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The AIG Bailout, Part 2. Bonuses.
More from "Bailout" by Neil Barofsky.
Back in the fall of 2008, the New York Fed tried to get a handle on AIG's various bonus agreements, but it wasn't terribly concerned with the details of who would be paid what. The bonus commitments were considered simply in terms of getting a full accounting of how much cash AIG needed. When you are on the hook for $85 billion and counting, as the New York Fed was, $168 million in bonus payments may well seem like just a drop in the bucket.
But as the later reaction to the payments showed, Treasury should have had different priorities. The TARP legislation required that Treasury include executive compensation limits in its contracts, and Treasury had done so with AIG. Executive compensation had already become a hot-button issue with the public, particularly in the beginning of 2009, when news came out that bailed-out Wall Street banks were issuing tens of billions of bonuses. But other than sending some Treasury officials over to AIG in November 2008 for a quick review of the compensation structure for its top executives (but not the Financial Products executives), Treasury took a hands-off approach toward AIG's compensation issues, doing little to oversee the taxpayer's $40 billion investment.
As a result, Treasury was caught flat-footed, finding out about the bonus payments only a couple of weeks before they were due. Had Treasury officials been more effectively monitoring the government's investment in AIG and more concerned with accountability and basic fairness, they might have helped prevent the blowup. For example, they could have forced AIG to renegotiate the terms of the contracts as a condition of the additional $30 billion in TARP funds that they announced several days after learning about the imminent bonus payments. They could have refused to allow AIG to make the payments and dealt with the legal consequences that might have followed. At the very least, they could have alerted Congress and the public before making the payments. Instead, with no notice, Treasury and Geithner stood behind the "sanctity" of the executives' contracts.
Meanwhile, the rationale Neel Kashkari had given me for making the payments- that the bonus recipients were essential personnel necessary to wind down AIG's complex transactions- didn't quite wash. When I asked the audit team for a breakdown of the bonuses by position, I saw that although the overwhelming majority of the payments had gone to a small group of executives, every single employee at the Financial Products group seemed to have received some payment, including $7,700 to a kitchen assistant, $700 to a file administrator, and $7,000 to a mail room assistant. Though I was skeptical that the executives were so essential, I was pretty sure that those lower-level employees receiving taxpayer-funded bonus payments had nothing whatsoever to do with the supposedly complex work of resolving AIG's positions.
But as the later reaction to the payments showed, Treasury should have had different priorities. The TARP legislation required that Treasury include executive compensation limits in its contracts, and Treasury had done so with AIG. Executive compensation had already become a hot-button issue with the public, particularly in the beginning of 2009, when news came out that bailed-out Wall Street banks were issuing tens of billions of bonuses. But other than sending some Treasury officials over to AIG in November 2008 for a quick review of the compensation structure for its top executives (but not the Financial Products executives), Treasury took a hands-off approach toward AIG's compensation issues, doing little to oversee the taxpayer's $40 billion investment.
As a result, Treasury was caught flat-footed, finding out about the bonus payments only a couple of weeks before they were due. Had Treasury officials been more effectively monitoring the government's investment in AIG and more concerned with accountability and basic fairness, they might have helped prevent the blowup. For example, they could have forced AIG to renegotiate the terms of the contracts as a condition of the additional $30 billion in TARP funds that they announced several days after learning about the imminent bonus payments. They could have refused to allow AIG to make the payments and dealt with the legal consequences that might have followed. At the very least, they could have alerted Congress and the public before making the payments. Instead, with no notice, Treasury and Geithner stood behind the "sanctity" of the executives' contracts.
Meanwhile, the rationale Neel Kashkari had given me for making the payments- that the bonus recipients were essential personnel necessary to wind down AIG's complex transactions- didn't quite wash. When I asked the audit team for a breakdown of the bonuses by position, I saw that although the overwhelming majority of the payments had gone to a small group of executives, every single employee at the Financial Products group seemed to have received some payment, including $7,700 to a kitchen assistant, $700 to a file administrator, and $7,000 to a mail room assistant. Though I was skeptical that the executives were so essential, I was pretty sure that those lower-level employees receiving taxpayer-funded bonus payments had nothing whatsoever to do with the supposedly complex work of resolving AIG's positions.
Ironically, the very executives who were most responsible for AIG's problems were the ones that received the bonuses. Geithner's insistence on the "sanctity" of the executives' contracts could be construed as taking the high road- if he consistently advocated that position. The book makes it clear that was not the case as his concern for the sanctity of contracts seemed to evaporate as soon as it applied to someone other than his Wall Street friends. For example, Geithner and Treasury simply couldn't be bothered with the contract rights of auto dealerships during the GM bailout or homeowner's rights in the administration of HAMP.
As Barofsky notes, the bonuses, more than anything else, solidified the notion "that TARP was little more than a massive transfer of wealth from taxpayers to undeserving Wall Street executives.
AIG Bailout, Part 1: http://www.democraticunderground.com/111632333
AIG Bailout, Part 3: http://www.democraticunderground.com/111632331
