Mob Rule

I see broadening support for mob rule on the question the AIG bonuses.  Let me single out Felix Salmon, who would rather type than do his homework:

If AIG simply didn't pay the bonuses, would the employees of the financial products arm really fancy their chances in court were they to sue to receive them?

It's possible that they would "win" such a court case -- if by winning you mean having your picture splashed across every TV screen in the land as an exemplar of out-of-control greed and avarice. Which is why AIG could probably have quite a persuasive conversation with the AIGFP employees, along these lines:

"We know we promised you this money, but it's clearly politically impossible for us to pay it to you. So you're not getting the bonus you were counting on. Sorry about that. At this point, you have three choices. You can continue to work for us, and keep your job. You can quit, and find a better-paying job elsewhere. Or you can quit, and sue us for the bonus that we promised you. Your call. But if you choose the third option, you'll probably want to hire a PR person at the same time as you hire a lawyer."

I suspect that most of the affected employees would not sue AIG, and that the bonus payments would therefore be saved. It's hardball, but it might well be effective.

Let's see - first, as Liddy explained to Geithner (or see ABC News or the WaPo), under the applicable law employees could sue for double their wages plus legal fees.  If we don't want to pay these people $165 million, how will we feel about paying them $330 million while enriching their legal teams?  Believe me or use your imagination - plenty of people at these firms are tough, proud, competitive, and very comfortable with lawyers and legal scuffles, and they will welcome the chance to double their bonus. 

There is also this cryptic passage in the Liddy letter - "individual managers who decide to withhold wages that are due are individually liable for violations of the Wage Act."  I don't know if that is a criminal or civil liability and I am confident Mr. Salmon has no idea either.  Maybe he would like to sign off on the order withholding the bonus pool and find out?  How cool would that be if Treasury Secretary Geithner were jailed and personally bankrupted after he loses this lawsuit?  The biter bit indeed. 

Second, as to the notion that these people will be nationally shamed - I hope we are not calling for the threats and intimidation suggested by Michael Crowley at TNR. . (And I deplore these death threats, even if the death is meant to be self-inflicted).  So what club is Mr. Salmon expecting to see wielded?  Does he seriously imagine that the Bear Stearns, Lehman, and Goldman employees who travel in the same social circles as the AIG people will now shun them?  Again, believe me or use your imagination - they won't.

Finally, AIGFP was involved in profitable lines of business apart from credit derivatives.  The management plan in March of 2008 was to ease out group head Joe Cassano (who had led the charge into credit derivatives) and keep the operation going by offering a retention pool of guaranteed bonuses (not incentive bonuses.)  Plenty of people who stayed were neither Cassano acolytes nor involved in credit derivatives, so the current demonization is a bit misdirected.  But satisfying, I'm sure.

MORE:  A rousing defense blaming all of us. 

A KEEPER:  I linked to the above headline but want to save it for hysteria posterity:

Senator suggests AIG execs should kill themselves

IOWA CITY, Iowa – Iowa Sen. Charles Grassley suggested that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.

Grassley is the ranking Republican on the Senate Finance Committee with oversight for Medicare, so when it goes bust he'll know what to do.

FROM THE WAPO:

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.

Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company's collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts. Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.

NOT JUST KABUKI, BUT DUMB KABUKI: From the Times:

WASHINGTON — President Obama and his top economic advisers scrambled to calm a nationwide furor on Monday over bonuses paid at the American International Group, even as administration officials acknowledged they had known about the issue for months.

One day after the economic advisers insisted that their hands had been tied by contracts requiring the payments, Mr. Obama ordered the Treasury Department to “pursue every single legal avenue to block these bonuses” and make the American taxpayers whole.

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

...But administration officials conceded that almost all of the most recent round of bonuses, totaling $165 million, had been paid last Friday, one day before the Treasury publicly acknowledged that it had reluctantly approved the payouts. The officials said that people who received the bonuses would probably be able to keep them.

They have known about this for months, studied it carefully, and come up with no answers.  How does Obama help his image by acting angry and powerless?  Bring back "No Drama Obama"!  (Hmm, maybe we are seeing "No Karma Obama"?

I WANT A LAWYER:  The Law Blog at the WSJ engages in a bit of journalism:

The possible doubling [of the bonus pool after a court fight] is reportedly scaring off Geithner et al. from doing anything, for fear that the government could ultimately end up paying a lot more than it stood to get.

But how likely is a “double the damages” scenario? Apparently it has something to do with Connecticut law. We wanted to find out ourselves, so we called the good folks up at Wiggin and Dana in Connecticut and chatted wtih Lawrence Peikes, an employment lawyer in the firm’s Stamford office.

Peikes who is not involved in the matter, confirmed AIG’s assessment of the legal landscape, saying that a Connecticut statute — the Connecticut Wage Act — generally speaking allows an employee to recover double damages and attorneys fees where an employer withholds wages and the employee can show bad faith or unreasonableness. Peikes says retention bonuses may well be considered “wages” under the statute, and a situation in which “a company knows it is contractually bound to make a payment, but fails to do so” might well constitute bad faith.

I am pretty sure it is not good faith to argue that the retention pool payments are not polling well.

Comments

[Rick Ballard]

I don't believe its "bitter" to note the brainless bellowing of the dumb as a sack of hammers Muddle. I agree with Ranger though about the foolishness of stirring up that vast pool of ignorance. It's actually easier to drown dirty socialist politicians than faceless AIG employees once the water is moving.

[Pofarmer]

I'd also like to add, that I don't think Rich's arguement that "Unless they paid them the bonuses they would have tanked the company" argument, makes folks MORE likely to think said payment was deserved.

[Pofarmer]

This whole thread is just another reason why bailouts never should have been embarked upon.

And, make no mistakes folks, the CONSERVATIVE position would be to let these companies fail and the chips fall where they may and pick up the pieces and go again. No scare quotes required.

[kim]

Yeah, Pagar, and we've got a vicious child on our end of the MAD games. O'Bummer.
===================================

[kim]

Oh, sure, I'm bitter too, Rick. But that's where the sentiment comes from. These confused muddle will probably muddle through correctly eventually. Remember, it was only 53-46. I'm bitter and optimistic.
=======================================

[kim]

There was a rock solid aliquot of good sense, there. The more reasonable of those who were hypnotized by Axelrod's hype will come around, eventually.
==========================

[RichatUF]

JM Hanes-

My comment about the claim is here.

Rove included it in an Op-Ed in the WSJ back in November and in other forums since.

I dug up the law and that part appears to have been amended by the Lobbyist Disclosure Act and various guidence of the tax code. In short, the way Rove reads the law is right-what Obama is doing is illegal-but with the IRS guidence and the LDA it is unenforcable.

[RichatUF]

Pofarmer-

It is a moot point because it seems that quite a few have been spooked so it should make for an interesting few days as it all shakes out. A place like that needs good morale, even though they are losing money while unwinding the positions, not a target on their back.

My point was with the Fed using a "systemic risk" test for AIG (and authority they had before TARP or any of the other goodies we've seen these last couple of months) they moved far away from economics and shotgunned it into international policy. For me, international policy includes the possibility of Unrestricted Warfare and making enemies we don't need.

I'm not so sure a conservative position would be to tell a foreign central bank (or a US State, or those "Too Big to Bailout" Euro-zone banks which are interwoven into the Euro political system about as badly as Japan's banks are), which bought AIG's products in good faith based on a US AAA credit rating and (in the case of Agencies) the implied guarantee of the underlying assets, to piss up a rope or to get in line. This is about US dollar credibility and global dollar velocity.

As I said before, I doubt that the Obama Administration will get the international politics or the economics right.

[Rick Ballard]

How to be SAFE and sorry at the same time. Gotta love this:

The bulk of Safe’s holdings remain in US Treasury bills and much of the loss on its riskier assets will be offset by gains on long-term bills, according to Mr Setser.

Snicker.

Chortle.

"http://www.bloomberg.com/markets/rates/index.html">Guffaw.

Will the Chinese nickname him "Wrong Way Wen"? Those folks are as shrewd as Larry Summers and the Harvard Endowment.

BTW - that's what Wen's threat was about. All the little balls keep falling off the Chinese checkerboard.

[Rick Ballard]

OK - now Guffaw.

Stupid TyphusPad.

[Ann]

JMH,

Along with Rich's terrific research, I might add this troublesome and inappropriate use of "the situation room" run by the NSC for political strategizing: White House Stonewalling on the Situation Room

It makes you wonder what other White House resources are being used to campaign for the DNC. And they were outraged at Rove's use of email. (We haven't even touched ACORN and the U.S. Census.)

By the way, JOM, if you haven't been over to Quasiblog you are missing out. JMH has added some of her beautiful photos which match her intellect.

[Rick Ballard]

Rich,

I don't know if you read this guy on China but I think he's pretty good. (As a reporter, as an economist he's way too close to Krugman.) Interesting about the "hot money" aspect.

[kim]

Hey, JMH, that stereopticon looks like Chimpy McHellonRebs.
======================

[bad]

AP:

Cue the outrage. For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back.

Why the sudden furor, just weeks after Barack Obama's team paid out $30 billion in additional aid to the company? So far, the administration has been unable to match its actions to Obama's tough rhetoric on executive compensation.

Sorry if this has already been linked, but this is not the AP I thought I knew.

LUN

[RichatUF]

Rick-

Not familiar with his work and did like his column on the hot money flows. I'll bookmark it for future reference thanks.

[JM Hanes]

Thanks Rich -- I've done a Cavalry Update with a quote from Rove's article. I'd be happy to give you a hat tip, but I wanted to check back with you first. Are links to specific posts persistent now? Unfortunately, I think Organize for America was specifically formed to avoid the problem Rove mentioned and the kind of questionable White House involvement described by 18 USC 1913. In the kind of irony that is now our daily fare, the brazenness of the partisan political operation now being run out of the White House is just astonishing.

Ditto for the abuse of secure facilities, Ann. It's that casual lawlessness that Rich was talking about.

Thanks sooo much for the encouragement above! And over at QB too.
♥

[JM Hanes]

kim:

The stereopticon Lincoln is one of my favorites, although the first time I zoomed in on the early daguerreotype I was really a little startled at how different he looked.

[JM Hanes]

RichatUF:

Seems I posted too soon myself. :-)

I updated my update to link back to the comments you made on Cavalry I. I appreciate the contribution!

[RichatUF]

JM Hanes-

A first blush the organization seems to get around 18 USC 1913 (in a too cute by half sort of way); however, I don't see how it could get around the collusion of the DNC, the Organization, and the White House which would violate FEC and IRS rules because they are collecting electioneering information, fundraising, and engaging in a "grassroots lobbying campaign".

There isn't a way for the White House (either the EOP or WH Staff) to wall off their influence of the organizations and Obama Administration appointees would have to report the contacts per the IRS and LDA, and federal ethics guidelines (and maybe the Hatch Act) would limit the political activites of an appointee (remember the heartburn about the DOJ appointee maybe hiring based on political criteria) to those aspects which only fall within the scope of their duties (eg. an Interior appointee making a speech in support of funding the National Park Service would be proper; an Interior appointee requesting his audience email their congressman to pass the entire budget would not).

I can work on it this weekend, but I would go so far as to say, by what I've read so far, that the current operation is more egregiously illegal than if the Obama Administration sent the emails out from the White House servers and had his staff running the thing. Obama has the bully pulpit and can request air time on TV. He can do the political work to pass his budget, it was what he was elected to do.

[JM Hanes]

Rich:

I suspect the White House has superficially conformed to the letter of the most obvious laws -- while violating the spirit in every possible way. As I recall, when the air has been thick with insinuations about past administrations, one of the main issues has been whether fundraising and/or party business was being conducted from White House offices/phones etc. or using official email accounts (or personal accounts using the White House server?). The DNC actually is allowed to conduct such campaigns, I believe, which I'm sure is why Organize for America is being sold as a DNC "project." What's qualitatively different from the past, is Obama's total control of the party's central committee. Whether that makes it legally different, I don't know.

The one thing I can't see Obama ever agreeing to do, however, would be ceding control of his database to a third party. That's why I've been thinking that the question of who actually owns it may be key. That strikes me as Obama's likeliest Achilles heel.

[Mike]

Obama is a far sight better than Bush, call him names if you like but Bush dug us in really deep.

[RichatUF]

Mike-

Obama is a far sight better than Bush, call him names if you like but Bush dug us in really deep.

You're a dumbass. The financial crisis is housing based so Fannie, Freddie, and ACORN- all Dem controlled- and big Obama supporters should get in line for a heaping serving of blame.

But isn't it sad and pathethic that Zero is so weak and ineffective even at this stage of his presidency that he has to go and cast about blame for his incompetence. It will get worse (eventually he'll blame his most loyal followers) and no amount of loyalty pledges secured by his fascist followers will be able to take the lights off his failure. He is both the Head of State and the Head of Government and he thinks he just won American Idol.