Insurer Reveals List of Taxpayer Funds Doled Out to Settle Debts With Companies, Municipalities
By Brady Dennis
Washington Post
March 16, 2009
In the six months since the government's bailout of insurance giant American International Group, a rescue that has become increasingly costly and contentious, one question has loomed above all others: Where did the money go?
The answer became a little clearer yesterday when AIG unexpectedly released the names of dozens of trading partners it has paid using billions in taxpayer dollars. The disclosure, which the company said was made after consulting the Federal Reserve, revealed that AIG paid more than $75 billion in the final months of 2008 to numerous domestic and foreign banks, as well as to various U.S. municipalities.
The funds were paid from the government's initial $85 billion emergency loan in September and included major firms such as Goldman Sachs, Societe Generale, Deutsche Bank, Merrill Lynch, Morgan Stanley, Bank of America and Barclays.
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The payments were made between Sept. 16 -- the date that government assistance began -- and Dec. 31.
More than $34 billion of the money went to trading partners of AIG Financial Products, the small subsidiary whose exotic derivatives brought AIG to the edge of collapse. In recent years, the firm had written massive numbers of credit-default swaps, insurance-like contracts that other companies bought as protection against the default of mortgage-backed securities. When the housing boom began to go bust, banks that had purchased the swaps demanded collateral from AIG, burying the company under a tidal wave of debt. Federal officials, wanting to keep the company from failing because they feared it was too intertwined with the global economy, stepped in to help.
In the last months of 2008, AIG Financial Products paid more than $22 billion in taxpayer money to satisfy debts caused by its swap contracts. Another $12 billion went to pay off municipalities in dozens of states for whom the firm had created complex investment agreements.
Nearly $44 billion went to pay debts that AIG incurred under its "securities lending" program, according to the company. In those instances, various companies borrowed securities from AIG in exchange for cash. In turn, AIG invested much of the money in mortgage-backed assets that plummeted in value, leaving the insurer on the hook for billions.
Yesterday's disclosure was an about-face for AIG and the Fed. In recent weeks, public outrage and pressure from lawmakers demanding to know who benefited from the AIG bailout has reached a crescendo. But until yesterday, AIG executives and federal officials had repeatedly refused to release such details, arguing that trading partners had a right to privacy and that any disclosure could harm their businesses.
"These are extraordinary times," AIG spokeswoman Christina Pretto said yesterday in explaining the company's decision. "And we and our partners at the Fed thought this was right thing to do."
Fed spokeswoman Michelle Smith agreed, saying, "We commend the company for finding a balance between its concerns with confidentiality and the concerns of the public interest."
AIG's disclosure came on the same day that President Obama's top economic adviser berated the firm for its plans to dole out hundreds of millions of dollars in employee bonuses and retention pay, despite posting a record $62 billion loss in the fourth quarter of 2008.
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Lawrence H. Summers, chairman of the White House National Economic Council, said yesterday during an appearance on ABC's "This Week." "What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous."
Summers was but one in a chorus of administration officials and lawmakers who took to the airwaves yesterday to excoriate AIG, whose rescue package from the federal government stands at an estimated $170 billion.
"This is an example of people at the commanding heights of the economy misbehaving, abusing the system," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Their anger stemmed in large part from AIG's decision to move forward with retention bonuses for executives at the troubled Financial Products unit. In early 2008, before the government rescue, the firm's employees had been promised more than $400 million in retention pay this year and next. Lawyers for the government and AIG have agreed that most of those payments, however unsavory, are legally binding.
"We are a country of laws. There are contracts," Summers said yesterday. "The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system."
In addition, AIG is in the process of paying $121 million in previously scheduled corporate bonuses and hundreds of millions more in retention payments to more than 6,000 employees throughout the company's global insurance units.
The bonuses and other payments have infuriated the public and government officials. After a contentious call on Wednesday between Treasury Secretary Timothy F. Geithner and AIG chairman Edward M. Liddy, first reported by The Washington Post, Liddy agreed to alter the terms of some executive bonuses and make future payments contingent on the company's progress with its restructuring and paying back taxpayers.
But in a letter that followed, Liddy said he had "grave concerns" about the impact on the firm's ability to retain talented staff "if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."
Speaking on CBS's "60 Minutes" last night, Fed Chairman Ben S. Bernanke once again expressed frustration with the bad will that AIG has wrought.
"I understand why the American people are angry," he said. "It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets, that was operating out of the sight of regulators, but which we have no choice but to stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy."
Staff writer Neil Irwin contributed to this report.
AIG's Counterparties (PDF)
Special Report: AIG
Showing posts with label bailout bonuses for CEOs. Show all posts
Showing posts with label bailout bonuses for CEOs. Show all posts
Monday, March 16, 2009
AIG gets $173 billion, sends $93 to Wall St. and Europe; $165 billion in bonuses
AIG massive payments to banks stoke bailout rage
Mon Mar 16, 2009
By John O'Callaghan and Lilla Zuill
Reuters
Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of $93 billion in payments from AIG -- more than half of the U.S. taxpayer money spent to rescue the massive insurer.
The revelation on Sunday by American International Group Inc was another potential public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over AIG's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing billions of dollars in derivatives insuring risky assets.
The size of the payments also illustrates how seriously a potential collapse of AIG was viewed by the regulatory authorities. U.S. Federal Reserve Chairman Ben Bernanke said in an interview with CBS news magazine "60 Minutes" that the failure of AIG would have brought down the financial system.
AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.
As part of those efforts, Obama will announce steps on Monday to make it easier for small business owners to borrow money, officials said.
But the revelations that billions of U.S. taxpayer dollars were funneled through AIG to Goldman Sachs -- one of Wall Street's most politically connected firms -- and to European banks including Deutsche Bank, France's Societe Generale and the UK's Barclays could stoke further outrage at the entire U.S. bank bailout.
FINANCIAL SYSTEM AT STAKE?
The fact that billions of dollars given to prop up giant insurer AIG were then transferred to European banks and Wall Street investment houses could raise new doubts about whether the rescue was really economically necessary...
Mon Mar 16, 2009
By John O'Callaghan and Lilla Zuill
Reuters
Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of $93 billion in payments from AIG -- more than half of the U.S. taxpayer money spent to rescue the massive insurer.
The revelation on Sunday by American International Group Inc was another potential public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over AIG's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing billions of dollars in derivatives insuring risky assets.
The size of the payments also illustrates how seriously a potential collapse of AIG was viewed by the regulatory authorities. U.S. Federal Reserve Chairman Ben Bernanke said in an interview with CBS news magazine "60 Minutes" that the failure of AIG would have brought down the financial system.
AIG, an embattled insurance giant that has received federal bailouts totaling $173 billion and is now paying $165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.
As part of those efforts, Obama will announce steps on Monday to make it easier for small business owners to borrow money, officials said.
But the revelations that billions of U.S. taxpayer dollars were funneled through AIG to Goldman Sachs -- one of Wall Street's most politically connected firms -- and to European banks including Deutsche Bank, France's Societe Generale and the UK's Barclays could stoke further outrage at the entire U.S. bank bailout.
FINANCIAL SYSTEM AT STAKE?
The fact that billions of dollars given to prop up giant insurer AIG were then transferred to European banks and Wall Street investment houses could raise new doubts about whether the rescue was really economically necessary...
Sunday, March 15, 2009
Is the CEO cartel the enemy of capitalism?
Uplift, Deep Cheating, and the CEO Cartel
David Brin
Salon.com
MARCH 14, 2009
..."So long as risk is effectively concealed from borrowers and lenders or actually shifted to others, risk-taking will be excessive. The initial phase of excessive risk-taking will manifest itself as an economic boom, but eventually, when actual losses begin to change the perceptions of borrowers and lenders and begin to impinge upon unsuspecting others, the boom will give way to a bust....[A] market system whose credit markets involve risks that are partially concealed from the lender and partially shifted to others will be biased in the direction of excessive risk-taking. And excessive risks are converted in time into excessive losses." --Roger Garrison
“Neither the U.S. government nor anybody else is capable of estimating the ultimate cost of bailing out such corporate giants as Citigroup, AIG, General Motors, Fannie Mae, and Freddie Mac (and the list goes on). There are two reasons for this. First, on a stand-alone basis, these companies are opaque and indecipherable entities. Financial innovation left transparency in the dust. Wall Street devoted much of its intellectual and political capital to concealing the risks it was creating. This concealment was deliberate; products needed to be priced inefficiently to produce profits.” - Michael Lewitt
Ironies abound. Though I consider myself something of an open market libertarian, I have long warned that we've been slipping into a putsch-coup by a conspiratorial oligarchy. There is, of course, no contradiction. The patron deity of capitalism, Adam Smith, declared that the very worst enemies of markets (far worse than socialism), are conniving aristocrats and top lords of finance.
Smith made clear (as I'll reiterate) that capitalism and top capitalists are often NOT the same thing. Indeed, the latter can often be lethal to the former...
David Brin
Salon.com
MARCH 14, 2009
..."So long as risk is effectively concealed from borrowers and lenders or actually shifted to others, risk-taking will be excessive. The initial phase of excessive risk-taking will manifest itself as an economic boom, but eventually, when actual losses begin to change the perceptions of borrowers and lenders and begin to impinge upon unsuspecting others, the boom will give way to a bust....[A] market system whose credit markets involve risks that are partially concealed from the lender and partially shifted to others will be biased in the direction of excessive risk-taking. And excessive risks are converted in time into excessive losses." --Roger Garrison
“Neither the U.S. government nor anybody else is capable of estimating the ultimate cost of bailing out such corporate giants as Citigroup, AIG, General Motors, Fannie Mae, and Freddie Mac (and the list goes on). There are two reasons for this. First, on a stand-alone basis, these companies are opaque and indecipherable entities. Financial innovation left transparency in the dust. Wall Street devoted much of its intellectual and political capital to concealing the risks it was creating. This concealment was deliberate; products needed to be priced inefficiently to produce profits.” - Michael Lewitt
Ironies abound. Though I consider myself something of an open market libertarian, I have long warned that we've been slipping into a putsch-coup by a conspiratorial oligarchy. There is, of course, no contradiction. The patron deity of capitalism, Adam Smith, declared that the very worst enemies of markets (far worse than socialism), are conniving aristocrats and top lords of finance.
Smith made clear (as I'll reiterate) that capitalism and top capitalists are often NOT the same thing. Indeed, the latter can often be lethal to the former...
Saturday, March 7, 2009
Welfare for the Rich: Bank of America interferes with probe of Merrill Lynch CEO bonuses
Merrill Probe Stymied by Bank of America, New York’s Cuomo Says
By David Mildenberg and Karen Freifeld
March 7, 2009
Bloomberg
Bank of America Corp. is still interfering in his investigation into bonuses given to Merrill Lynch & Co. employees, New York Attorney General Andrew Cuomo told a New York Supreme Court judge.
“We respectfully request that the court reject Bank of America’s continued efforts to stymie the attorney general’s investigation,” Cuomo said in his letter yesterday.
Cuomo is probing a decision by Merrill, which lost $15.8 billion in the fourth quarter, to award $3.6 billion in bonuses in late December, days before Bank of America bought the firm on Jan. 1. Former Merrill Chief Executive Officer John Thain and Bank of America CEO Kenneth Lewis have already testified to Cuomo, and Cuomo has subpoenaed seven of the bonus recipients, a person familiar with the matter said.
Bank of America, the largest U.S. bank by assets, said it offered information on individual Merrill bonuses that Cuomo is seeking. Bank of America won’t comply with Cuomo’s request, even under an agreement to keep it confidential at least temporarily, according to Cuomo.
“Bank of America does not believe the attorney general needs the freedom to place private, personal information in the news media in order to conduct his investigation,” Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, said in an e-mail.
Trading ‘Irregularity’ Found
The dispute with Cuomo widened as Merrill said it uncovered an “irregularity” during a review of its trading operations in London. The New York Times said risk officers discovered three weeks ago that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount.
The newspaper identified the trader as Alexis Stenfors, 38, and said he described the matter as a “misunderstanding.” Calls from Bloomberg News to his office in London and a mobile phone weren’t answered.
Stenfors previously worked at Calyon, the investment-banking unit of France’s Credit Agricole SA, according to the U.K. Financial Services Authority’s register. He joined Merrill Lynch in 2005, and is listed as being “inactive” since Feb. 25. A spokeswoman for Calyon couldn’t immediately comment.
In the Cuomo probe, Bank of America is seeking to expand a temporary confidentiality order on Thain’s testimony to include all witnesses in the investigation, including Greg Fleming, Merrill’s former head of investment banking, Cuomo said. Fleming, who left the bank in early January to take a post at Yale University, testified this week, the attorney general said in the letter.
Not ‘Commercial Litigation’
“Bank of America is treating this matter as a commercial litigation between private parties. It is not,” Cuomo said. “Bank of America is seeking to prevent witnesses from testifying and is seeking to require advance notice of the attorney general’s investigative steps, which it is not entitled to do.”
The Wall Street Journal on Wednesday published the names of a number of the top executives and their 2008 earnings, citing documents and people familiar with Merrill’s compensation. Eleven top executives were paid more than $10 million in cash and stock last year, the Journal said. The newspaper identified the seven bonus recipients as Andrea Orcel, David Sobotka, Peter Kraus, Thomas Montag, David Gu, David Goodman and Fares Noujaim.
A person familiar with Cuomo’s investigation said that seven bonus recipients were subpoenaed in connection with the probe. The person identified the people as Orcel, Sobotka, Kraus, Montag, Gu, Goodman and Noujaim.
‘Road Map’
The information Cuomo seeks would provide a “road map” showing which business lines Bank of America considers most valuable and to assist rivals seeking to poach talented staff, the bank said in its court filings.
Cuomo’s letter said House Financial Services Committee Chairman Barney Frank will soon demand Bank of America make individual bonus information public. The bank has received $45 billion from the Treasury’s bank recapitalization program.
Cuomo said in a Feb. 10 letter that Merrill “secretly and prematurely” awarded the bonuses with Bank of America’s “apparent complicity.” After the top four recipients received a total of $121 million, the next four received a combined $62 million and the next six a combined $66 million, Cuomo said.
By David Mildenberg and Karen Freifeld
March 7, 2009
Bloomberg
Bank of America Corp. is still interfering in his investigation into bonuses given to Merrill Lynch & Co. employees, New York Attorney General Andrew Cuomo told a New York Supreme Court judge.
“We respectfully request that the court reject Bank of America’s continued efforts to stymie the attorney general’s investigation,” Cuomo said in his letter yesterday.
Cuomo is probing a decision by Merrill, which lost $15.8 billion in the fourth quarter, to award $3.6 billion in bonuses in late December, days before Bank of America bought the firm on Jan. 1. Former Merrill Chief Executive Officer John Thain and Bank of America CEO Kenneth Lewis have already testified to Cuomo, and Cuomo has subpoenaed seven of the bonus recipients, a person familiar with the matter said.
Bank of America, the largest U.S. bank by assets, said it offered information on individual Merrill bonuses that Cuomo is seeking. Bank of America won’t comply with Cuomo’s request, even under an agreement to keep it confidential at least temporarily, according to Cuomo.
“Bank of America does not believe the attorney general needs the freedom to place private, personal information in the news media in order to conduct his investigation,” Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, said in an e-mail.
Trading ‘Irregularity’ Found
The dispute with Cuomo widened as Merrill said it uncovered an “irregularity” during a review of its trading operations in London. The New York Times said risk officers discovered three weeks ago that a London currency trader who had recorded a trading profit of $120 million for the fourth quarter may instead have lost a large amount.
The newspaper identified the trader as Alexis Stenfors, 38, and said he described the matter as a “misunderstanding.” Calls from Bloomberg News to his office in London and a mobile phone weren’t answered.
Stenfors previously worked at Calyon, the investment-banking unit of France’s Credit Agricole SA, according to the U.K. Financial Services Authority’s register. He joined Merrill Lynch in 2005, and is listed as being “inactive” since Feb. 25. A spokeswoman for Calyon couldn’t immediately comment.
In the Cuomo probe, Bank of America is seeking to expand a temporary confidentiality order on Thain’s testimony to include all witnesses in the investigation, including Greg Fleming, Merrill’s former head of investment banking, Cuomo said. Fleming, who left the bank in early January to take a post at Yale University, testified this week, the attorney general said in the letter.
Not ‘Commercial Litigation’
“Bank of America is treating this matter as a commercial litigation between private parties. It is not,” Cuomo said. “Bank of America is seeking to prevent witnesses from testifying and is seeking to require advance notice of the attorney general’s investigative steps, which it is not entitled to do.”
The Wall Street Journal on Wednesday published the names of a number of the top executives and their 2008 earnings, citing documents and people familiar with Merrill’s compensation. Eleven top executives were paid more than $10 million in cash and stock last year, the Journal said. The newspaper identified the seven bonus recipients as Andrea Orcel, David Sobotka, Peter Kraus, Thomas Montag, David Gu, David Goodman and Fares Noujaim.
A person familiar with Cuomo’s investigation said that seven bonus recipients were subpoenaed in connection with the probe. The person identified the people as Orcel, Sobotka, Kraus, Montag, Gu, Goodman and Noujaim.
‘Road Map’
The information Cuomo seeks would provide a “road map” showing which business lines Bank of America considers most valuable and to assist rivals seeking to poach talented staff, the bank said in its court filings.
Cuomo’s letter said House Financial Services Committee Chairman Barney Frank will soon demand Bank of America make individual bonus information public. The bank has received $45 billion from the Treasury’s bank recapitalization program.
Cuomo said in a Feb. 10 letter that Merrill “secretly and prematurely” awarded the bonuses with Bank of America’s “apparent complicity.” After the top four recipients received a total of $121 million, the next four received a combined $62 million and the next six a combined $66 million, Cuomo said.
Sunday, February 15, 2009
The thinking behind bonuses for CEOs of failing companies
John Thain thinks he should be paid $10 million because he didn't make a BIGGER mess at Merrill Lynch. Hmmmm. Should we also reward gunslingers who tell us that more people would have been killed if they hadn't taken steps to limit the number of their victims?
The Huffington Post published the following:
From the Wall Street Journal:
"Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.
"The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said."
Reuters points out that several other Wall Street firms, including Goldman Sachs, will not be giving out bonuses to top executives this year. Though Thain's company was sold to Bank of America after losing a net $11.67 billion this year, Thain argued that it could have been worse.
From the Reuters story:
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
The Huffington Post published the following:
From the Wall Street Journal:
"Merrill Lynch & Co. chief John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request, according to people familiar with the situation.
"The committee and full board are scheduled to meet Monday to hear Mr. Thain's formal bonus recommendations for himself and other senior executives of the New York company. No decision has been reached, and it isn't known what Mr. Thain will recommend, but the compensation committee is leaning toward denying the executives bonuses for this year, these people said."
Reuters points out that several other Wall Street firms, including Goldman Sachs, will not be giving out bonuses to top executives this year. Though Thain's company was sold to Bank of America after losing a net $11.67 billion this year, Thain argued that it could have been worse.
From the Reuters story:
Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill's compensation committee agree with Thain that the takeover is in shareholders' best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.
Saturday, November 1, 2008
CEO bonuses: Will the people who caused the meltdown be rewarded in the bailout?
Ten percent of $700 rescue package may go to bonuses
Bloggingstocks
Oct 19th 2008
by Douglas McIntyre
Wall Street walked into the path of its own oncoming stupidity. Of the $700 billion in Treasury rescue money, as much as $70 billion could go to bank and brokerage bonuses.
According to The Guardian, "Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year." The paper goes on to say that the Morgan Stanley (NYSE: MS) pool is large enough to buy the entire company when its stock was at a recent low.
Although this information get filed under "things you can't make up," it will probably have such a severe backlash that Congress will run hearings until the bankers have exhausted the extra money they are making on legal fees.
The contrary argument to punishing the firms is that some of the people getting big pay-outs work in departments that actually contributed huge sums of money to their parents.
If the management at these firms has any sense at all, they will pay nothing to the staff who worked in operations that lost money and file with the SEC to show the amount of operating income made from the operations where people are getting an extra check...
From AOL Money and Finance
A Goldman Hotshot Doles Out the Money
Neel Kashkari, a 35-year-old former Goldman Sachs whiz kid who believes in free markets, is getting the job at the Treasury Department of dispersing the government's $700 billion rescue. Is he really the right person for the job? Lots of observers have wondered if a seasoned vet with a little more political experience might be a better fit for the task at hand.
Bloggingstocks
Oct 19th 2008
by Douglas McIntyre
Wall Street walked into the path of its own oncoming stupidity. Of the $700 billion in Treasury rescue money, as much as $70 billion could go to bank and brokerage bonuses.
According to The Guardian, "Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year." The paper goes on to say that the Morgan Stanley (NYSE: MS) pool is large enough to buy the entire company when its stock was at a recent low.
Although this information get filed under "things you can't make up," it will probably have such a severe backlash that Congress will run hearings until the bankers have exhausted the extra money they are making on legal fees.
The contrary argument to punishing the firms is that some of the people getting big pay-outs work in departments that actually contributed huge sums of money to their parents.
If the management at these firms has any sense at all, they will pay nothing to the staff who worked in operations that lost money and file with the SEC to show the amount of operating income made from the operations where people are getting an extra check...
From AOL Money and Finance
A Goldman Hotshot Doles Out the Money
Neel Kashkari, a 35-year-old former Goldman Sachs whiz kid who believes in free markets, is getting the job at the Treasury Department of dispersing the government's $700 billion rescue. Is he really the right person for the job? Lots of observers have wondered if a seasoned vet with a little more political experience might be a better fit for the task at hand.
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