Capital Commerce

The AIG Bonus Fiasco and Taxpayers

By James Pethokoukis

Posted: March 18, 2009

The great Andy Busch of BMO Capital Markets sums things up nicely as usual:

This is what happens when friends don't let friends go into bankruptcy. The US government bailed out AIG and prevented it from going into bankruptcy. As the world's largest insurer, it was deemed too important to allow to fail and cause major disruptions through the market place. However, this "saving" means that no contracts were abrogated or renegotiated by a judge under a bankruptcy filling. This means the major constituents involved in a company such as the common shareholders, the debt holders, the management, and the employees were not forced to all "lose" and take reductions.

This means that the US government's bailout of AIG has caused the US taxpayer to be on the hook for contracts that could've been abrogated under a different method of bailout. While voters are incensed over this development, the worst is yet to come. Now, there is no reason/incentive/point for AIG employees who are highly skilled to stay on to help run the company. My guess, they begin to leave to other insurers if they can. This means that the US government's investment in AIG will be under further duress.

 

Jack Welch and Ludlow

JACK WELCH: Hey Larry, why don’t we step back for a minute. There’s been 24 hours of wild emotion over this thing. Who owns AIG? The US government owns AIG. Now why are they not taking charge of their situation? They appointed a CEO; it’s their CEO. He happens to be a very good man, Ed Liddy, who ran Allstate for many years. They ought to be working as a board of directors with their CEO on what the compensation ought to be. Then they ought to be either agreeing with their CEO, who’s making $1 a year, and doing it as a good citizen, or they ought to get their own man in there, this administration ought to put somebody in.

KUDLOW: But they’re saying, you know Liddy, okay he’s a good man. Basically I agree with you Jack. But you know Liddy is throwing up this blue smoke at us about the contracts. He says there are contracts.

WELCH: Larry, Larry, Ed Liddy is their CEO! They’re the board of directors! Why are they not working with the CEO to get a resolution? These guys want to be critics on the outside, and not owners on the inside. They are owners.

KUDLOW: Geithner and his group should have called Liddy down to Washington. I don’t understand this. And just sat him down and say, okay, here is the way life works. Here’s the way it’s going to work. Is that what you’re saying?

WELCH: It should have been resolved between Liddy and the Treasury, or the Fed, or whoever it is that represents the US government who is the owner of AIG! The idea that these guys who own it, can now all throw rocks at it, makes no sense. It would be like a board of directors throwing rocks from the outside and not being responsible.

KUDLOW: Well why didn’t we put them in bankruptcy in the first place? Some kind of government sponsored

brandon of IA @ Mar 18, 2009 13:02:15 PM

Bush was wrong but

our current Treasury Secretary was in meeting and structured the AIG bailout. So there is plenty of blame to go around and it starts with the voters of this country.

We keep electing the same crooks to the same jobs over and over and then we complain that OUR government is broken. It's our fault, throw the bums out.

Larry of CA @ Mar 18, 2009 11:51:08 AM

Did we forget to mention

whose Treasury Secretary gave the first no-strings money to AIG?

Did we forget to mention that the REASON this was done was to prevent a world-wide collapse of confidence in the U.S. Government and all its treasury bonds?

Muser of NM @ Mar 18, 2009 11:21:50 AM

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Capital Commerce

Capital Commerce

U.S. News business reporter Matthew Bandyk examines the issues, people, and debates that shape the nexus of political and economic life in the nation's capital.

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