Monday, March 30, 2009

Former AIG Executive’s Whereabouts: Quick Note on Scandal Follow-up Questions We Hope Are Being Asked

This is a to take note about questions we hope are going to being asked about the whereabouts of AIG executives after they leave AIG. Asking the questions would seem to be imperative given what we view as the patterns of self-dealing in which AIG executives have been involved.

Windfall Funding of Barclays Atlantic Yards Vanity Advertising by U.S. Taxpayers
We previously wrote about the AIG scandal observing that, as Develop Don’t Destroy pointed out and a number of news organizations are following up upon, Britain’s Barclays Bank is funding a $400 million vanity advertising expenditure on naming rights for Atlantic Yards sports arena with windfall money derived from the U.S. taxpayers. (See: Thursday, March 19, 2009, Willets Point Lawsuit Points Out . . .)

What Makes it a Windfall for Barclays

What makes this a windfall paid for at U.S. Taxpayer expense is the fact that, in a self-dealing fashion, AIG executives routed substantially more money to Barclays than it deserved. We said in our previous article:

As people closely following the scandal know, AIG has been routing federal bailout money around the world and to Wall Street, essentially buying favor with big firms and banks by unnecessarily paying 100% on the dollar to extinguish collateral obligations which should have been extinguished with much lower negotiated discount sums. This has turned into windfall infusions of cash, a counterintuitive reward for financial companies who (foolishly?) placed their bets on AIG’s unregulated derivatives and CDO division being sound.
More Self-Dealing: Retention Bonuses

Commenting further in the self-dealing aspects of what was going on, we brought up the subject of the "retention bonuses" AIG executives gave themselves rights to:

AIG’s undiscounted billions of dollars in payouts to banks like Barclays are an example of how poorly managed the AIG government subsidies are, but people probably understand the problem reflected in the case of the AIG “retention bonuses” better.
Our Two Cents: The Atlantic Yards Analogy- Who says You Get to Clean Up the Big Messes You Make?

Adding our two cents to the points DDDB made, we found, with respect to those bonuses, another analogy with respect to Atlantic Yards (like the AIG scandal, also a product of New York’s “FIRE” sector- Finance, Insurance and Real Estate culture). We asked why the executives who steered AIG into the mess thought they were entitled to be retained (through bonuses) to clean up that mess. This, we said was the same thing as the financially teetering Forest City Ratner executives expecting that they have some sort of propriety right to clean up the mess they very consciously created in Prospect Heights and Fort Greene. (For the latest on the financial teetering and FCR’s hopes to retain development rights at AY, see: Monday, March 30, 2009, Forest City Enterprises announces losses, asserts that AY arena is one of only two new projects to launch in 2009.)

The Old Economics “Moral Hazard” Question of Rewarding Bad Behavior

We were, and are, essentially asking the standard old economics question about the “moral hazard” of rewarding those who fail or choose to destroy or loot the economy. We don’t think that the mismanaging executives should be able to write self-serving contracts requiring them to remain integral participants in the very same companies which they expect the government will be forced to bailout as “too big to fail.”

The AIG executives’ payout of 100% on the dollar to extinguish collateral obligations that should have been extinguished with much lower negotiated discount sums demonstrates that keeping such executives in place doesn’t work. It is far better to clean house.

100% Overpayment Getting More Attention

We are glad to see that the AIG overpayments of 100% on the dollar that we wrote about are receiving more attention now. It is now being investigated by State Attorney General Andrew Cuomo and the overpayments have been reported on by the Daily News as highlighted by Develop Don’t Destroy. (See: Barclays Doesn't Get $8.5 Billion Without the US Taxpayer, 3.29.09 and Follow the money: Enough about the AIG bonuses – focus on the banks' billions, by Michael Goodwin, Sunday, March 29th 2009.)

As the Daily News’ Goodwin puts it:

If AIG had gone bankrupt, the trading partners, known as counterparties, could have received as little as 20 or 30 cents for each dollar owed. Instead, thanks to Uncle Sap, they got paid in full.
He might also have added that any payout of collateral that occurred was only necessary because AIG was having financial problems. The recipients of the 100% on the dollar payout of collateral, like Barclays or Goldman Sachs, shouldn’t be able to have it both ways: Payment of collateral triggered by AIG financial difficulty and then complete and total insulation from that difficulty entirely at U.S. taxpayer expense.

Being Alert for Self-Dealing, the Questions We Think Should be Asked: Where Are They Now?

Having initially focused on the AIG executives’ self-dealing bonuses, we hope that Attorney General Cuomo remembers to be alert for self-dealing on these 100% payouts.

Here is the question we hope everyone will be asking. Not all the AIG executives who received retention bonuses remain at AIG. Where are those executives now? Or where will they be not long from now? Additionally, where will the executives who have yet to leave AIG go? Will we find these executives at the Goldman Sachs and Barclays or any of the other banks and financial institutions that received these 100% payouts?

Attorney General Cuomo has wavered on whether he will be making the names of the AIG bonus recipients public. It is not the names of the bonus recipients we want to know so much as where the executives involved in the 100% payout decisions have gone. Without knowing who they are and where they are now, it will be hard to know what kind of self-dealing there may have been.

1 comment:

Bob said...

nice article, finally explains to me alot about AIG giveaways that I was not totally clear about before.