The WSJ has a good story today with lots of detail about what’s going on inside AIG’s now-infamous Financial Products group.
The story jumps off a remarkably self-righteous op-ed in the Times yesterday by AIG-FP executive Jake DeSantis, who sent the paper his resignation letter to reprint.
Essentially, it said DeSantis was shocked—shocked!—at the ill treatment he and his colleagues have gotten, saying he had nothing to do with the credit-default swaps that sunk his division, his company, and (nearly) the financial system. He wrote that he earned his million-dollar bonus ($742,006.40 after taxes), somehow missing the point that taxpayers paid it—and without their assistance he would have gotten zip.
But never fear, fans of truth and justice: DeSantis was treated like William Wallace at AIG yesterday, reports the Journal:
Wednesday, employees at the insurer gave a standing ovation for Jake DeSantis, an executive in AIG’s financial-products division, who was the first to publicly refuse to return his retention bonus despite an outcry over the payments.
Joining in the ovation was Gerry Pasciucco, attendees said. Mr. Pasciucco heads the division that had $40 billion in losses last year that nearly sank AIG and triggered the government rescue.
“Freeeeeedooom!”
I like the Journal’s forthright description of the unit in that last sentence, which playfully jabs at the hypocrisy of DeSantis and his embattled colleagues.
But the paper gets further inside AIG FP’s seige mentality:
In recent days, employees have huddled in small groups in conference rooms off the division’s main trading floor in Wilton, Conn., debating what to do. Some have expressed worries about retaliation. One employee said he had instructed his wife to call the police in the event his identity became known and a news truck appeared at his home. Others commiserated that their children have been verbally abused in school. Employees have passed around emails from colleagues who opposed returning the payments.
Oh, no! Call the cops when the media show up!
The Journal also nicely pricks New York AG Cuomo’s bubble here:
Meantime, some AIG employees have criticized an opponent of the bonus payments, New York Attorney General Andrew Cuomo, arguing that he had appeared to support the bonuses in October by backing the need for retention plans at the parent company.
Mr. Cuomo, who subpoenaed AIG to get the names of the bonus recipients, disputes any suggestion he specifically approved the bonuses, said a person familiar with Mr. Cuomo’s investigation. Mr. Cuomo wasn’t informed last fall of any plans by AIG to make payouts under a retention plan for its financial-products unit, said this person.
Nice try, Cuomo.
And another interesting detail: I hadn’t read that Martin Feldstein was a player here:
The bonuses were approved in early 2008 by the board of AIG’s financial-products unit, which included Harvard economist Martin Feldstein, according to a person familiar with AIG’s governance. At that time, the unit’s losses were beginning to surface. Mr. Feldstein didn’t return calls seeking comment.
Good reporting by the WSJ.
Mr. Chittum,
I always like your stuff. But suggesting that, there but for the grace of the taxpayer, DeSantis and others would have "gotten zip" is a non-sequitur, and continuing to call his $1 miilion payment a "bonus" borders on obscurantism.
Had there been no money at all to pay the salaries of the workers tasked with "unwinding" the financial products unit at AIG--taxpayer or otherwise--DeSantis and others like him would have likely made much more, working for AIG's competitors. And AIG would still have something on the order of $80 billion in exposure, to just the riskiest financial products alone.
And, knowing as we all now do that DeSantis' salary for his months of work since the meltdown was $1, it is disingenuous to suggest that his "bonus" payment was anything other than deferred compensation.
I make 5% of what the Jake DeSantis' of the world make, and I won't be crying him a river any time soon. But nor will I excuse the mainstream media for being so caught up in an orgy of populist rage that they couldn't be bothered to report both sides of the story:
http://politic.ology.com/2009/03/25/kill-the-messenger-aigs-side-of-the-story/
#1 Posted by D.R. Foster, CJR on Thu 26 Mar 2009 at 09:53 AM
DeSantis epitomizes the 'new capitalism' where he was personally deserving of every dime he's earned via AIG but in no way associated with any losses incurred (just like everyone else at the company). While availing himself of every benefit conferred by the vast machinery of AIG's operations he now claims that the massive destruction of value was incurred by only a handful and should not affect his compensation.
The population is justifiably enraged by this kind of 'heads I win, tails you lose' hubris.
#2 Posted by Xavier, CJR on Thu 26 Mar 2009 at 10:56 AM
DR Foster does it well, so I'll just say:
Re: "I like how WSJ playfully jabs at the hypocrisy of DeSantis"....
Re: "Freeeeedom"
Re: "Oh no! Call the cops"
As Jon Stewart said, it's not a f*ing game.
http://www.guardian.co.uk/uk/2009/mar/26/7
#3 Posted by Chris Corliss, CJR on Thu 26 Mar 2009 at 11:54 AM
I, unsurprisingly, agree with Xavier completely here.
I don't think that suggestion is a non-sequitir, D.R. Those contracts were signed well before the company was effectively nationalized in September. Had you and I not done that, guys like DeSantis would have headed straight to the back of the long line of creditors fighting over the scraps of AIG's carcass. They would have gotten a few pennies on the dollar, if that.
Now, I'm not in favor of this foolishness in Congress of going back and retroactively taxing this stuff. Two wrongs don't make a right. But they could have played the heavy and negotiated these things down, and anyway, the public pressure has had the effect of doing that anyway.
There are plenty of people smarter than me who say it's unnecessary to have the guys who created the mess clean it up—see this Simon Johnson/James Kwak Times op-ed.
A.I.G. can hardly claim that its generous bonuses attract the best and the brightest. So instead, it defends the payments by arguing they’re needed to retain employees who are crucial for winding down transactions that are “difficult to understand and manage.” In other words, only the people who stuck the knife into the American International Group can neatly extract it for a decent burial.
There is no reason to believe this.
Similar arguments made during the 1997 Asian financial crisis, when currencies and stock markets collapsed in much of Southeast Asia, turned out to be a smokescreen to protect the executives who were partly responsible for the mess.
I just don't buy that these folks are so indispensable. I mean, DeSantis himself says the CDS guys are already gone.
And you can say that all bonuses are deferred compensation on Wall Street. But you can't blow up your company and expect to keep that pay simply because you rigged the explosives to where they would obliterate the global financial system.
And Chris, I don't accept the analogy. Stewart was talking about the wink-wink "we know the system is screwed but play along anyway" game. How poking somebody relates to that, I don't know.
It's appalling that some idiots vandalized the RBS guy's house. That's a little different than calling the cops on your local news truck.
#4 Posted by Ryan Chittum, CJR on Thu 26 Mar 2009 at 02:33 PM
Perhaps I'm misappropriating the quote, but I think the point works for Cramer and for so much bonus reporting. We're not focusing on the real issues. We're focusing on $165 Million of contracts that were written before the takeover. There are billions of contracts that have been paid out to counter-parties. These bonuses are have as much importance as Cramer's screams of Buy! and Sell!
The Economist said it best about Sir Fred: "The world economy is in the grip of the most severe recession since the 1930s. Banks are ailing and manufacturing industry is collapsing. Consumers have lost much of their wealth and unemployment is climbing. Economic nationalism is growing. Oh, and one greedy, incompetent banker has got his mitts on some undeserved millions. Spot the odd one out."
http://www.economist.com/displaystory.cfm?story_id=13235025&CFID=47597639&CFTOKEN=98060929
#5 Posted by Chris Corliss, CJR on Thu 26 Mar 2009 at 05:39 PM
I understand why this could be seen as missing the real story, but I think the public has zeroed in on this correctly. These bonuses represent the unaccountability of finance, the heads-we-win-tails-you-lose rigging of the game, the distorted incentives, the disconnect between millionaire paper shufflers and the real world.
People are so mad about this because they get it and they understand that these folks don't. Now that they've seen the anger and resentment their actions have created, they're scared. It's a wake-up call for the whole system.
#6 Posted by Ryan Chittum, CJR on Thu 26 Mar 2009 at 08:04 PM
These bonuses represent the unaccountability of finance, the heads-we-win-tails-you-lose rigging of the game, the distorted incentives, the disconnect between millionaire paper shufflers and the real world.
People are so mad about this because they get it and they understand that these folks don't. Now that they've seen the anger and resentment their actions have created, they're scared. It's a wake-up call for the whole system.
Exactly.
Speaking for myself, I certainly understand that there are bigger problems than a few hundred million going to the undeserving and unrepentant authors of this mess.
What I cannot get past is the self serving nature of this notion that we should just let it go - forget about it. The same Wall Street that demolished our 401Ks, and ruined the economy expects us to sit quietly and watch our money turn into their bonus checks.
Whatever legal and economic arguments there are for letting them keep the cash are undone by the arrogance of Wall Street's culture of entitlement.
Wall Street keeps talking about how the pols are fanning populist anger - and then has the temerity to lecture the public about why we should forget about their unearned bonuses.
They are fanning populist fury better than any politician.
#7 Posted by murph, CJR on Fri 27 Mar 2009 at 12:54 PM