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AIG, Why Last Week Has me Worried

As a general rule I try to avoid politics on my web pages but after this last week I feel I need to speak up. I see some wrongdoing taking place and I see it very clearly. But unlike the perceived consensus I don't see AIG as the wicked players.

About a month or so ago we got a stimulus bill, loaded with special interest projects at a time when the country doesn't have the funding to pay for it. It's gonna cost us close to a trillion dollars, a million million or $1,000,000,000,000 or 12 zeroes. Can anyone really comprehend how much money that is? Before the Stimulus we had the bank bailout, another $700 billion. And the nation is outraged because AIG paid employees $165 million in bonuses. I'm sorry but that is far south of a drop in the bucket.

Now bear with me, I know $165 million is a significant amount of money. I'm not saying otherwise, but I am saying maybe we should keep it in perspective. Washington just wrote a check that we can't cover and our grandchildren will have to deal with.

Now if it were only that. What really worries me is this, Connecticut Senator Dodd at the alleged urging of the Tim Geithner wrote an amendment into the stimulus bill which made the bonuses legal and obligatory under current contracts. The members of congress and senators screaming the loudest all approved when they voted the bill into law over a month ago. Last week week to a man or woman as the case may be they were shocked. Claiming it as an outrage.

So which is it negligent ommisson or willfull ommission, a lie or incompetence, both very dangerous traits for our leaders to have.

Here are some of the facts as I understand them:

AIG almost went out of business and was bailed out with tax dollars
AIG and/or the recipients of these bonuses broke no laws.
AIG in fact was obligated by contract to pay the bonuses and subject to stiff penalties under Connecticut state law if they did not pay.
The bonuses leave a sour taste in my mouth and many Americans agree.
Washington, congress not only knew about this but voted it into law a month ago
Now that the public is aware Washington is outraged and shocked
The same Polititians that told AIG to pay the bonuses are now out to punish AIG and the recipients

Now we get to why I'm troubled, Congress is punishing a small group of people for following laws they voted for a month ago. Punish is the operative word but ruin is more like it. The ferver is so intense these recipients in some cases fear for their family's lives and our leaders who are culpable themselves are stoking the public's anger. How irresponsible is that. These are the people we depend on to keep us safe.

If the bonuses are so horrible and wicked why is aren't more people asking for explanations from our congressmen and senators for approving of them? Why do they get to claim no involvement when they so clearly were? Where are the question from the investigative reporters? Who thinks they are really safe from politicians who will turn on a dime and ruin people who broke no laws just to gain favor with the masses?

This reminds me of a closing I had about a year ago. The couple was divorcing, in bankruptcy and they were about to go into foreclosure. They contacted me and we met, a CMA showed that they had enough equity to sell and keep several thousand dollars. So we put the home on the market at a discount and listed it with a higher than average ccommission hoping for a fast sell. It worked, one week later we had a full priced contract and 30 days later the home was sold.

The sale was harder than usual to execute because of the bankruptcy but everyone pulled together and made it happen. I'll never forget at the closing table, the wife complained about having to pay the fee, one week earlier I was their savior. I had made thousands of dollars appear where the specter of foreclosure loomed but now I was a bad guy because I was getting paid. Thank god we had a contract and there weren't any politicians around.

A deal is a deal folks. What's gonna happen to business, real estate included, when contracts are subject to the winds of politics and whims of politicians?

Posted by Ron Allen~Fayetteville NC homes on 03/23/2009 01:51 AM

Comments (40)

aig bonuses, political expediency

40 Comments on AIG, Why Last Week Has me Worried

MAR

Yeah I dont know what to think. Its a mess for sure.

In my opinion AIG shouldn't have guaranteed bonuses in there contract. It's a BONUS, they should be privelaged that they have a job, most americans don't. Bonuses should be based on performance, not to say that most of them didn't do their jobs but it's just plain greedy do to the fact that they got bailed out and then we reward them with our tax money?!

Ron, I agree with you. Looks to me like it was a planned smoke screen to keep our attention away from where the money is really going. This whole thing is getting more frightening by the day.

I agree with you totally. The thing I really don't like is every time I investigate the incidents that are smelling like dead fish Dodd is always there.

Best,

Sandy

Ridiculous. It's like a Dilbert cartoon. Congress votes bonuses then hides behind the AIG people when the public doesn't like the bonuses.

Whta a mess. I am not saying AIG should have agreed to the bonuses in the first place - they shouldn't have considering everything - but they did, it was on the contracts, all legal etc. So what would happen, like you said - if somebody at the closing said - oh, by the way. You are only going to get xx% of your check - because now money is tight - I know I would be screaming to get the full amount as I have to feed my family too. Granted that is not a bonus check, but it is an agreed upon amount per contracts. What a mess. ~Rita

The part that scares me the most is that the government is now trying to create legistlation to tax these bonuses (that it seems they somehow gave sneaky consent to...) at 90%!!!

It won't stop with AIG. It's only the beginning.

MAR

I do believe that this is only the beginning. It is a shame that a new President is having to come in and deal with someone else's laundry. Not that either President really had much say as it is mainly Congress but we always tend to blame the President.

This mess uncovered some serious character flaws (Dodd's), piss-poor planning and execution (Geithner) and much posturing and knee-jerk reaction (Congress).

Another problem: how do we explain to our young people why and how people who screw up still get a bonus? Wasn't the whole point of getting a bonus is to give an extra reward for a job done exceptionally well?

The U.S. Dollar will crash to a new level when other countries start waking up and unloading their U.S. currency as their reserves. The smart private capital will flush out of U.S., Printing money tactic to save the economy is only enlongering the crisis and make it from bad to worse.

I think 2010 we will pass more "weird" regulatory measures from the government. I don't see any turning point until the year of 2013!

Ron, The country could be on a very slippery slope when Congress goes back and changes contracts, or taxes specific individuals. What happens if they decide next that in order to fix the housing market, real estate brokers can't charge more than a 1% commission until the problem is fixed?

They should have to be able to pass a test on every bill they're voting on. Don't pass, no vote. Rich

But what about the banks that are doing similar things with OUR money? We don't hear a word about that. It might be time that WE put an end to those bonuses for one and all period. Do we really need to keep paying those huge bonuses while we are in the throws of a recession? I think not...

Being political outspoken never pays off. Some you piss off, some love you. So I don't speak up on the subject in social forums much besides just reporting facts. Its a mess and it needs to addressed.

Are people really upset about the bonuses? Seems to me that the media is just reporting the story of the day, as put out by the politicans. We are being misdirected from the real problem.

It's very similar to Congressmen railing about tax "loopholes". They write the laws and then complain that some are following the law to the letter in order to avoid paying taxes. If taking advantage of a "loophole" is illegal, let's prosecute. If not, write the law that does what you want. Laws are what they actually say, not what you want them to mean.

Your last line is the thing that is the problem. Who wants to play a game when the rules keep changing?

What's gonna happen to business, real estate included, when contracts are subject to the winds of politics and whims of politicians?

I honestly haven't had the time to look into this. My first thoughts were that it would cause an uproar but it would be forgotten within a week as a new issue popped up. I was wrong on the latter. If the bonuses were earned, they should be paid. Not everyone in the company was responsible for it's downfall. Some may well have achieved their goals. Others are working hard to rebuild. We all should want them to succeed. The proposal to tax 90% is ludicrous.

Am I the only one here noticing a "Wag The Dog" type mentality in Washington? What a grand mess. I personally don't want to leverage my children's future for the excesses of today. I certainly hope they straighten this mess out before we become a European welfare-state.

I made a similar comment on another of these posts about AIG. Our 'beloved' Gov't gave a BUNCH of tax dollars to AIG with no restrictions and no questions asked. Because they had money, AIG was legally obligated to pay the bonuses as per contract (whether AIG should, or shouldn't, have entered into those contracts is irrelevant. Fact is, they did). As you stated, bonuses and contracts approved by the Gov't.

Now that the public knows of this, the Gov't is pointing fingers at AIG and saying "Bad Guy!"

So the real question becomes, as we, the people, the ones that are SUPPOSED to control the Gov't, who should we be pointing our collected fingers at, AIG or our current Administration?

This is not the first blog I have commented on AIG and the Governments roll in the up-roar. You have played it out much the same as I see it. If you give something away with no strings attached, you are not allowed to fain indignant when it is re-gifted.

Ron: Thanks for the post. Obviously everyone should be troubled by AIG paying bonuses with borrowed government money. My question is this. Does this make a contract null and void? Probably not in this case because I doubt there was language in the contract that stated this. Still, it's one thing if it's your own money. The right thing to do would be for the AIG employees to give up this money on their own. None of us feels that sorry for people so out of touch with reality. And I would bet they are. They probably needed those bonuses to maintain their lifestyles. It's always a case of what goes around comes around. I'm really not that sympathetic with the Wall Street types. They were in it up to their eyeballs peddling their junk. Now, they're paying a heavy price; just as it should be! Take care.

Ron, you have said what I believe to be correct. I am outraged not at AIG but at our government! Americans need to wake up and get their facts before getting all up in a tiz. We have so many that just follow government blindly. I hope that come next elections there will be some house cleaning!

Two bad things here -

AIG's insurance competitors are not able to compete against unlimited taxpayer funds. AIG can pay all claims no matter how foolish while their competitors are getting hammered in the wallet.

They are getting us used to 90% tax rates. This will only expand to other "evil Rich" people - like anyone involved in Real Estate. In a few years all income over $50,000 will be subject to this rate...

Great post Ron. I really wish we knew what was going on here. Mainly, what went on before and after AIG received the first bailout. Hopefully, it will all come out and we can fix the problem so that this never happens again.

<<A deal is a deal folks. What's gonna happen to business, real estate included, when contracts are subject to the winds of politics and whims of politicians?>> Downright scary.

Rich is on to something...politicians will come after Realtors, Lenders and Appraisers. Maybe we should join the UAW or Teamsters...then we will be part of the protected class.

Julie Ferenzi (RE/MAX Professionals South) Yeah I think there will bill more scapegaoting before too long.

Pacita C Dimacali, Alameda & Contra Costa CA real estate (Gallagher & Lindsey, Inc. 510 748 1148) I'm still not clear on what the bonues were for, retention is what keeps coming up not performance. When I was in the Military some specialties would get this kind of bonus because the market outside the military paid so well it was hard to keep good people around. But I'm speculating I don't know the details.

Home Realty Group I wonder the same thing I don't know if people are really that mad on their own or because this mess got stirred up by congress folk

Tim Maitski "Video Agent Guy" (HomeAtlanta.com) Good point

Robin Turner (Housing Market Realty) I hope you're wrong but in my gut I think you're right.

Lou Coco St. Louis, MO Real Estate 314-477-7642 (Keller Williams Realty St. Louis)you said "I really wish we knew what was going on here" That sums it up for me

By the way Congress recently voted themselves an automatic pay raise for doing such a good job, that's out of touch.

It is time to punish the lawmakers for allowing all of this to happen. They have been taking huge contributions for years from corporations, lobby, pacts and so on. Not one single law gets passed in this country without earmarks, special interest and such that were bought and paid for during the election cycle.

Ron - you're right on in your assessment. I am appalled to think that any executive at any company bailed out with taxpayer dollars is deserving of a bonus. I also recognize that by contract they are obligated to pay. These executives must bear in mind that while they may think they're entitled, they shoud also realize that if the American taxpayer didn't bail them out, they would have no compensation whatsoever. Congress and the power elite in Washington were well aware of these deals and are lying when they say they didn't know.

Meanwhile, these same bank executives refuse to help out the typical homeowners who are upside down in their mortgages, who are unable to refinance into lower rates, and often face loan-level-price-adjustments (LLPA) that make it unworthwhile for them to even consider refinancing. And these same executives in many cases refuse to even consider loan modifications (the stories abound!). Most of these homeowners are in these positions through no fault of their own, and are livid to think these executives who helped create this mess get a bonus when they made money and get a bonus when they lose money - and rightfully so.

But the furor over the bonus plan at AIG was nothing more than a smoke screen created by the Obama Administration to hide the fact that there's a huge sum of money flowing through AIG to other banks and entities - Bank of America and Goldman Sacks to name a couple who themselves also received bailout funds. In addition, there are countless foreign governments and banks getting their share of these bailout dollars. AIG is nothing more than a money laundering scheme, and the administration wants to hide that from you.

All in all, the homeowner deserves a break too. And it's about time these bank executives wake up, lower the mortgage rates, quit padding the rates so they can make an extra buck, rid themselves of the loan-level-price-adjustments (LLPAs), and allow homeowners to refinance into lower rates without an appraisal or proof of income - just like HUD does with FHA mortgages and the VA does with VA Loans.

(My opinions are my own.)

Ron,

You are right on for several reasons that are detailed in your post.

Ultimately what this comes down to is that Washington is broken. Both Republicans and Democrats are failing at their responsibilities and promises - which is to represent the best interest of the American people.

Linda Just

Coming right down the comment line:

I'm with you - broken & more broken - there outta be a law...

We can organize and march on Washington - I'm not too old to do it again!

Ron - Taxing the bonuses is wrong-headed and it will not stand up to a challenge in the courts. There is no doubt in my mind that Geithner, Bernanke, Dodd, and many other knew about these bonuses before they were paid and apparently supported the payment of these bonuses. A few of the many issues that concern me are: 1) the money that our elected officials have received from Wall St banks and investment firms, 2) the number of appointees and their staffers that came directly from Wall St to the Treasury, the SEC, the Fed, the FDIC, and the number of former Wall Streeters in staff positions for elected members on committees responsible for handling banking, finance, and commerce legislation, and 3) the fact that nothing has been done about the ratings firms, regulatory agencies, or regulations to prevent further wrong doing.

Who would have believed that Congress could come up with a tax that so many people would be in favor of. Classic salesmanship...get them used to saying yes. Now if they can get Americans to support that "punishment" tax, how long do you suppose it'll be until they convince the public that successfulevil business people should be taxed higher...for the public's protection. This is getting scary.

Ron: You know, I have always felt that no matter who we put into office as President of this great country, we would always be OK...that the power of the President is simply that of a "figure head" and nothing more--he would need to be good person on top of that; but other than that we will always be OK, no matter who gets into office. After all, the powers that be are already in place and won't let our President do anything wrong or stupid or do anything bad to us, we the people.

UNTIL NOW---the first clue was the gift to the Prime Minister of England...then following that a number of stumbles that were inconsequential, but stumbles, still. Now we have a sense of the real inadequacy of the man we voted into office and it is more than scary. Not only is he in over his head, he doesn't know it and he DOES have a Marxist bent that appears to be coming out into the open.

Add all of it up and we are in real trouble here---My comment may be a little off topic but you brought up the contract thing and that is just one small part of a much bigger agenda. Great post Ron, I think you said it all and put it very succinctly!

The uproar over the recently disclosed AIG executive bonuses is justified. It was bad public relations, a slap in the face of the American taxpayer and outrageously insensitive....... but not illegal from what I can tell.

Congress' reaction was expected. While clearly the circumstances should be investigated (inasmuch as the United States Government owns approximately 85% of AIG), for Congress to get involved is ridiculous. If it convenes one of its investigative panels to pontificate about "wrong doings" concerning $165,000,000, it will assure us that their priorities are as misguided as ever!

First, secure our $170,000,000,000 investment in AIG so this does not happen again and then have your self-serving witch hunt. Personally, I cannot remember anything-positive coming out of those types of hearings that was worth the time, money & aggravation. We the people want substantive action, not just words! We are entitled to accountability.

Where was Congress when it permitted taxpayer funds to be allocated without assuring a meaningful easing of credit and proper investment oversight? Laying all of that at Treasury Secretary Paulson's feet is simply pass-the-blame bull. Many members of Congress are attorneys. So what is their excuse for allowing this charade to continue?

All of the above commentray make good points; some are excellent. Just goes to show that the current Adminstration would be wise to actively seek the input and implementation of real estate-related solutions from real estate professionals, not attorneys.

Ron,

What a mess! That's what Washington is all about, changing course as needed to appease the majority of voters regardless of how unsupportable the issue is.

It would be funny if it weren't so sad. The bonuses represented 0.09% of the bail-out. And the 'waste' was absolutely dwarfed by the waste that Obama called "like a rounding error" in the Porkulus bill... and even in the $410B budget bill. He signed both of those, AND he signed the bill with the protections for the AIG bonuses.

When AIG agreed to the bonuses, they weren't in trouble. And the folks that got them got them because they fulfilled their obligations.

BTW, it is unconstitutional, the bill Congress passed.

Lane you wrote "BTW, it is unconstitutional, the bill Congress passed."

Supposedly the lawmakers crafted it in a way that it will pass constitutional muster, which is as scary as anything. They purposely manuvered around the spirit of the constitution using word games. But no question this 90% tax bill has bill of attainder and ex post facto implications.

It is punishment and it is punishment for something that was legal when it happened.

MAR

It won't get through the Senate from what I understand. And I seriously doubt that they could really craft such crap to get past the Constitution. But I guess they can try.

What is it, 328 Representatives that should be removed from office?

MAR

Just the fact that they tried to skirt the intent of the Constitution is very disturbing.

They were very crafty if you ask me, by using a tax they can claim that this is in no way "punishment" but a plain old tax. And since bills of attainder and ex post facto forbid punishments who knows how the courts would decide.

Like I said, there are 328 Members of Congress that should be removed from office. They have all sworn to uphold the constitution and they aren't doing... they are trying to destroy it.

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