Volatility

March 20, 2009

AIG 2

NYT admission: AIG is racketeering.

The NYT’s Andrew Sorkin has written a piece unusual for the MSM.

http://www.nytimes.com/2009/03/17/business/17sorkin.html?hp=&pagewanted=print  

What’s unusual is not the standard MSM corporatist ideology and theological adherence to “Too Big To Fail”, the angry volcano everyone dances around, looking more and more tribalistic all the time. Nor is the slimy sanctity-of-contracts argument unusual. On the contrary, it’s the same old heads-I-win, tails-you-lose.   

What’s unusual is how Sorkin openly states, as a matter of fact and not rhetoric, that AIG and the banks are literally extortionists, only metaphorically holding society at gunpoint, but just as surely demanding protection money or else.   Sorkin actually says the AIG gangsters need to be paid or they’ll get revenge through intentional subversion and treason.

Let’s go through it:  

The Case for Paying Out Bonuses at A.I.G. By ANDREW ROSS SORKIN 

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.

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.

 

This is disingenuous. As others have pointed out, there are many perfectly legal ways that contracts can be modified after the fact: if material conditions change, non-performance, non-disclosure of important information (e.g. if a trader was taking reckless positions), functional insolvency (like when the government has to take you over), acts of god, force majeure, unconscionable outcomes, and most of all in this case, fraud and crime.

The facts are that AIG has been running a massive pyramid scheme, selling fake insurance policies to banks to enable them to evade capital reserve requirements. Meanwhile, enabled all the way by corrupt regulators, it was allowed to turn around and claim it wasn’t selling insurance after all, and therefore wasn’t subject to regulation as an insurer, or to maintain the requisite capital reserves of an insurer. It could instead invest the revenues from this scam in other derivative scams, enabling other pyramid schemes, and so on. All of this was certainly in violation of the spirit of god knows how many laws, and I have no doubt an intrepid prosecutor could prove them guilty in the letter-of-the-law sense.

In particular, these bonuses are clearly “fraudulent conveyance”, which is stripping assets from a company in the form of “compensation” when you realize the company is in financial trouble. It’s looting plain and simple, stealing from the company on your way out the door. (AIG is, of course, insolvent in reality; only redistribution of wealth from the taxpayers is propping it up.)

We saw another particularly brazen example of this at Merrill late last year.

So let’s be clear: there are ample reasons to void these “contracts”, or at least delay their execution, which shouldn’t for a moment unnerve any legitimate businessman.  

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.)

 

Beyond the facts of AIG con artistry, let me emphasize the broad fact that the finance “industry” from its inception has sought to exist outside the law. Its entire lobbying agenda has been to empower it above the law, beyond regulation. They have in fact wanted to be outlaws, and succeeded in becoming so.

Of course, as always with feudalists, they only wanted the upside profit from this, and wanted only the people to bear the risks, the costs, the losses, the pain.

And now through flunkies like this they dare to cite the “sanctity of contracts” and accuse anyone who is skeptical of wanting to “break a bond”?

What contracts? AIG wrote all these contracts they could never pay off. Right there they have forfeited forever any right to have any contract which would benefit them, like these loot-seeking “bonus” contracts, honored. They no longer exist in the world of contracts.

What bond? AIG and its confederates long ago renounced any “bond” they could possibly have had with anyone, with any society. For all intents and purposes, they renounced any American or even human citizenship when they embarked upon their monumental con job and looting expedition, when they sought the eradication of all regulation, all social restraint, all rule of law, except where such things could be twisted to their benefit. They are anti-social to the level of a capital crime. They no longer exist in the world of bonds.

So I would happily deal with them as the outlaws they always wanted to be.

And now for the terrorist threat:  

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

 

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave – the buzz on Wall Street is that some have, and more are ready to – they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.

 

So here MSM Sorkin goes further than anyone else I’ve seen in saying (1) these cadres have intentionally set financial charges all over the economy, (2) they are now demanding protection money, (3) if they’re denied, the bombs will go off, (4) indeed these agents will personally detonate these charges, (5) in order to destroy the American and global economies.

This reads like James Bond villainy. And it seems correct. It seems to be exactly what’s happening here.

So why aren’t these extortionists in prison? This is their “rule of law”? Last time I checked extortion was a crime as well.

Here’s the rest: 

Not that any of this takes the bite out of paying these bonuses. For better or worse – in this case, worse – someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear. Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.
That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)

“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.

There’s some truth to what Mr. Liddy is saying. Would you want to work at A.I.G.? Sure, maybe for $3 million. But not if you could go somewhere else for even more – or even much less.

“The jobs are terrible,” said Robert M. Sedgwick, an executive compensation lawyer at Morrison Cohen who represents a number of employees of banks that have taken government money. “You have to read about yourself in the paper every day. These people are leaving as soon as they can.”

Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work – against taxpayers’ interests.

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.

Of course, if taxpayers had not bailed out A.I.G., these contracts would not be worth anything. Andrew M. Cuomo, the attorney general of New York, made the point on Monday, when he subpoenaed A.I.G. for the names of the people who received the bonuses. If A.I.G. had spiraled into bankruptcy, its employees would have had to get in line with other unsecured creditors.

Mr. Cuomo wants to know who A.I.G.’s lucky employees are, and how they have been doing at their jobs. So here is a suggestion for him. Get the list, and give those big earners at A.I.G. a not-so-subtle nudge: Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers. But in the meantime, despite how offensive and painful it might be, let’s honor the contracts.

 

So it’s no longer just rabble-rousers in the blogosphere accusing AIG and the banks of racketeering and extortion, and making comparisons to terrorism. We now have the NYT’s corporatist business section conceding the truth of this and ordering us to knuckle under and submit.

I’ve long had my doubts about the Too Big To Fail religion. I believe it’s a classical Big Lie, meant to terrorize the people into standing by like sheep as the country is further looted.

But even beyond the “truth” of what would happen if we rejected the bailout ideology and let these insolvent entities go down, I don’t see how any human being would want to live under the thumb of this protection racket, paying up every month or else the system goes down and you wouldn’t be able to buy cheap crap from China anymore.

The exponential debt model is not sustainable. One way or another this financial edifice must come down anyway. Many material things will have to be foregone. Wouldn’t it be better to take what real wealth still remains to us and use it toward a rational, human transformation and devolution? What’s more, wouldn’t it be better to come through it with our human dignity intact?

One thing’s for sure. We keep obeying the dictates of government and media, and keep “bailing out” these criminals, and we’ll soon have nothing left of wealth or dignity.     

6 Comments

  1. I saw Andrew Sorkin on Charlie Rose last night. I think he is weening himself off being a Wall St apologist as he too has come to realize the bankers’ folly (presumptuousness) in fighting attempts to regulate the industry so the crisis of 2008 doesn’t happen again. In case you are interested, I have just posted a piece based on his discussion.

    Comment by euandus — October 20, 2009 @ 1:09 pm

  2. I hope so. I haven’t read much by him in awhile. I guess that’s because he was wrapping up the book.

    The passages Yves Smith highlighted at Naked Capitalism painted a fittingly repulsive picture of Dick Fuld.

    Comment by Russ — October 21, 2009 @ 4:55 am

  3. […] and the media will cringe.   It’s just like when the infinitely obnoxious AIG (with an assist from the NYT’s Sorkin) threatened that unless its thugs got their bonuses, they’d refuse to […]

    Pingback by Extortion « Volatility — November 13, 2009 @ 6:02 am

  4. […] would be inelegant, and troublesome for the rich’s peace of mind.    Last spring we saw him delivering AIG’s extortion threat: “we know how to blow up the economy once and for all, so pay us our bonuses or else.” […]

    Pingback by Against the People’s Outrage « Volatility — November 24, 2009 @ 7:36 am

  5. […] Depression, liquidation and eventual serfdom for the rest of us. Sorkin’s job, besides delivering ransom notes from AIG, is to lie to the future serfs, to help lull them into complacency. He’s not very good at […]

    Pingback by Lying Hacks « Volatility — April 14, 2010 @ 5:25 am

  6. […] might as well close up shop.   So we should give in to extortion. Yes, Nocera’s colleague Errand Boy Sorkin has made a career of it. I guess Nocera wants to get on that ransom note delivery gravy train.   It is this strange stew […]

    Pingback by The NYT’s Nocera Lies About Net Neutrality « Volatility — September 4, 2010 @ 7:04 am


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