by John M. Curtis
(310) 204-8700

Copyright March 17, 2009
All Rights Reserved.

              Happy St. Patrick’s Day turned ugly for American International Group with lawmakers on both sides of the aisle calling for the insurance company to return $165 million paid in executive bonuses.  AIG has already received $173 billion in government bailouts, in effect, keeping the company from Chapter 7.  Federal Reserve Board Chairman Ben. S. Bernanke and former Treasury Sectretary Hank Paulson believed AIG was too big to fail, worried about a global wrecking ball hitting the world economy.    President Barack Obama summed up the outrage blasting AIG for recklessness and greed.  “I mean, how do they justify this outrage to taxpayers who are keeping the company afloat?” said Barack, expecting AIG to return the money.  AIG claims they were contractually obligated to pay executive bonuses, despite the company’s insolvency, now 80% government owned.

            AIG, once the world’s biggest insurance company, jumped on the Wall Street bandwagon, generating sizable profits in their investment group trading arcane securities known as “credit default swaps.”  Trading securities, AIG would profit from defaults on mortgage securities by insuring otherwise highly risky investments called collateralized mortgage obligations.  When the real estate bubble burst last year, credit default swaps and other derivatives became worthless, vaporizing the cash flow of major banks and financial institutions.  If AIG went under, it could have dragged down otherwise solvent financial institutions around the world causing a global run-on-the-bank.  When the government bailed out AIG, all their existing employment contracts became null-and-void.  Arguing that they still owed executives compensation stretches logic to the breaking point.

            Obama expressed frustration about his proposed $3.6 trillion budget, meeting stiff resistance from Democrats and Republicans.  Most lawmakers believe stabilizing the financial system tops ambitious new spending programs on national health care, alternative energy, global warming and education.  “To kick these programs down the road for another four years or another eight years would be to continue the same irresponsibility that led use to this point,” said Barack, trying to link his agenda to fixing the nation’s economy.  Everyone knows that inadequate government oversight and wild speculation in the derivatives’ market caused the current collapse.  Connecting the meltdown to a failure to overhaul health care or fund global warming stretches the facts.  Barack may believe improving heath care or alternative energy helps the economy but it didn’t cause today’s breakdown

            When AIG went insolvent and took bailout funds, its contracts with executives were invalidated.  No company faced with insolvency can conduct business as usual, including paying executives extravagant bonuses.  New York Atty. Gen. Andrew Cuomo, a possible 2010 gubernatorial candidate, subpoenaed the names of AIG executives receiving bonuses.  So far, AIG hasn’t responded.  U.S. Senator Chuck Schumer (D-.N.Y.) threatened to pass legislation to force AIG to repay bonuses paid with bailout funds.  “One way or another, we’re going to try to figure out how to get these resources back,” Senate Banking Committee Chairman Sen. Christopher Dodd (D-Conn.).  AIG personifies Wall Street’s current Carpetbagger mentality, where executives plunder companies before shareholders get paid.  Watching AIG’s actions induces reverse peristalsis.

            Republicans don’t know how react to AIG’s indiscretions, seeking to blame the White House.  “I don’t know what President Obama knew about it [AIG bonuses],” said Senate Banking Committee ranking member Sen. Richard Shelby (R-Ala.), suggesting that AIG’s bonuses were known for some time.  Whether that’s true or not, AIG should have shown some restraint in the face of mounting losses.  Reporting a $61.7 billion loss in Q4, AIG knew it was in no position to issue executive bonuses.  AIG Chairman and CEP Edward M. Liddy resigned from Goldman Sach’s board Sept. 26, 2008.  Only 10 days before he received an $85 billion bailout from the U.S. Treasury.  When AIG received another $88 billion bailout March 2, it paid Goldman Sachs a whopping $12.9 billion, an astonishing sum when you consider its stock was already trading for $90 a share.

            Outrage over AIG goes to the heart of the Wall Street scandal that raised questions for China about the solvency of U.S. treasuries.  While AIG handed comparable sums to foreign banks, its incestuous relationship with Goldman Sachs raises disturbing questions about Wall Street.  Recent market rallies raise the question of whether or not Goldman Sachs has put out the buy signal to the nation’s biggest funds after driving the market into oblivion.  AIG Chairman and CEO Edward M. Liddy must answer some sticky questions about whether or not he engaged in egregious conflicts of interest while on the Goldman Sach’s board, resigning only 10 days before AIG received its first bailout payment.  Already out of cash, AIG awaits its next $30 billion installment.  Taxpayers keep scratching their heads asking whether or not Uncle Sam’s largess will finally end?

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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