WWTBAM Bored

http://news.aol.com/article/grassley-re ... aig/385096

The political rhetoric is getting out of hand!

As the senator's spokesman said, he wasn't being literal. I bet a lot of his constituents were, though.

Personally, I'd prefer a gesture in the French tradition. How about setting up a guillotine on Wall Street?

MarleysGh0st wrote:As the senator's spokesman said, he wasn't being literal. I bet a lot of his constituents were, though.

Personally, I'd prefer a gesture in the French tradition. How about setting up a guillotine on Wall Street?

Roll it to DC when they're done on Wall Street, and I'm all in.

PS I know he wasn't being literal- after all, I did say that the political RHETORIC was getting out of hand.

Jeemie wrote:PS I know he wasn't being literal- after all, I did say that the political RHETORIC was getting out of hand.

But as I said, the rhetoric isn't out of hand, at least as far as a significant portion of the public is concerned. IMHO.

These execs brought their company to the point of bankruptcy (except for the bailout money)--brought the entire global economy to the brink of ruin--and yet they say they're contractually entitled to hundreds of millions in bonuses? What the hell kind of contract was that?

Seriously, what were the terms for determining those bonuses? Have they been published?

If I had a bunch of loose money floating around and a struggling business came to me for help, I might offer it but I would probably put some conditions on it, such as keeping expenses in check and avoid doing stupid things like giving management a big raise to award their incompetence.

It's interesting how this fits the usual Obama pattern: float out a trial balloon (over the weekend, the Obama line was that we couldn't really do anything about the bonuses because the company said it was all legal), then get a lot of negative publicity and change your tune in a hurry (now, the Prez is concerned about it).

MarleysGh0st wrote: Seriously, what were the terms for determining those bonuses? Have they been published?

The problem with corporate bonuses (and compensation in general) is the rather incestuous nature of most boards of directors todays. The idea behind the board of directors is that the shareholders choose representatives who represent their interests and keep an eye on the company's management. In reality, it's a daisy chain of corporate execs augmenting their salaries by getting directors' fees as well. CEO A sits on the board of company B; CEO sits on the board of company C; CEO C sits on the board of company A and they all rubber stamp outrageous compensation packages.

I attended a corporate counsel seminar in December (after the crisis had hit), and they devoted over an hour of time discussing how to structure executive pay, bonus and severance packages to avoid IRS penalties. That's what they are concerned with.

silverscreenselect wrote:

MarleysGh0st wrote: Seriously, what were the terms for determining those bonuses? Have they been published?

The problem with corporate bonuses (and compensation in general) is the rather incestuous nature of most boards of directors todays. The idea behind the board of directors is that the shareholders choose representatives who represent their interests and keep an eye on the company's management. In reality, it's a daisy chain of corporate execs augmenting their salaries by getting directors' fees as well. CEO A sits on the board of company B; CEO sits on the board of company C; CEO C sits on the board of company A and they all rubber stamp outrageous compensation packages.

I attended a corporate counsel seminar in December (after the crisis had hit), and they devoted over an hour of time discussing how to structure executive pay, bonus and severance packages to avoid IRS penalties. That's what they are concerned with.

I agree with that observation, but my question still stands. What were the specific terms of this particular contract? A bonus for superior performance I understand (even though such contracts might tempt executives to take unreasonable risks with the company's assets). But how do they qualify for a bonus in the midst of utter disaster?

MarleysGh0st wrote:

silverscreenselect wrote:

MarleysGh0st wrote: Seriously, what were the terms for determining those bonuses? Have they been published?

The problem with corporate bonuses (and compensation in general) is the rather incestuous nature of most boards of directors todays. The idea behind the board of directors is that the shareholders choose representatives who represent their interests and keep an eye on the company's management. In reality, it's a daisy chain of corporate execs augmenting their salaries by getting directors' fees as well. CEO A sits on the board of company B; CEO sits on the board of company C; CEO C sits on the board of company A and they all rubber stamp outrageous compensation packages.

I attended a corporate counsel seminar in December (after the crisis had hit), and they devoted over an hour of time discussing how to structure executive pay, bonus and severance packages to avoid IRS penalties. That's what they are concerned with.

I agree with that observation, but my question still stands. What were the specific terms of this particular contract? A bonus for superior performance I understand (even though such contracts might tempt executives to take unreasonable risks with the company's assets). But how do they qualify for a bonus in the midst of utter disaster?

Some speculation I heard this morning was that there was unexpected income of about $170B for the last quarter, and the people who caused the huge loss in the first place were to be rewarded, because if they hadn't been playing with credit default swaps and the like, AIG wouldn't have received the bailout.

What's really funny is, I've been to some other boards where I'll see people argue vociferously that these guys should be paid because otherwise contracts are being violated...but in the same breath, they'll rail against union contracts and how they should be ripped up because they're destroying the auto companies.

$165 million constitutes a viable contract that must be honored at all costs, but $20-40/hour is damaging to a company, and the contracts must be ripped up!

MarleysGh0st wrote:

Jeemie wrote:PS I know he wasn't being literal- after all, I did say that the political RHETORIC was getting out of hand.

But as I said, the rhetoric isn't out of hand, at least as far as a significant portion of the public is concerned. IMHO.

These execs brought their company to the point of bankruptcy (except for the bailout money)--brought the entire global economy to the brink of ruin--and yet they say they're contractually entitled to hundreds of millions in bonuses? What the hell kind of contract was that?

Seriously, what were the terms for determining those bonuses? Have they been published?

I would bet that the contracts (compensation agreements) have nothing in them about quality of assets, longevity or anything else like that, but are probably more like sales commissions-- bring in/close $XXX of deals and you get a bonus of $YYY. And the 'contractual obligation' would run along the lines of 'They did bring in/close $XXX of deals, and even though 95% of those deals exploded and brought down the company, they are entitled to be compensated, because they did bring in/close $XXX of deals.'

My first banking job was with a bank that was, at the time, the largest bank in Maryland. They had $8 Billion in total assets, of which $1 Billion was in credit cards (that operation was later spun off to form MBNA-- which stood for 'Maryland Bank, NA') and another $1 Billion was in commercial real estate, and the other $6 Billion was 'everything else.' In 1987, 50% of their earnings came from the credit card business, and 33% came from commercial real estate, both of which businesses were performing very well (credit cards had the lowest charge-off rate in the industry, and absolutely NONE of the commercial real estate loans was 'non-performing,' that is, none were in default). In other words, 83% of the bank's earnings came from 16% of the company, virtually all of whose loans were top-quality. The commercial lending group decided that the commercial real estate group (with which I worked) was a bunch of sissies who were too cowardly to make good loans-- pointing to the lack of defaulting loans in the portfolio, which, to their minds, meant that commercial real estate was passing up too many good opportunities. So there was a coup, in which the commercial lending people took over commercial real estate, and used their own standards to make loans. Part of what drove this coup was that the first bank was deathly afraid of being acquired by NCNB ('No Cash for No Body' or 'No Chinese and No Blacks' or 'Nobody Cares, Nobody Bothers'), and wanted to shake things up, make themselves 'too big to be acquired.'

I thought that this move was, um, ill-advised, and I left the bank (I was fortuitously recruited by another bank, which insisted on paying me about 50% more than I had been making, and gave me what was then the best job I ever had, and even today is second best, behind my first job at Capital One).

Well. The commercial lending team at the first bank did their thing, and they did indeed greatly increase the size of the bank's commercial real estate loan portfolio, but there was a bit of a price to be paid: in two years, they went from a portfolio of $1B loans-- none of which was non-performing-- to a portfolio that included $2B of charged-off loans (which means that not only were they in default, but the bank had given up any hope of ever collecting any money on them). In order to survive, the bank first spun off its 'crown jewel'-- the credit card business, which remained enormously successful, although they eventually got into trouble because they never diversified their business outside of credit cards, and a couple years ago they were acquired by Bank of America, which before that was NationsBank, and before that was... NCNB. And then, three years later, the bank finally threw in the towel, and agreed to be bought by NationsBank... which previously was NCNB (so I guess, technically, they DID avoid being acquired by NCNB-- they were acquired by NationsBank).

As it happens, the bank that I joined was itself acquired by NCNB (it was that acquisition that led to the creation of NationsBank), and that was when I ended up moving to Richmond-- they decided that I would be much more valuable here than in Maryland, and I was given the choice of accepting a huge promotion and moving to Richmond, or accepting a severance package and remaining in Maryland; I took the road to Richmond. As it happens, when NationsBank later acquired Maryland National Bank, I was asked to work on the due diligence related to the real estate portfolio, and some of the stuff that I found absolutely shocked the conscience, I mean, those people were IDIOTS. In one instance, involving a major hotel/office building complex (not the Watergate, but something similar, in Northern Virginia) I found that they had not only lent tens of millions of dollars to a developer who didn't exactly have any tenant prospects for the project ('but he's good people, he'll work something out') but they didn't even do the deal right: the project was built on a large tract of land, and the loan was supposed to be secured by all of the real estate (including the hotel/office complex to be built), but when I ran the survey against the deeds of trust, I found that they actually only got a lien on PART of the land, and the land on which they got the lien was the part that didn't have any improvements on it (well, part of the parking lot was covered). These people were IDIOTS.

But what's the relevance of this fascinating anecdote to Marley's question? Well, the knotheads who made this loan (and others like it) were all lender-employees of the bank, and all were paid decent salaries that included very significant bonus provisions, and their bonuses were keyed to the dollar amount of the loans that they closed, and they were payable during the year that the loan closed-- no requirement that the loan actually be any good or not, no requirement that any of the borrowed money ever be paid, nosirree bobjuch, they got their bonuses solely based upon closing deals. And to add insult to injury, when the loans went bad, the bank ended up laying off a lot of people-- except for the people who made these crappy loans, because the bank needed them to try to work out recovery strategies (the rationale being that they were the ones who knew the business the best, and so, had to be kept on to try to salvage something).

WG did any of those guys later run for Congress?

While the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to the bill. That amendment provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” -- which exempts the very AIG bonuses Dodd and others are now seeking to tax.

The amendment made it into the final version of the bill, and is law.

Separately, Sen. Dodd was AIG’s largest single recipient of campaign donations during the 2008 election cycle with $103,100, according to opensecrets.org.

Dodd’s office did not immediately return a request for comment.

One of AIG Financial Products’ largest offices is based in Connecticut.

Dodd Amendment Rules

* Crack down on bonuses, retention awards and incentive compensation: Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.
* For institutions that received assistance totaling less than $25 million, the bonus restriction applies to the highest compensated employee; $25 million to $250 million, applies to the top five employees; $250 million to $500 million, applies to the senior executive officers and the next top 10 employees; and more than $500 million applies to the senior executive officers and the next top 20 employees (or such higher number as the Secretary determines is in the public interest).

http://www.foxbusiness.com/story/market ... ig---time/

wintergreen48 wrote: And to add insult to injury, when the loans went bad, the bank ended up laying off a lot of people-- except for the people who made these crappy loans, because the bank needed them to try to work out recovery strategies (the rationale being that they were the ones who knew the business the best, and so, had to be kept on to try to salvage something).

Under this theory, Matt Millen should still be running things for the Detroit Lions because he knows the team best and he's the best one to be able to figure out how to salvage something out of the situation.

Maybe I'm simple-minded, but it seems to me the answer here is obvious -- Congress passed a law in which they agreed to send 170 Billion or so dollars to AIG. Easy to do when you print the money. AIG then spent about 0.1% of that money paying retention bonuses to top execs, due to contracts which were signed before the bailout. Fine. Now Congress passes another law, which says, we withdraw $175 million of our original bailout, so you don't get that money that you paid in retention bonuses. So there, nyah, nyah, nyah.


Congress is the problem, not the solution. They shouldn't have bailed out AIG, or any of the others. If they fail, they fail. If it causes some pain, then maybe we won't be so stupid again. But why tear down the entire system to spare fatcats some pain that they so richly deserve?