AIG Bonuses

[Cambridge]

1) I think the tax is illegal and morally offensive.
2) I have many friends who work for Goldman and Morgan and they will have most of their annual income taken away from them by this tax, despite them having nothing to do with CDOs, CDSs or distressed mortgages - most of their sections made money last year.
3) A household income of $250K in NYC is the equivalent of about $100K in the rest of America; therefore, most people at Goldman, Mogan, AIG who will be effected by this are not living extravagant lives, they are NYC middle class.
4) If we want to salvage the financial industry, I'm not sure I understand the point of slashing and attacking the only motivation that draws people into the industry - financial incentive.
5) These bonuses were paid already, and I'm pretty sure that a large percentage of it was used to retire personal debt - either student loan, credit card, mortgages, etc. How are these individuals supposed to return the money/pay the tax?
6) Why would I continue my employment at a bank if my bonus was subject to a 90% taxation from here on out? The banks either have to give the government its money back (most likely scenario) or mass exodus from the banks.
7) I thought the whole point to the stimulus was to stimulate spending...so wouldn't we want bigger bonuses so they will spend more money?

[TC]

Mar 22, 2009 9:31:17 GMT -5 Cambridge said:

1) I think the tax is illegal and morally offensive.

If we want to play the morality card, I think the bonuses themselves were more morally offensive, given that they were paid out by a company which is the poster child for moral hazard.

[jgalt]

Mar 22, 2009 13:48:15 GMT -5 TC said:

Mar 22, 2009 9:31:17 GMT -5 Cambridge said:

1) I think the tax is illegal and morally offensive.

If we want to play the morality card, I think the bonuses themselves were more morally offensive

given that they were paid out by a company which is the poster child for moral hazard.[/quote]

Under your morality, the bonuses are offensive; under other peoples morality the tax is. If you want to have that debate be ready for a long one.

given that they were paid out by a company which is the poster child for moral hazard.

I would like to see you prove this, and i will tell you now that based on where I think you will go with it, the US gov't will always trump a private firm as the "poster child for moral hazard"

[Cambridge]

Mar 22, 2009 13:48:15 GMT -5 TC said:

Mar 22, 2009 9:31:17 GMT -5 Cambridge said:

1) I think the tax is illegal and morally offensive.

If we want to play the morality card, I think the bonuses themselves were more morally offensive, given that they were paid out by a company which is the poster child for moral hazard.

Most people at AIG didn't deal with CDOs, CDSs or toxic assets. Most people at AIG deal in insurance and their business was not failing in the least. They did nothing immoral. To take their compensation away because you are angry at a handful of executives is outrageous.

[mchoya]

If the government wants to tax AIG an obscene amount, I ask that they also tax teacher's salaries 90% when their schools fail to meet NCLB standards. After all, my taxes pay for their salaries too.

And before anyone jumps on me, I know that my local property tax goes toward a teacher's salary, and thus the comparison to AIG doesn't entirely match up. The sentiment behind it, however, does.

[TC]

Mar 22, 2009 17:32:56 GMT -5 mchoya said:

If the government wants to tax AIG an obscene amount, I ask that they also tax teacher's salaries 90% when their schools fail to meet NCLB standards. After all, my taxes pay for their salaries too.

You're confusing base salaries and performance-based bonuses. AIG took a performance based bonus and converted it to guaranteed compensation when the CDS market dried up because their executives have a massive sense of entitlement that other professions don't and shouldn't have (sales bonuses generally aren't paid out when sales go south).

Teachers generally have no salary based on performance - whether they should or not is another argument.

Whether or not you agree with the AIG bonus recovery or not, your analogy is way off the mark.

[jgalt]

Mar 22, 2009 19:22:30 GMT -5 TC said:

Mar 22, 2009 17:32:56 GMT -5 mchoya said:

If the government wants to tax AIG an obscene amount, I ask that they also tax teacher's salaries 90% when their schools fail to meet NCLB standards. After all, my taxes pay for their salaries too.

You're confusing base salaries and performance-based bonuses. AIG took a performance based bonus and converted it to guaranteed compensation when the CDS market dried up because their executives have a massive sense of entitlement that other professions don't and shouldn't have (sales bonuses generally aren't paid out when sales go south).

Teachers generally have no salary based on performance - whether they should or not is another argument.

Whether or not you agree with the AIG bonus recovery or not, your analogy is way off the mark.

That is not true. the way that bonuses have been/are used in the financial field is different than in the normal world. This was explained earlier in the thread. These firms need as much Cash on hand as possible because that is what they used to make money. base salaries are low (compared to total) and the bonuses cover the rest.

[TC]

It's in the 2007 AIG 10-K, read it.

Doing what AIG did with bonuses (socializing the risk onto the shareholder) is just as bad as what the government did with AIG/TARP (socializing the risk onto the taxpayer).

[kchoya]

Mar 22, 2009 20:54:03 GMT -5 TC said:

It's in the 2007 AIG 10-K, read it.

Doing what AIG did with bonuses (socializing the risk onto the shareholder) is just as bad as what the government did with AIG/TARP (socializing the risk onto the taxpayer).

This type of attitude is what I can't stand about liberals - "I don't like the way these people got rich, so let's tax the heck out of them. My work/industry is morally superior, I should not be taxed."

[DFW HOYA]

Mar 22, 2009 21:55:28 GMT -5 kchoya said:

This type of attitude is what I can't stand about liberals - "I don't like the way these people got rich, so let's tax the heck out of them. My work/industry is morally superior, I should not be taxed."

Anyone expecting a 90% tax on bonuses in Hollywood? I didn't think so.

[TC]

Mar 22, 2009 21:55:28 GMT -5 kchoya said:

Mar 22, 2009 20:54:03 GMT -5 TC said:

It's in the 2007 AIG 10-K, read it.

Doing what AIG did with bonuses (socializing the risk onto the shareholder) is just as bad as what the government did with AIG/TARP (socializing the risk onto the taxpayer).

This type of attitude is what I can't stand about liberals - "I don't like the way these people got rich, so let's tax the heck out of them. My work/industry is morally superior, I should not be taxed."

Oh please, my argument is that taking merit-based compensation and making it guaranteed just because situations have changed and you can't meet it is total BS. That's what AIG did. Being against that is a conservative attitude, not the pseudo-socialist attitude that the "AIG bonuses are okay even though they didn't perform because you can't question people making money" attitude takes.

Teachers don't get paid on a performance-based pay structure. They make small base salaries, just like the AIG base salaries are not being taxed. So the analogy mchoya made was terrible.

[GIGAFAN99]

I think we're way off topic here. First, you can't "socialize risks onto the shareholder." Shareholders are inherently accepting risk of loss; taxpayers are not.

Yes, the incentives for individuals to benefit in certain groups were misaligned with the reasonable risk level for AIG. The C-level and the board are responsible for this. There's no question.

But the mid-level executive in some division that doesn't even know the RMBS or CDS clowns, shouldn't be punished here. Especially because I guarantee he or she has been churning out solid bonuses while the ones who brought the company down have already banked millions more.

How do you get those back then since you can't have a law that taxes 30 people? You might not be able to. And nobody wants to hear that. The government is so far in it with AIG that they can't cut them off so there's no leverage there. And any other solution like this global 90% affects many people who are entirely blameless.

It's tough, no question. And it's an issue that is causing such a political and economic firestorm that someone, like oh, the president, might want to speak up on it in a definitive manner.

[Filo]

The president can't speak up too much because he knew -- or should have known (why hold the current president to a lower standard than the prior president) -- that AIG was contractually agreeing to pay the bonuses months ago. He was either lying on Leno or he was not as informed as he should have been. Same old same old in DC...

[The Stig]

You really expect Obama to have known every clause in every executive's contract at AIG?

As others have said, shareholders should be the ones denying bonuses to executives who fail, but I think this case showed pretty clearly that the shareholders fail to do that. There's a groupthink/herd mentality problem on Wall Street. Since executives always get nice big bonuses, nobody thinks to pull those bonuses back when the companies are in bad shape. I follow the airline industry, and there you always see executives taking fat bonuses when their companies are quickly becoming best friends with Chapter 11.

[Filo]

Mar 23, 2009 8:30:39 GMT -5 The Stig said:

You really expect Obama to have known every clause in every executive's contract at AIG?

No, I don't. Do you really think it makes sense to classify these payments as just your run-of-the-mill clause in every executive's contract given the situation as a whole?

The left hand of the president's administration doesn't appear to know what the right hand is doing, and the president is ultimately accountable.

NPR

[jgalt]

Mar 23, 2009 8:40:06 GMT -5 Filo said:

The left hand of the president's administration doesn't appear to know what the right hand is doing, and the president is ultimately accountable.

Or just a bad president who does nothing but continue to campaign

[Cambridge]

All I'm saying is our fellow alums (the lucky few who weren't already layed off or employed by Bear Stearns or Merrill Lynch) who work at Goldman, Morgan and the other banks who had nothing to do with any of these toxic assets or crazy schemes will have most of their annual compensation taken from them by the government because you and most of the country are angry at a handful of executives who they don't know, didn't work with and made considerably less money than.

Just stop and think, this effects everyone who worked at any bank that took money from the government and whose household income is greater than $250K. Basically, that's everyone in NYC who works in finances because: 1) the government forced all the banks to take bailout money so that the really weak banks (those that desperately needed the money) wouldn't be identified, 2) $250K while a lot of money is not even close to targeting/limiting the impact to the upper management.

And here's the kicker. You know that plan that Obama announced today where he said he wanted to get the private sector in to help with the toxic assets, by offering subsidies to hedge funds and the like? Now, I think that is a great idea, but I guarantee you that as sweet a deal as it sounds to the hedge funds and other money men (they will get very rich off the deal and I feel it is our best bet to turn the economy around) not one of them will take the government subsidies if the AIG compensation thing continues.

[TC]

Another question - does anyone seriously think this will pass the Senate and not be vetoed? I don't.

[Boz]

Mar 23, 2009 10:43:05 GMT -5 TC said:

Another question - does anyone seriously think this will pass the Senate and not be vetoed? I don't.

No. (don't think it will come to the veto).

And just so you don't think I am 100% a snarky partisan, I am pretty angry and disappointed at how many House Republicans voted for this. So much for your principles, fellas, the ones you wanted us all to believe in again when you held together to oppose the stimulus. WTF, Eric Cantor???

As I said once before, nothing good ever happens when populism runs amok.

(Obviously, I'm angry at the House Democrats too, but being the snarky partisan that I am, I was expecting them to vote for it).