Taxpayers Fund AIG Lawsuit Against US 784
AIG, now infamous for their executive bonuses, has decided that the $200 billion they received from the government is not nearly enough and is suing the government for the return of $306 million in tax payments. "AIG is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that AIG. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year."
Great Article (Score:5, Informative)
There was a great article in Rolling Stone [rollingstone.com] today that lays out exactly what has happened at AIG in terms most people can understand. It makes my blood boil!
Re:This is Completely PROPER!! (Score:5, Informative)
Since the only reason these minority shareholders even hold stock right now that isn't simply fancy-looking toilet paper is because of the Government's involvement. I'd say to the minority shareholders "You have 35 seconds to stop this lawsuit or we're going to let you lose your miserable little shirts."
As it is, I think the more we understand about AIG's role in the collapse, the more I'm thinking that it should simply be dismembered.
Re:dismemberment (Score:2, Informative)
That's essentially what is happening. The holders of AIGs debts are the real beneficiaries of the bailout. Instead of bankruptcy where they would fight for the scraps of the carcass, they are receiving 100% payoffs, some from the bailout dollars, and some from the ongoing liquidation of AIG assets.
Re:what does this have to do with tech? (Score:2, Informative)
They weren't bonuses (Score:3, Informative)
They weren't bonuses - they were retention contracts. AIG didn't want everyone to jump ship so they offered retention contracts to key people. It's a VERY normal thing to do. The dollar amount may have been crazy - but they were NOT bonuses.
Re:Great Article (Score:3, Informative)
I'd moderate this up, but it's already +5. So I'll just concur. The article is indeed excellent, and even if it's only half true, I don't even know where to begin on the implications. I'd say it's bad enough that the only way to crawl out would be to immediately disband the guilty corporations, disperse their assets to smaller community banks, declare the FED illegal and oust it, all while restarting the dollar from scratch.
Of course, doing that would instantly render so many worldwide investments worthless... :(
To make a stretched analogy: one of our applications (The FED, AIG, related) went rogue (no oversight infinite lending), and it consumed all available resources until the entire system crashed. So, our economy is going to need a reboot and a better sandbox. Unfortunately that will never happen with the amount of lobbyists and special interest groups obscuring or further manipulating the situation.
Re:Is anyone surprised? (Score:5, Informative)
In other words the Banks are using tax payer money to pay off their debts. Lovely.
Banks are required, by law, to maintain a minimum ratio of capital vs risk-weighted assets.
Capital is not just money in the bank. Capital is also shareholder equity, reserves, general provisions (aka losses), and term debt (and other things). Many banks are currently falling below the required capital ratios because of the housing loses, erosion of asset values, and the slowing of the economy.
Legally, many banks cannot loan money at this time.
Re:today's xkcd (Score:5, Informative)
Actually, these bonuses are required pay and they were not performance based. Why are people calling them bonuses then? I have absolutely no idea.
You see, back in 2007 when the CDO market started to bottom out, several of their top traders were considering leaving AIG because they were paid almost entirely basic on a bonus which was a percentage of their earnings for the company. AIG wanted them to stay to help unwind the problem and cut their losses. If they'd known what was going to happen to the entire industry they might have taken another route, but AIG didn't know and they thought these traders were worth keeping.
So AIG struck a deal, that they would continue to get the bonuses they received in 2005/2006 until 2012, as long as they stayed with the company to help cut their losses.
These "bonuses" are basically their pay, and are the only reason they are working there. I don't see how it could possibly be the government's right to take the agreed upon pay away from these people.
Can we complain about this whole deal? Yes. Can we complain about the state of the economy? Yes. Can we complain about inflated pay? Yes. Can we complain about bonuses and all the incentive based connotations that go with it? No. Yet that is what most people are doing.
Once and for all people, these weren't bonuses the way most people think of bonuses. Management didn't decide to reward then, it was pre-agreed upon payment. And it would be horribly immoral for us to take them away from said recipients.
Re:Is anyone surprised? (Score:4, Informative)
he and the rest of the cabinet are trying to prop up a bunch of retards determined to decimate themselves by any means possible.
They aren't trying to decimate themselves: they're trying to enrich themselves at whatever the cost, which currently is decimating everyone else.
Re:Is anyone surprised? (Score:5, Informative)
This is probably the most disturbing thing about the whole AIG mess.
The house just passed what is in all likelihood a Bill of Attainder: http://www.techlawjournal.com/glossary/legal/attainder.htm [techlawjournal.com]
We all know that the average Congressman is an idiot. However, they almost all lawyers too, so they should know better. In fact there was more than one speech on the House floor mentioning this fact. But still the House leadership went ahead.
It goes without saying that they did this for political expediency. The news says they voted to tax the bonuses, and that all anybody will remember. When it fails in the Senate or fails the final vote or is ultimately found unconstitutional, it probably won't be front page news.
On the other hand, if they are serious, what does that say about the current leadership? The Constitution is very clear and unequivocal about this. That they would even attempt it suggests a contempt for the Constitution that at the very least meets the same level of which Bush is often accused, if not exceeds it.
And if they are ultimately successful, then look out.
Re:Is anyone surprised? (Score:3, Informative)
They won't eat their losses; Berkshire Hathaway underwrote a number of 2nd payment CDS. I.e., if your bond defaulted, and your primary CDS defaulted, Berkshire would cover it. If you can buy a bond and insure it several ways over and still earn more than a treasury, it seems less like gambling and more like arbitrage investing.
The people who were really gambling here was AIG. Normal counterparties are limited by the amount of capital they can raise to collateralize the insurance agreement, but as an AAA company they underwrote far more than even their AAA status could finance should the need arise. Because of that, the arbitrage opportunity didn't gradually fade, it stuck around and then disappeared one day.
That said, there's also a lot of people who were gambling with CDS's. CDS is insurance plain and simple, which is why both Berkshire and AIG are in on the business. The difference being that normal insurance is regulated with reserve requirements and inurable interests. I.e. you can't buy life insurance on someone else. But it seems you can buy corporate life insurance without working or investing with them. When there's more money to be paid out when a company fails versus than it's market capital, you're looking at a corporate assassination market.
Re:Is anyone surprised? (Score:2, Informative)
This hasn't been true for some while
Let's examine the graph data
2008-10-01: -332.803
2008-11-01: -88.849
2008-12-01: 167.376
2009-01-01: 294.92
2009-02-01: 118.472
As recently as November 2008 Banks were collectively 88 Billion dollars under on reserves. Remember, capital is not JUST reserves. The stimulus money brought the reserve amount up so that banks could continue operation without declaring bankruptcy (as many would have been forced to do). Much of the problem is that assets are risk weighted. Many mortgage assets have been moved from low risk to a higher risk, meaning the shift in risk has decreased the overall captial ratio.
Again, captial is not JUST money in the bank.
Do not confuse Reserve Ratio with Captial Requirements.
Re:Is anyone surprised? (Score:5, Informative)
Re:Is anyone surprised? (Score:4, Informative)
Incorrect.
No homeloans, no loans for shipping(which exist on loans), no small business loans, no large business loans, no spending and then we ahve all the secondary markets drying up.
There is no bank in the US big enough to handle AIG assetes as a whole.
I think if the just absolved the toxic assets we would be better off.
The value of these companies would diminish, a lot but they would continue to exist and be able to make loans to the remaining good providers.
The business and people that suddenly have more money every month; which they would spend helping business and strengthening the economy.
Then put proper regulation into place to prevent this kind of lending market, and cap the size business like this.
You can argue 'fair' that people not paying there loans getting off the hook, but that is a different issue. I mean, we're going to pay the money one way or another, why not choose a way that puts money immediatly and directly into the hands of consumers? Money moves bottom up, not top down.
I thought the same thing you have, but when something big happens I delve into it. I have talked(emailed mostly) several economic experts. By that I mean people who study and look at economies, not some jack ass on tv telling you when to buy and sell.
AS much as we despise them, AIG broke no law.
How about the 9.7 trillion? (Score:3, Informative)
There at least some public debate about the 700 billion.
How about the 9.7 trillion? 9.7 trillion is a lot bigger than 700 billion.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aGq2B3XeGKok [bloomberg.com]
Only the stimulus bill to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients' names have not been disclosed.
Here everyone, look at the wookie's little friend. Oh you'd rather look at the wookie? That's OK too!
Re:Is anyone surprised? (Score:4, Informative)
>>>Thank God the Obama administration is trying to do something...
>>>It seems that the cash infusion has already caused a bit of an upturn
Boy they sure fooled you. The stimulus bill passed during Obama's term hasn't even been spent yet, and most of it (~90%) won't be spent until after January 1, 2010!!!
Re:Is anyone surprised? (Score:1, Informative)
Why are you equating the bailout with the New Deal?
They are totally not the same thing.
Re:Is anyone surprised? (Score:3, Informative)
you imply some connection between aig demise and poor people suffering. the connection is apparently so obvious that no one so far was able to actually explain it. would you care to?
If that offer's open to anyone, I'd like to take a shot.
What it comes down to is that AIG is currently insuring a large part of the world's banks. If you're poor then you don't really have all that much money, presumably what there is of it is in a single bank account. One of the ones insured by AIG. If AIG goes down all those banks are no longer such safe bets, which is likely to make a run on at least some of them. The banks themselves don't have nearly enough money to pay off everyone who thinks it has money in them, they never had but especially not lately since they've overstretched beyond the legal limits imposed on them. If a run happens and enough people try to withdraw their money all at once, the banks go down and everyone who wasn't fist in line loses everything in their accounts. If you're wealthy you have multiple banks, trust funds and other assets you can sell to live on for a while; however the poor don't have that option.
This is less of a problem in America, because the government guarantees bank accounts itself at the moment, however AIG insures banks worldwide, especially in the UK.