big to fail or

    it will pull most of the rest of the financial system down with it
    then it's also too big to exist.

    Parent
    Oh, I totally agree (5.00 / 1) (#45)
    by gyrfalcon on Tue Mar 17, 2009 at 04:08:44 PM EST
    with that, but in this case, that horse has long since left the barn.  We have to figure out how to deal with what we've got.

    This is, btw, what the Euros are arguing for, a much, much tighter regulatory structure.  I think it's absolutely essential, including some way of putting practical limits on size.

    Parent

    Absolutely (5.00 / 1) (#119)
    by cal1942 on Wed Mar 18, 2009 at 12:36:45 AM EST
    Modern anti-trust laws to deal with the concentration of power.

    Bust 'em up and for godsakes put a wall between commercial and investment banking.

    Parent

    Maybe so (none / 0) (#74)
    by sj on Tue Mar 17, 2009 at 04:59:30 PM EST
    in this case, that horse has long since left the barn.  

    Or rather almost certainly so in the short term.  But I think it's past time we get back in the business of trust busting.

    Parent

    Isn't part of the mandate with AIG (none / 0) (#96)
    by samtaylor2 on Tue Mar 17, 2009 at 06:29:24 PM EST
    to sell divisions of itself and shrink?

    Parent
    I don't know (none / 0) (#98)
    by sj on Tue Mar 17, 2009 at 06:54:54 PM EST
    but I hope so.

    Parent
    Don't know if it's a mandate (none / 0) (#114)
    by gyrfalcon on Wed Mar 18, 2009 at 12:01:42 AM EST
    per se, but it's what they're doing.

    Parent
    According to NPR Marketplace (none / 0) (#93)
    by oculus on Tue Mar 17, 2009 at 05:36:02 PM EST
    On Mon., European governments were tighter w/ regs.than US.


    Parent
    then flip it around (none / 0) (#112)
    by jerry on Tue Mar 17, 2009 at 09:30:34 PM EST
    Show me regulation from either Obama or Congress with this new regulation and oversight, and then we can talk about bailing out these other guys.

    What I see is all bailout and no cattle.

    I keep on hearing that there will be a new capitalism, but I see nothing moving us toward that and every force just making it the same old same old.

    So to hell with that, yes, let it call come crashing down.

    Parent

    Thats what trust busting was all (5.00 / 1) (#58)
    by hairspray on Tue Mar 17, 2009 at 04:24:03 PM EST
    about, I believe.  When the global economy unfolded we were told that we couldn't be competitive in the market unless we did away with all of those pesky regulations.  I never bought it, but what do I know?

    Parent
    He didn't say (none / 0) (#66)
    by Bemused on Tue Mar 17, 2009 at 04:40:24 PM EST
    let the world economy come crashing down. He said "let it file." I'm also not convinced that AIG going Chapter 11 and reorganizing under court supervision would spell the end of civilization as we know it.

    Parent
    Wouldn't chapter 11... (none / 0) (#110)
    by lambert on Tue Mar 17, 2009 at 09:13:27 PM EST
    ... also be a way to prevent all the derivatives from unwinding, at least in an uncontrolled way, which is what everybody seems concerned to prevent?

    Parent
    good point, except, (none / 0) (#122)
    by cpinva on Wed Mar 18, 2009 at 12:51:15 AM EST
    Do a little, just a little reading up on AIG's business, and then go look at what happened when Lehman, minuscule by comparison, was allowed to fail.

    this should never have been allowed to happen in the first place. no company should be allowed to have that material an effect on any country's entire economy, much less the entire global economy.

    the wealth of nations, anyone? adam smith recognized the inherent danger of monopolies, and huge, interconnected business entities, more than 200 years ago. unfortunately, i seem to be one of the few people who actually read the entire book, not merely those parts that support my personal and political ideology.

    AIG should be broken up, its various operating divisions spun off, into independent companies. if it requires that we finance a leveraged buyout, by those division's employees, so be it.

    in the long run (yes, i know, we'll all be dead), it would be the best thing for our economy and national security.

    Parent

    Doesn't pass the smell test (none / 0) (#2)
    by jeffinalabama on Tue Mar 17, 2009 at 03:06:01 PM EST
    at least for me.

    And Cuomo says (none / 0) (#8)
    by hgardner on Tue Mar 17, 2009 at 03:19:46 PM EST
    bonuses have been paid to some who left.  So much for retention.  

    typically (5.00 / 1) (#14)
    by Bemused on Tue Mar 17, 2009 at 03:24:04 PM EST
    "retention" bonuses become payable on a date certain if the employee is still employed on that date. In theory, they are reward for having stayed not consideration for continuing to stay (that would be the next bonus).

    Parent
    And 73 execs -- hardly a "handful" -- (5.00 / 1) (#62)
    by Cream City on Tue Mar 17, 2009 at 04:32:58 PM EST
    got at least a million bucks apiece in bonuses.  That's what the NY AG's office has found out so far -- while the Connecticut AG's office says there is not, as AIG claimed, a requirement in state law that these bonuses had to be paid.

    This story is going to keep unreeling daily.

    Parent

    Unreeling? (none / 0) (#65)
    by squeaky on Tue Mar 17, 2009 at 04:36:26 PM EST
    Good one!

    Parent
    quick legal research question. (none / 0) (#13)
    by Salo on Tue Mar 17, 2009 at 03:24:02 PM EST
    where could I find a copy of a law suit files by a particular person against a charity???

    I'm doing some legal research and i'd like to know if a motion might be linkable on the net.  

    Depends on the court (none / 0) (#18)
    by eric on Tue Mar 17, 2009 at 03:32:37 PM EST
    famous cases sometimes get links on the court pages.  Some states have searchable court files.  And in Federal court, it is Pacer.

    Parent
    Thanks for that, BTD (none / 0) (#27)
    by gyrfalcon on Tue Mar 17, 2009 at 03:49:14 PM EST
    Great to hear the views of somebody who actually knows how this stuff works, in contrast to the rest of us, who are only guessing and pasting together small nuggets from media reporting that may or many not have any relation to reality.

    Anybody know where this Cassano character is these days?  He'd be way high on my list of people to haul before Congress and potentially bring up on charges.

    Joe Cassano? (5.00 / 1) (#44)
    by desertswine on Tue Mar 17, 2009 at 04:08:12 PM EST
    Here he is. You can vote for him. He's a real piece of work.

    Parent
    Yeah, but where is he now? (5.00 / 1) (#48)
    by gyrfalcon on Tue Mar 17, 2009 at 04:11:40 PM EST
    Dick Fuld got whacked by an outraged former Lehman employee at his gym.  Where do we find Cassano?

    (Geez, handsome fella, ain't he.  Yech.)

    Parent

    You're going to have to... (5.00 / 1) (#56)
    by desertswine on Tue Mar 17, 2009 at 04:21:07 PM EST
    Ah, excellent (none / 0) (#64)
    by gyrfalcon on Tue Mar 17, 2009 at 04:35:53 PM EST
    Thanks very much for the link.

    Nice to read he's being personally sued by investors.

    Parent

    from what (none / 0) (#33)
    by Bemused on Tue Mar 17, 2009 at 04:00:17 PM EST
    in that email do you divine that the writer does actually know anything that couldn't be picked up by reading a few articles? Or, if we assume he does know something that his email is intended to be an honest description rather than  propaganda?

    You'll have to trust me (none / 0) (#35)
    by Big Tent Democrat on Tue Mar 17, 2009 at 04:01:38 PM EST
    Or not.

    I am not revealing any information about the e-mailer.

    Parent

    I'm not asking for that (none / 0) (#42)
    by Bemused on Tue Mar 17, 2009 at 04:06:32 PM EST
      I just aked what in that email inherently suggests any relevant information not widely available to us all. then, even if we assume this person does have such information which he chooses not to disclose, why we should trust him and assume he is attempting to provide reliable information as opposed to arguing a case for people to receive large bonuses?

    Parent
    Are you employed (none / 0) (#95)
    by oculus on Tue Mar 17, 2009 at 05:54:20 PM EST
    By the Wash. Post?

    Parent
    Meanwhile ... (none / 0) (#57)
    by Robot Porter on Tue Mar 17, 2009 at 04:21:54 PM EST
    the clueless Republicans in the House are talking about "the fair tax proposal."

    Sheesh.

    Cuomo: 73 $1M or more AIG bonus babies -11 left (none / 0) (#68)
    by jawbone on Tue Mar 17, 2009 at 04:43:26 PM EST
    company.

    Well, so much for retaining them.

    As reported in the NYTimes,

    Seventy-three employees were paid more than $1 million in the latest bonuses at the insurance giant American International Group, according to the New York attorney general, Andrew M. Cuomo.

    Snip

    "A.I.G. made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout," Mr. Cuomo wrote in the letter. "Something is deeply wrong with this outcome."

    Mr. Cuomo did not name the bonus recipients, but the numbers are eye-popping, given A.I.G.'s fragile state. The highest bonus was $6.4 million, and six other employees received more than $4 million, according to Mr. Cuomo. Fifteen other people received bonuses of more than $2 million, and 51 people received bonuses of $1 million to $2 million, Mr. Cuomo said. Eleven of those who received "retention" bonuses of $1 million or more are no longer working at A.I.G., including one who received $4.6 million, he said.  (My emphasis)

    Cuomo seems to think there is a basis for no honoring the bonuses.

    He said the fact that 11 people who received some of the money were no longer at A.I.G., raised questions about whether the bonuses were truly for retention purposes. {Ya think?]

    Mr. Cuomo may be able to use a state law about fraudulent conveyance to force A.I.G. to rescind the bonuses. Mr. Cuomo would have to show that A.I.G. was undercapitalized when it paid the bonuses and that the people who received the bonuses did not earn them.

    "I understand they have contracts," Mr. Cuomo said in an interview on Monday. "That's not necessarily determinant because a lot has happened since that contract was signed." (My emphasis)



    Not defending what was done, more (none / 0) (#77)
    by coast on Tue Mar 17, 2009 at 05:02:03 PM EST
    questioning Mr. Cuomo's logic. First, how do you go about proving a bonus wasn't earned?  Second, his statement that "That's not necessarily determinant because a lot has happened since that contract was signed" flies in the face of what a contract is meant for.  Is a contract not meant to protect both parties against changes in circumstances?  Not a lawyer, but it seems like that arguement doesn't make sense.

    Parent
    I'd like to hear what a person who made (none / 0) (#69)
    by nycstray on Tue Mar 17, 2009 at 04:43:54 PM EST
    100k got for a bonus. What about the 73 people who's bonuses were a million or more?

    I understand the yadayadayada about too big to fail, we already have billions invested etc, but the bonus part still doesn't quite sit with me . . . And blaming 95% on one guy? Fairly convenient . . . Almost sounds like a pity party and let's throw some preemptive blame at the outraged taxpayers . . .

    When my buddy worked on wall st (none / 0) (#70)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 04:47:18 PM EST
    his "bonus" = his regular salary. So, earn 100K salary get add'l 100K bonus.

    Parent
    Was it guaranteed? (none / 0) (#81)
    by nycstray on Tue Mar 17, 2009 at 05:08:43 PM EST
    That sounds like a whack way to work to me. Of course, I've always done the "get it up front" type of negotiating. That way if a company comes back with sorry no or just small bonuses this year, I've already been compensated to my satisfaction. Not big on "spec work".

    Parent
    I don't think that was the case among his cohorts in general.

    Parent
    What about this Cassano cat? (none / 0) (#84)
    by kdog on Tue Mar 17, 2009 at 05:13:53 PM EST
    A million a month in retirement for "consulting".

    And they b*tch about a lineworker's pension around the water cooler I bet...this is the culture we must save at any cost.

    Parent

    I missed that one! (none / 0) (#90)
    by nycstray on Tue Mar 17, 2009 at 05:24:52 PM EST
    Wonder which one of these losers will write their "secret to getting rich quick while being an utter failure" book first?

    Parent
    The sad truth is... (5.00 / 1) (#91)
    by kdog on Tue Mar 17, 2009 at 05:30:13 PM EST
    as hustlers they are far from failures stray...more like smashing sucess stories.

    Parent
    Finacially maybe . . . (none / 0) (#94)
    by nycstray on Tue Mar 17, 2009 at 05:51:44 PM EST
    but as people? Not so much, imo.

    Parent
    I find the populist anger maddening (none / 0) (#97)
    by samtaylor2 on Tue Mar 17, 2009 at 06:38:29 PM EST
    The same politicians who enabled this whole thing to happen so they could get rich are screaming at a ship that has already set sail.  BTD you are so right that all this anger is simply a ploy to ignore the real problems of deregulation that caused this all to happen.  Why deal with the systemic problem when you can yell really loud.  

    The best thing to do with populist anger is look at who is fanning the flames and ask why.

    Thoughtful comment (5.00 / 1) (#99)
    by Cream City on Tue Mar 17, 2009 at 07:11:20 PM EST
    and interesting to see in interviews with some in Congress today that, so they now say, the necessary language to prevent bailout banks paying bonuses and such WAS in the original bill . . . but got lost by the end.  The joint House-Senate conference to reconcile their bills seems to be the point at which the language was lost, so members of that committee could be among the culprits in this.

    I remember hating how much the bill was rushed. . . .

    Parent

    Dodd actually fought hard (5.00 / 2) (#104)
    by caseyOR on Tue Mar 17, 2009 at 08:15:03 PM EST
    to include retroactive limits on all compensation. And the White House sent Geithner and Summers to force Congress to water down those provisions. I don't really like Dodd; there are a lot of questions about his own financial dealings; and he was a bit of a jerk after he dropped out of the primary.

    That said, Dodd, fought the administration tooth and nail to keep strong limits and to make those restrictions retroactive for each and every institution that accepted bailout money. The administration's position was that companies would refuse the money rather than submit to the restrictions. And, finally, Obama won.

    Now Obama and his minions are working overtime to pin this mess on Dodd. They are outright lying at every opportunity to make sure that Dodd goes down for this.

    Parent

    They are all "guilty" (5.00 / 1) (#107)
    by samtaylor2 on Tue Mar 17, 2009 at 09:09:56 PM EST
    The problem is guilty doesn't necessarily mean criminal or even had bad intentions.

    Parent
    AIG Employees Thrown Under the ... (none / 0) (#101)
    by santarita on Tue Mar 17, 2009 at 07:24:28 PM EST
     bus.

    I tend to side with the anonymous e-mailer in thinking that there are employees at AIG who have information and skills that are very useful in unwinding the CDS transactions and setting up that unit for sale.  And paying them the retention may be the best and cheapest bang for the buck.  (I don't buy the argument that they will have an easy time getting a comparable job given that the pool of possible employers who aren't in similar situations to AIG may not be the big.)  I also think that painting all employees with the same brush is not fair.  

    But why isn't Obama or Geithner making this argument?  Instead they fueled the populist outrage by joining in the choir.  Maybe the retentions aren't defensible.  But if they are, by joining in the choir, Obama and Geithner have thrown all of the employees under the bus.    

     

    Uh oh. Obama and Congress knew (5.00 / 1) (#103)
    by Cream City on Tue Mar 17, 2009 at 08:08:37 PM EST
    about the bonuses for months now, according to AP.

    But the White House is pointing the finger at Geithner as the uber-guy on this.  Hmmm, could be the first one in the administration to go. . . .

    Parent

    I'm trying to figure out how much (5.00 / 2) (#106)
    by nycstray on Tue Mar 17, 2009 at 08:47:20 PM EST
    Geithner knew about this mess and when. It's not like he was on a desert island before Obama brought him on board . . . the faux outrage is just ridiculous from from Obama, Geithner and Summers. Let's all raise our hands if we really thought they were going to do anything with that outrage, aside from grandstand . . . .

    Parent
    Yes, to deflect attention (none / 0) (#105)
    by BackFromOhio on Tue Mar 17, 2009 at 08:24:15 PM EST
    from failure to address the problem beforehand and properly condition payment of bailout monies.

    Parent
    They know this is a fraud and criminal (none / 0) (#124)
    by joze46 on Wed Mar 18, 2009 at 07:06:43 AM EST
    From My view; Corporations are top down: any one and everyone with simple straight forward management sense forwards a "Department Structure" so everyone knows who is who and what the paper trail is.

    If not, usually criminal actions run the company. Phony cooked books play in, its not that the company is too big to fail, the company is mismanaged to be so big, more secret in its operations, as is this derivative stuff, complicated , no it is deliberate fraud, actually sounds like a Cheney connection, like secret criminal actions are layered through out and whistle blowing is going now. Everyone in corporate experience knows departments are created to be deliberately filled and shut down at will because of failure. Who the heck is going to have confidence to buy in to this company now that it is disintegrating?

    Finally, does the business plan originated which supports AIG's license to operate which must receive local, state, federal and International permits  validate this match of company structure to its operating mission. Probability not, which from the get go, Bush and Company knew, deliberately avoided with layered immediate need, at the eleventh hour.

    Ladies and Gentleman of America the networks know it and so does the government especially in the initialization when Bush and the Treasury made the appeal about the economy failing. All this is non sense to drive this problem away from Bush and Company that originated the mess. The media is forever complicit in this debacle.