Yeah, let's just burn their houses down. I can't even believe I am reading this. And do note the utter lack of outrage over the larger losses in the boring, low glamour securities lending area. People who want to believe we need more regulators are determined to look past that glaring regulatory failure, and people who would rather wring their hands than think are wringing their hands.
First of all, as I wasted my breath explaining, AIG FP is active in many businesses, not all of which are focused on credit derivatives. Secondly, Joe Cassano, who led the unit until he was pushed out in March 2008, had enemies inside and ouside AIG FP, some of whom may have agreed to emerge from internal exile and attempt to clean up after him. Thirdly, insurance companies which don't honor their contracts don't last long; it is possible that failure to honor this obligation would represent the sort of default which would ordinarily trigger a bankruptcy or reorganization, which so far the Feds have labored mightily to avoid. Fourth, if the new concept of selective default is that AIG won't pay people or firms the public doesn't like, how confident will, for example, Goldman Sachs be that AIG will honor its obligations to them? (Ok, why are we honoring the AIG obligations to Goldman - surely the Goldman execs could take it out of their bonus pool, yes? Instead, my tax dollars went to AIG, from there to Goldman, and from there to some trader's estate in the Hamptons. Troubling, I would think.)
And FWIW, as the letters to Geithner explained, AIG will have to pay double bonuses after they lose this suit, which they will.
A STRONG SECOND: Glenn Greenwald made a nice "Race To Stupid" entry, noting that the UAW was forced to make contract concessions as a condition of the automakers receivig TARP funds. His point being, I guess, that Treasury and the Fed should have renegotiated the AIG contracts in the dramatic two days in September when AIG hung on the precipice. Uh huh. Sad to say, in the grand scheme of the AIG debacle $165 million is peanuts.
Or does Greenwald think an ex post renegotiation makes any sense? Well, he proposes that the government cite some technicality and force a lawsuit, again with double or nothing damages.
Final thought - if the AIG FP employees simply walk away from their desks on Monday night never to return the market disruption would be stunning. If I were at the Fed I would exhort Obama to put a sock in it.
A STRONGER SECOND: Jane Hamsher won't let facts get between her and a tirade. Her lead:
The White House is worried about backlash over AIG's payout of $450 million in bonuses to the executives in its high flying Financial Services Group, the out-of-control derivatives trading arm that looted the company, destroyed its stock and contracted for huge bonuses even after they saw the risk of collapse.
This is from the second paragraph of her linked article:
The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger.
$450 million, $165 million, whatever - it's an outrage! It's also the "Financial Products" group, not "Services", but again, whatever. Let's also note that some other AIG bonus pools have made the news.
THAT SAID: The WSJ claims the AIG FP bonus pool is $450 million. Well, it's $165 million due on March 15 2008 in the letter to Geithner. However, $55 million was already paid last December (one might argue that uch payment ratified the contract) and more is due in March 2009. Come 2009 the pool will be $327 million less $97 million due to AIG losses, or $230 million. Add that to the $55 million already paid and the $165 million due today and wone gets $450 million. And since this was clearly described as retention pay rather than incentive pay, and since the clear purpose was to keep the machine turning in a post-Cassano era, an attempt to withhold these payments will eventually fail. Well, that is my guess, but IANAL.