Archive for the ‘contracts’ Category

Why AIG Can Legally Be Made To Repay Government

March 18, 2009

PRESIDENT OBAMA on Monday instructed the Treasury Department to “pursue every single legal avenue” to recover $165 million in bonus payments the insurance giant A.I.G. recently made to nearly 400 employees in its financial products unit. A.I.G. has, of course, received $170 billion in bailout funds and yet continues to incur extraordinary losses — some $62 billion last quarter alone.

By LAWRENCE A. CUNNINGHAM
New York Times Op-Ed

A.I.G. insisted it was legally obligated to make the bonus payments and that failure to pay would breach its contracts with employees and expose it to penalties under state employee protection laws. The company also warned that breaching the agreements would amount to defaulting on numerous other business contracts, at staggering cost.

Amid this standoff, there has been an explosion of outrage against perceived excessive compensation to those who precipitated the financial crisis. Some lawmakers have threatened to impose a 100 percent tax on the A.I.G. bonuses and Senator Chuck Grassley, Republican of Iowa, even wildly suggested that the company’s executives consider suicide for their culpability. But moral outrage and public rebuke do not provide legal grounds for backing out of a contract.

If the government is serious about finding a legitimate basis for abrogating these payments, officials must look to basic legal principles. And if A.I.G. is serious that it is legally bound to pay these bonuses, it must do more than say nonpayment would expose it to damages or penalties. Nor is it enough to invoke the sanctity of contracts, because our legal and business system recognizes plenty of valid excuses from contractual duty and even justification for breaching.

There are numerous issues both sides must contend with to evaluate whether A.I.G. was bound to or excused from its payment duties. First, the specific promises that employees made or conditions stated in their agreements must be examined. Determining what promises exist requires only reading the contracts; identifying conditions (which will likely offer more wiggle room in A.I.G.’s duty to pay) requires both reading the contracts and understanding any negotiations that preceded them.

Subpoenas issued by Andrew Cuomo, the New York attorney general, have put much of this vital information into the hands of government officials. Those officials would do well to compare the provisions in these contracts to the job performance of the employees who received bonuses. If employees did not meet stated performance goals, they would be in breach of contract and A.I.G. would not have to pay.

Likewise, A.I.G. has stated that these agreements expressly state that if employees are terminated for cause, they are not entitled to any bonus payments. It follows then that the contracts may preserve the company’s power to deny bonuses to employees who could be terminated for cause but have not yet been.

Apart from specific contractual terms, there are other reasons A.I.G. might rescind these bonuses. They include the nondisclosure of important material information — for instance, if an employee failed to be absolutely candid about the size and risk of trading positions taken on the company’s behalf.

Findings of fraud on the part of an employee would certainly also excuse A.I.G.’s duty to pay.

Read the rest:
http://www.nytimes.com/2009/0
3/18/opinion/18cunningham.html

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Obama, His Outrage in Legal, Political Quicksand Over AIG Bonuses?

March 17, 2009

The only real difference between Bernie Madoff and the management of AIG is that when Bernie Madoff got caught, he pleaded guilty. When AIG got caught, it asked the government for $170 billion.

And it got it. Now the American International Group is going to pay $165 million to its executives as a reward for the fine job they did in duping everybody.

By Roger Simon
Politico
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The Obama administration is officially outraged by this. It is stamping its feet. It is jumping up and down. It is issuing stern statements.

But some are getting ready to pay. Some are getting ready to let the fat cats get fatter.

Larry Summers, director of the president’s National Economic Council, went on ABC’s “This Week With George Stephanopoulos” on Sunday and said the AIG bonuses were “outrageous” but might have to be paid.

“We are a country of law,” he said. “There are contracts. The government cannot just abrogate contracts.”
Baloney. Contracts get abrogated all the time. That’s why there are lawsuits.

It’s not enough for AIG executives to continue to get their huge annual salaries because of a government bailout — they want bonuses, too? Let them sue to get them.

The way the courts work, they should get a ruling within the next century or so.

But while we are waiting, the taxpayers should not stand idle. We should demand the immediate resignation of Edward M. Liddy, the government-appointed chairman of AIG.

Liddy recently wrote a letter to Treasury Secretary Timothy Geithner saying the bonuses must be paid to the AIG executives because, otherwise, their morale might suffer.

“We cannot attract and retain the best and the brightest talent to lead and staff the AIG businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” Liddy wrote.

The best and the brightest? Is this guy serious? As of Sunday, AIG stock had gone down 99 percent over the past year because of these geniuses. But we have to worry they might quit and go elsewhere?

Fine. Let them go. Maybe they can get jobs in Zimbabwe, where kleptocracy is official policy. I think some of them would feel more comfortable there.

Liddy is scheduled to appear at a congressional hearing Wednesday. Actually, I would feel better if he were going on “The Daily Show With Jon Stewart.” That guy really knows how to interrogate.

But I hope our elected representatives get to the heart of the matter with Liddy: Why do Wall Street fat cats believe they operate in a separate world, one where ordinary rules don’t apply and democracy doesn’t work?

Monday afternoon, President Barack Obama accused AIG of “recklessness and greed.”

And he said he is going to “pursue every legal avenue to block these bonuses and make the American taxpayers whole.”

The key phrase, of course, is “every legal avenue.” We do not want our president to act illegally. But I hope he is not going to throw up his hands in helpless outrage if AIG lawyers say the bonuses must be paid.

Read the rest:
http://news.yahoo.com/s/politi
co/20090317/pl_politico/20078

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From March 13:
Republicans: If You Can’t Agree On Core Values Now, Commit Harakiri

Obama Wants You To Trust Markets and Government; But He Offers to Ignore AIG Contracts

March 17, 2009

The President of the United States has demonstrated that he and his advisors care lttle for contracts, American free enterprise and good thinking.

President Barack Obama and his top aides expressed outrage at reports that AIG went ahead with $165 million in bonuses even though the company received more than $170 billion in federal rescue money. Obama directed Treasury Secretary Timothy Geithner to see whether there was any way to retrieve or stop the bonus money — a move designed as much for public relations as for public policy, Philip Elliott of the Associated Press reported.

“I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama said Monday in announcing a plan to help small businesses.

Here is how we justify the “outrage.”  The workers at AIG have contracts.  Same as you, me and Barack Obama.

The real outrage here is what the president is proposing: that he has the power to re-write contracts after the ink is dried and the money is paid.

What happened to the courts?  Did I miss something?  Did the president sleep though “Contract Law I” at Harvard?  Oh, he was writing his book….
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Communists understand this.  If you lived under communism or studied their practices — you do too.

When my wife, who lived through the communist takeover in Vietnam, heard President Obama say the U.S. taxpayers should ignore legal contracts and not pay the AIG bonuses, she flew into a rage and said, “This is how it starts.  This is how the state sweeps away everything involved in legal free enterprise.”

Related:
 Republican Grassley on AIG execs: Quit or suicide

And if this is the thinking of the president’s economic wise guys like Geithner, Summers, Volker; to go and get $163 million legally spent under contract while the world economy is still in a shambles, and further diminish investor confidence in the process — we are in a hell of a fix.
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Or is the President’s announcemnt on the AIG bonuses just political BS dreamed up by Rahm Emanuel?

Did someone check this “go tackle AIG and get back the bonus money” idea with Bernanke?

Confidence is gone Mister President and you have yourself to blame.  You didn’t “inherit” this.

This is what happens when you have a president with socialist beliefs, a crisis, a one party congress, and a media that is mostly in love with their president.

The AIG bonus money is 1/2 of 1% of the $170 billion some bailout to AIG.  It is a footnote and should have remained so to a president that just spent $1 billion an hour in his first 50 days in the White House.

His stumulus exceeded $787  billion and the omnibus $410 billion and now he is angry and chasing $163 million because of the public outrage?

Has he lost his mind?

And he wants us to have confidence in Wall Street and invest; and he wants to have confidence in him and government and spend.  And pay our taxes.

Personally, I have doubts.

Next year my Tim Geithner Turbo Tax IRS Tax Form might say: “Line 1, How much is your income?  Line 2: send it in.”

And the president wants us to have so much confidence that we’ll allow him to spend unknown trillions yet: on another stimulus, other bailouts?  Health care?  Energy?  Climate Change? Education?

The real problem here is the government wishing to control too much in some extra-legal thuinking: we gave you money so your prior contracts are void — you should have known that.

Is this what Obama learned at Harvard?

And where will this heavy handed and poor thinking government get this money?  From taxpayers you and me and the unborn.  That’s generaltional theft.

But in the near term we’ll borrow it from China and I’ll bet there are string atached to THAT.  I KNOW there are strings attached to that.  The communists invented the voiding of contracts.

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By PHILIP ELLIOTT, Associated Press Writer

The White House says it’s looking at restrictions on some $30 billion in taxpayers’ money approved to help American International Group as the administration tries to reclaim or block millions of dollars in bonuses the struggling company awarded executives.

President Barack Obama and his top aides expressed outrage at reports that AIG went ahead with $165 million in bonuses even though the company received more than $170 billion in federal rescue money. Obama directed Treasury Secretary Timothy Geithner to see whether there was any way to retrieve or stop the bonus money — a move designed as much for public relations as for public policy.

“I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama said Monday in announcing a plan to help small businesses.

The financial bailout program remains politically unpopular and has been a drag on Obama’s new presidency, even though the plan began under his predecessor, President George W. Bush. The White House is aware of the nation’s bailout fatigue; hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.

News that AIG still needs billions in taxpayer dollars to prevent a collapse did little to build public confidence, Obama aides acknowledged. Seeking to turn the public tide, White House spokesman Robert Gibbs aggressively criticized AIG and said administration officials were working to put strict limits on the next $30 billion installment bound for the company.

“Treasury has instruments that can address the excessive retention bonuses, and add provisions to ensure that taxpayers are made whole,” Gibbs said.

The AIG news overshadowed what Obama’s aides had hoped to spend the first part of the week discussing: billions of dollars to help the nation’s small businesses in the hopes of getting credit flowing again. Obama heaped praise on the little guys of American industry, often overshadowed in the blitz of government bailouts.

Read the rest:
http://news.yahoo.com/s/ap/200
90317/ap_on_bi_ge/obama_economy

http://michellemalkin.com/2009
/03/17/aig-derangement-syndrome/

Related:
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Why Taxpayers Should Pay the AIG Bonuses; Obama is Dead Wrong On This
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AIG Bonus Caper Demonstrates Obama Administration Weak Thinking
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Stimulus: Way Fewer Jobs Than You Thought
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 Obama Tells “Turbo Tax” Geither To Get Back AIG Bonus Money; Dumb and Dumber

 Obama: Really Want to “Fix Schools”? Try The China Or Singapore Model
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Thowing Money Around Isn’t Always the Cure

http://kreuzer33.wordpress.com/2009/0
3/16/white-house-goes-after-aig-bonus-payments/

Why Taxpayers Should Pay the AIG Bonuses; Obama is Dead Wrong On This

March 17, 2009

Communists understand this.  If you lived under communism or studied their practices — you do too.

When my wife, who lived through the communist takeover in Vietnam, heard President Obama say the U.S. taxpayers should ignore legal contracts and not pay the AIG bonuses, she flew into a rage and said, “This is how it starts.  This is how the state sweeps away everything involved in legal free enterprise.”

The writer of the column below, Andrew Ross Sorkin, explained his thinking of the “Today Show” on NBC March 17, 2009.

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By ANDREW ROSS SORKIN
The New York Times

Do we really have to foot the bill for those bonuses at the American International Group?

It sure does sting. A staggering $165 million — for employees of a company that nearly took down the financial system. And heck, we, the taxpayers, own nearly 80 percent of A.I.G.

It doesn’t seem fair.

So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.


Andrew Ross Sorkin

Everyone from President Obama down seems outraged by this. The president suggested on Monday that we just tear up those bonus contracts. He told the Treasury secretary, Timothy F. Geithner, to use every legal means to recoup taxpayers’ money. Hard to argue there.

“This isn’t just a matter of dollars and cents,” he said. “It’s about our fundamental values.”

On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

Read the rest:
http://www.nytimes.com/2009/03/17
/business/17sorkin.html?hp

Related:

Obama Tells “Turbo Tax” Geither To Get Back AIG Bonus Money
.
Grassley on AIG execs: Quit or suicide
.

Related:
Ultimate Hipocracy and Irony: Obama Wants You To Trust Markets and Government; But He Offers to Ignore AIG Contracts
.
AIG Bonus Caper Demonstrates Obama Administration Weak Thinking
.
Obama Plans to Charge Wounded Heroes for Treatment
.
Stimulus: Way Fewer Jobs Than You Thought

 Obama Tells “Turbo Tax” Geither To Get Back AIG Bonus Money; Dumb and Dumber

Obama: Really Want to “Fix Schools”? Try The China Or Singapore Model
.
Obama’s War On Banks: Backlash Stirring

From March 13:
Republicans: If You Can’t Agree On Core Values Now, Commit Harakiri