No One At White House Realizes President is De Facto CEO of AIG

There is much hand wringing and continual cries of “outrageous” from the Obama Administration over the AIG bonuses. Mere displays of consternation are not going to be enough to still the righteous fury of the American public over the original ‘too big to fail’ company, though.

Put simply, many Americans viewed the original corporate bailout – all $700 billion worth – as inherently unfair, as a reward for the corporate thugs who wrecked the entire U.S. economy.  I fear this issue of $165 million in bonuses could be like an interception thrown deep in an opponent’s territory — a momentum crushing political game changer for the president.

The video at the end of this post, I believe, shows the disconnect.  White House aide Austan Goolsbee is interviewed by Chris Matthews on Hardball.  Goolsbee comes across as insincere in his pique with AIG.  He says the president is outraged, the Treasury Secretary is outraged, blah, blah, blah.  He is seemingly exuberantly outraged himself, saying by God, these AIG guys shouldn’t be allowed to have a meal out in a restaurant let alone those poor taxpayers’ money!  Frankly, it looks like an act, it feels like an outrageous act.

The Obama Administration is talking about – I don’t know if it’s policy yet, or what it will take to make it policy – allowing local judges to change the terms of mortgages between homeowners and their lenders.  This sounds an awful lot like jimmying with contracts.  On the other hand, the Obama Administration is playing the outrage game over AIG’s use of bailout money – mugging for the cameras – yet shaking their heads, looking at their shoes and saying, “You know, it’s these damn contracts … these guys have us over a barrel.”

Here’s a question for Washington: When does our 80% stake in this pathetic company begin to mean something.  Doesn’t 80% ownership give the American people – through their elected representatives – a say?  Isn’t the President Obama or Secretary Geithner the de facto CEO of AIG?

No more conspicuous displays of outrage over the likes of AIG, please.  Just do something, and at this point letting the whole damn company collapse would be as good as pulling the plug on the pigs’ bonuses.

Transcript: President Obama Talks About AIG Bonuses Today at White House

(The following is the section of the President’s remarks on small business where he diverted to discuss his displeasure with the AIG situation. Source: White House Press Office)

THE PRESIDENT: Now before I talk about the new steps we’re taking to get credit flowing to small businesses across our country, I do want to comment on the news about executive bonuses at AIG. I think some of you have heard a little bit about this over the last few days. This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?

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After A Weekend of Bad Press, Obama Officially ‘Outraged’ Too

I Think AIG Has the President’s Attention

Barack Obama From the Washington Post:

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?” He said he has asked Treasury Secretary Timothy F. Geithner to “pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

Obama added: “What this situation also underscores is the need for overall financial regulatory reform, so we don’t find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions, so we’ve got greater authority to protect the American taxpayer and our financial system in cases such as this.”

State of Ohio Received Some of AIG’s Bailout

You can add $490 million to Ohio’s federal stimulus total.

That’s the amount Ohio has received from AIG since the federal government put the world’s largest insurer on life support last fall. Sunday evening AIG released information regarding how it spent over $70 billion of the $180 billion it has received from U.S. taxpayers through the U.S. Treasury Dept. and the Federal Reserve.  Ohio and several other states were on the list of businesses or government entities for which AIG used federal funds to settle debts.

From AIG’s press release on Sunday:

Municipalities in the states listed on Attachment C received a total of $12.1 billion from AIGFP between September 16, 2008 and December 31, 2008 in satisfaction of Guaranteed Investment Agreement (GIA) obligations. GIAs are structured investments with a guaranteed rate of return. Municipalities typically use GIAs to invest the proceeds from bond issuances until the funds are needed.

Screen Grabs from Attachment C:

AIG Begins To Share With Taxpayers Where Their Money Is Going

Screen Grabs from AIG Slides – The four slide deck can be found here.  AIG’s press release may be found at bottom of post.

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Media – How Does It Feel To Be Managed Through the AIG Bonus Story

One thing I haven’t heard today regarding the over $100 million dollars the pigs at AIG are going to bonus themselves is any pushback at the company or at the U.S. Treasury Dept about they were managed through this thing.

There’s an old expression among flaks which goes something like this: “You take the trash out at 5 p.m. on Friday.”  Treasury Secretary Geithner did us one better this week with the AIG bonus story – Treasury took the trash out at around 8 p.m. Saturday night.  Taking the trash out means dumping the story you don’t want to have to talk much about when the media – and the public – are least attentive.

In reading through the dispatches today and watching the talking heads this a.m., it’s obvious Treasury knew what was up last Wednesday.  That is, last Wednesday Geithner and his lawyers realized they were punk’d by Ed Libby and AIG’s lawyers.  I can just imagine the final, behind the scenes discussion.  Tim Geithner, Wall Street Insider, asks AIG, America’s largest welfare case and Wall Street Personified, “Can we hold this til the weekend?  I’ll be out of the country and this will all blow over by Monday …”

Whether you are liberal or conservative, you’re job is to not let this blow over.  AIG are some of the guys who put the whole nation at economic – and therefore geopolitical – risk.

Today, one of the Administration’s talkers said we’re in something akin to wartime footing with regard to the economy.  While President Obama reads up on his Abraham Lincoln or FDR, he might take note that during a time of war the Executive Branch has been upheld in suspending some laws.  Perhaps AIG’s “contractual obligations” to the slicksters and scam artists in it’s financial services division could be declared null.

Full Text: AIG CEO Ed Liddy’s Letter to Treasury Secy Timothy Geithner on AIG Bonuses

Larry Summers: Geithner Doing All He Can on AIG Bonuses

Larry Summers appeared on ABC’s This Week with George Stephanopolous.  Select quotes:

“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,” said Summers, chairman of the White House National Economic Council, during an appearance on “This Week” Sunday.

“What that company did, the way it was not regulated, the way no one was watching, what’s proved necessary, it is outrageous,” Summers said.

“We are a country of law. There are contracts. 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,” Summers said.

“What the Obama administration has done, based on the advice of attorneys, is done everything that it can to, within the law and within the tradition of upholding law that we have in this country, to limit these bonuses. And they have as a result of Secretary Geithner’s efforts been scaled back,” he said.

My take:  The game changed when the company began taking our money.

AIG Headlines From the Blogosphere – Not Pretty

• AIG Execs Who Ruined Company to Get $165 million in Bonuses – Huffington Post
• Al Qaeda Hurt Us For A Day. AIG Has Destroyed Us for a Generation. – Verbal Paintball
• Treasury Boldly Adds “Sugar on Top” – Driftglass

(UPDATED 1) Totally Unbelievable: AIG to Pay Out $100 Million in Bonuses To Its Financial Products Division

I am so angry right now, I can’t see straight and I may not be thinking clearly.

President Obama, this crap has got to stop.

The New York Times is reporting tonight that AIG, the world’s largest insurer and the original company deemed “too big to fail” will be paying out $100 million in bonuses shortly.  The government of the United States has shoveled $170 BILLION in AIG’s coffers since last fall in an effort to keep the company afloat.

A once venerable insurer, AIG began gambling on Wall Street some time ago in the credit default swap market.  These financial products, which are essentially insurance, are unregulated by the U.S.  According to multiple accounts in the media since last September, AIG is thought to have guaranteed trillions of dollars in these swaps.

Essentially, in a credit default swap, one party – the insurer – guarantees it will cover the full original value of a financial deal.  The purchaser of the swap pays a “premium” which is usually a percentage of the amount being guaranteed.  In the case of the current economic crisis, the financial deals being covered in these insurance gambles were the bundles of good and bad home loans – mortgage backed securities.  Companies like AIG thought they were raking in free money because, they believed, housing prices would continue to rise.  The housing bubble burst, the underlying bundles of loans became worthless and the swap purchasers are demanding their “insurance” settlements – the original values of the bundles of mortgages.  AIG and other financial institutions who sold credit default swaps don’t have the cash to make good on their obligations.

I fully understand “priming the pump” and the need for increased government spending to kick start a stalled economy.  I do not understand the unaccountable, opaque bailouts of private corporations.  I do not understand the total lack of accountability and justice for the companies like AIG who brought this mess down upon us.

The Times reports:

An official in the Obama administration said Saturday that Treasury Secretary Timothy F. Geithner had called A.I.G.’s government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.

Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company’s chief executive said A.I.G. was contractually obligated to pay them.

In a letter to Mr. Geithner, Mr. Liddy wrote: “Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

Geithner “asked that the company renegotiate the bonuses?”  Are you fucking kidding me?  Geithner should have demanded that the bonuses not be paid.  Administration officials are actually taking this crap that AIG is “contractually obligated” to pay these pigs for screwing every single American taxpayer?  This financial crisis is a national emergency – I would expect that after $170 billion thrown down AIG’s maw we would have more leverage than to roll over because of a contractual obligation.  Where are the lawyers?

The one major disappointment I have with the Obama Administration is that the change we were promised is so far merely nibbling around the edges of the financial crisis.  For all of my conservative friends out there who wring their hands every time the word ‘nationalization’ comes up, this circumstance is what nationalization may cure.  This is our money being given to greedy pigs who are held harmless from the havoc they’ve wrought.  Temporary nationalization of these big companies would at least give our government control to go in and clean house.

If we don’t have the political will for nationalization or to hold Wall Streeters accountable, then it’s time to begin letting these companies go bankrupt.  Half the country seems to want this purity of the marketplace, give it to them.  If AIG were in bankruptcy, I believe these contractual obligations would go by the boards.

Update: 1 a.m. Sunday

The current version of the NYT story is now different from the block quote above.  I’ll bet there was some screaming from the Administration about Geithner ‘asking’ AIG to renegotiate bonuses.  The newer version of the story has Geithner portrayed as more forceful.  However, that doesn’t change a thing.  The newer version also points out that the U.S. government (us/we) own 80% of AIG.  If that’s the case, someone needs to have the stones to put a stop this sort of behavior.  AIG is not playing with their money now, they’re wasting ours.

From the Times:

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

Dear Secy Geithner: It’s Not Just Some Silly Bloggers Waiting for Change

I’ve now read in two different places that U.S. Treasury Secretary Timothy Geithner blames some of his bad pub on those rascally bloggers.

Well, it’s not just the bloggers.  How about Paul Krugman in a column on Monday headlined, Behind the Curve:

So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.

O.K., that’s a warning, not a prediction. But economic policy is falling behind the curve, and there’s a real, growing danger that it will never catch up. (emphasis Clips & Comment)

Or, how about Krugman last week in The Big Dither:

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Notice something?  Geithner is mentioned in the Big Dither, but the bullseye for this mess with the banks and AIG is falling squarely on the president in both columns.

Here’s from an op-ed from David Smick in Tuesday’s Washington Post, Tim Geithner’s Black Hole:

Pity Barack Obama’s economic advisers. The blogs are now demanding their scalps, and Treasury Secretary Tim Geithner and his colleagues face a nasty dilemma: There are no solutions to the banking crisis without extraordinary political and financial risks. Thus, they have adopted a three-pronged approach, delay, delay, delay, in the hope that somebody comes up with a breakthrough. …

… The Obama team needs to remember that we got into this mess because of a lack of financial transparency. It’s time to tell the American people what the stock market already knows: that the path to recovery will probably be expensive and politically unpopular, perhaps explosively so. …

… In the end, at least one thing is certain: Our present position is unsustainable. The longer we delay fixing the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the ultimate bank bailout price tag for the American taxpayer, and the more we risk falling into a financial black hole from which escape could take decades.

Here’s the problem with voters, taxpayers.  Or, should I say here’s the problem with at least this voter and taxpayer.  I voted for change.  I was incensed, not so much by the $700 billion Paulson bailout, but by the rabbit hole the money seemed to disappear down.  We were told at the time that there was a national emergency and the government needed to dole out this money and fast.  We were told it would be used to corral some of those toxic assets and allow the banks to get back on track.  Here’s a couple of stock quotes from today’s close:

• Citigroup – $1.05
• Bank of America – $3.75

The Bush Administration either lied to buy time or no one knows what the hell they’re doing.  Don’t forget, Tim Geithner was one of the architects of TARP 1 as head of the New York Fed.

I want one of two things.  First, justice.  That means the pigs who brought this down upon us should experience the ultimate downside of that pure capitalism they love so much – failure.  Or, second, someone in the federal government to take whatever time is needed and explain to the American people as simply as possible why any of these foolish companies are too big to fail and what it will take to make things right.

When Tim Geithner whines about blogs, he’s whining about Americans who are frustrated with a system that is rigged for only the wealthy and privileged among us.  He’s whining about people who do their part, play their role in this economy whose lives are being changed or put on hold because of high tech, high finance gambling on Wall Street.  While the Treasury Secretary ‘dithers’ and prepares to throw more of our money into the maw of AIG or CitiGroup with little transparency or meaningful explanation, he’s blowing his boss’ political capital as well as our tax dollars.

I guess you could sum this up as follows: If we’re in what’s akin to a wartime situation, lay it out for us, don’t talk down to us.  And, since this isn’t war, shed the light of day on where the hundreds of billions of money from the executive branch has gone – every penny – and explain what $4 trillion in “guarantees” from the Federal Reserve means.

Finally, Bernanke Tells Us How He Really Feels …

From Bloomberg Tuesday afternoon:

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

More AIG Bailouts Could Add Another $200 Billion to Taxpayers’ Tab

$30 Billion over the weekend brings current total to $170 billion

An article by the Associated Press this afternoon comes the closest I’ve seen in awhile to explaining, in plain English, why the Federal Reserve and U.S. Treasury seem hellbent on propping up AIG.

AIG, the world’s largest insurer, has tens of millions of customers and operates in 130 countries.  What’s gotten them in trouble is a scam the company ran over the past few years called credit default swaps.  These CDSs were essentially insurance policies sold by AIG and bought by other financial services companies and banks.  What they were supposed to insure were the multitude of mortgage backed securities, aka, the now toxic assets.  Only AIG and other purveyors of these CDSs bet that property values would continue to rise indefinitely – meaning they would never have to pay out on the “insurance” of the underlying investments.  We know today that the bubble burst and AIG didn’t have the cash reserve to come even close to making good on all of its CDS obligations. Read more

Federal Government Throwing $30 Bln More Down AIG’s Rat Hole

From the New York Times tonight:

The federal government agreed Sunday night to provide an additional $30 billion in taxpayer money to the American International Group and loosen the terms of its huge loan to the insurer, which is preparing to report a $62 billion loss on Monday, the biggest quarterly loss in history, people involved in the discussions said.

The intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.

Federal officials, who worked feverishly over the weekend to complete the restructuring, said they thought they had no choice but to prop up A.I.G., because its business and trading activities are so intricately woven through the world’s banking system.

From Reuters:

Allowing the collapse of AIG, which has struggled to sell assets, would have far-reaching consequences for the global financial system as the company guarantees about $300 billion of asset-backed securities and other debt, analysts have said.

The government has been blamed by many for exacerbating the financial crisis by allowing Lehman Brothers to fail.

“The government really does not have the option of letting AIG totally blow up,” said Robert Haines, senior insurance analyst at CreditSights.

“The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away,” he said. “Hopefully, the third bailout will be the charm.”

Bailouts, Stimulus, Etc. – What Has The Rush Gotten Us?

Drudge Report has been trying mightily since Saturday to “sell” this story: If there was such a hot rush to pass the stimulus bill, why was President Barack Obama taking the weekend off in Chicago?

What Drudge does is show he’s in the tank for the Republicans when he runs a picture like the one to the left “above the fold” all weekend with the following headline: What’s the rush? ‘Urgent’ stimulus on hold for Obama’s weekend off …

First of all, no president of the U.S. has a “weekend off.” Not even George W. Bush, although some may say he took years off.

This is a potshot – Drudge urging the producers over at Fox News to beat up on the president.

But, despite Drudge’s partisanship, he points out a real problem with Republican and now Democrat management of the U.S. economic crisis.  Our politicians are scaring us silly and ramming TARPs, assorted bailouts and stimulii through the government machine with very little transparency and even less accountability.

Back in the Fall when the Troubled Asset Relief Program, aka $700 billion bailout, was rammed through Congress there was lots of scary talk about meltdowns and companies so big and far-reaching that we couldn’t possibly let them fail.  $350 billion of that bailout went out to the banks and Wall Street.  We still have barely working credit markets.  They’ve loosened up a bit, but nothing much has changed in the past several months.  We also know that a lot of our tax dollars were wasted on bonuses, exorbitant compensation for failing management teams, mergers and acquisitions.

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