French Execs Shoot Their Gun; Our AIG Employees Accuse US of Extortion
Remember the passage of the white paper threatening to blow up the global economy if AIGFP’s masters of the universe didn’t get their bonuses? It claimed that if top execs at France’s AIG Bancaire quit, then the French could appoint their own person, which would count as a default.
Departures also have regulatory ramifications. As an example, the resignation of the senior managers of AIGFP’s Banque AIG subsidiary would allow the Commission Bancaire, the French banking regulator, to appoint its own designee to step in and manage Banque AIG. Such an appointment would constitute an event of default under Banque AIG’s derivative and structured transactions, including the regulatory capital CDS book ($234 billion notional amount as of December 31, 2008), and potentially cost tens of billions of dollars in unwind costs. Although it is difficult to assess the likelihood of such regulatory action, at a minimum the disruption associated with significant departures related to a failure to honor contractual obligations would require intensive interactions with regulators and other constituents (rating agencies, counterparties, etc.) to assure them of the ongoing viability of AIGFP as well its commitment to honoring counterparty contracts and claims.
Well, those top execs just shot their gun at the global economy. (h/t masaccio)
Amid the flap over bonuses at American International Group Inc. two of the company’s top managers in Paris have resigned. Their moves have left the giant insurer and officials scrambling to replace them to avoid an unlikely but expensive situation in which billions in AIG trading contracts could default.
Representatives of the Federal Reserve, AIG’s lead U.S. overseer, are talking with French regulators and AIG officials to deal with the consequences of a complicated legal scenario in which the departures of the managers in Banque AIG, a subsidiary of AIG’s Financial Products unit, could trigger defaults in $234 billion of derivative transactions, according to people familiar with the situation and a document AIG provided to the U.S. Treasury.
Meanwhile, other European AIGFP MOTUs are accusing us–their bosses–of the same crimes they’re committing. (h/t Americablog)
AIG Financial Products unit head Gerald Pasciucco told a staff meeting for UK and Paris employees on Monday that he thought a demand for repayments was to a certain extent "blackmail," said a London-based recipient of one of the retention bonuses from the bailed-out insurer.
"The vast majority of people in London have made the decision that the request is pretty offensive," the employee said. "It effectively constitutes blackmail whether it is criminal or not. There is no moral reason to give it back."
[snip]
After the meeting, a compliance officer for the Banque AIG unit in London went so far as to ask UK authorities from the Serious Organised Crime Agency (SOCA) to probe whether demands to return the payments could be considered extortion, according to emails obtained by Reuters.
[snip]
In his email sent Tuesday to Banque AIG employees, Haig recommended that they not agree to make any repayments until SOCA had examined the issue, according to a copy of the email obtained by Reuters. Haig wrote that such payments could require consent by authorities under "money laundering provisions."
Someone ought to tell Pasciucco and Haig that it’s not extortion when your boss does it. Particularly not if the boss in question does so ignoring clear threats of catastrophe if said boss exercises boss-like authority. Hell, if EFCA had been passed, they might consider getting themselves a union if they think their bosses–the American taxpayers–are so mean.
Keep in mind, too, that Pasciucco is the guy we brought in to try to fix AIGFP. Nice guy we’ve chosen to work for us, huh?
LOL! That’s really really rich coming from the bozos who are ripping us off.
So if the french appoint a regulator (gasp!) to take over Banque AIGFP and that means they get to walk away from a lot of CDS contracts — does that mean Goldman and all their little hedge fund chums take the hit? If so, I say, Vive La France! At this point a mere $234 billion is a drop in the bucket, a bit of a slap on the wrist. Please please please let them tell Timmy and Helicopter Ben to piss off and trigger the default…
Will we, the US taxpayers, be on the hook if in fact defaults are triggered?
The guy who said “There is no moral reason to give it back.” is right. It’s part of their contracts (unless fraud is demonstrated!).
The people who should be punished are the ones who allowed the retention bonus’s to remain in the contracts. The provisions should have been striken instantly; no debate was needed to determine whether or not to retain the people who lost over $100 billion dollars and drove the company into the dirt.
Why did they want to reward failure? Who’s got the torches? Where’s my pitchfork?
Moral or not, unless the fools have assets in the United States, they’ll keep their money. I’m not aware of any way in law that AIG or the Government can retrieve those bonus.
Further, I suspect that the exec’s could sue AIG in a US court for their bonus as long as they met their personal requirements to receive it. AIG has not declared bankruptcy, so those contract remain valid.
It causes me to consider the causes and effects of the French revolution.
Boxturtle (Do you think France would loan us their Guillotine?)
This would go well with all the talk about bankers objecting to “taking haircuts.” Set up the National Razor in Wall Street and offer the “national haircut” as the alternative. Maybe reform could finally get a little traction, and we’d all hear less whining from our latterday aristocrats?
Last I checked morality has been entirely decoupled from Wall Street contracts. Those are entirely different points.
Well, it looks like the talking-them-down-from-the-suicide-vest thing didn’t work any better than the post-partisan unity schtick did.
To be fair, I think Obama had to go through both exercises if only for form’s sake – “I tried it nice….”
But, more to the point, does it not strike anyone here as just a little bit … strange … that these two clowns decided to do this? Last week, we were chewing over the terms of one of the derivative contracts. And, is it not just a bit strange that out of all the trillions of dollars of derivative contracts with all their multifarous (negotiated) terms, in the one contract we were allowed to see, the one highlighted single event which we were told was the way to start a catastrophic cascade failure, was the one event which, quite deliberately took place?
Amidst a flood (see, e.g., Mr. DeSantis’ op-ed of yesterday, and anything by that clown on the floor of the Chicago Merc for CNBC) of petulant, frenzied self-indulgence by the overpaid shitheads who seem to have found their way into overpaid jobs where they do nothing of worth?
It all seems a little too well … pre-arranged.
Today, instead of entreaties, Obama should be saying “Greetings from the President of the United States”. And nothing quite says “Greetings” like this, or like this, or perhaps both.
This has bothered me since it came out. Are contracts that make the continued employment of a single employee a condition of the agreement common practice? Are they even legal?
A condition like this seems very self-serving, particularly if the employees in question are executive management and thus, presumably, part of the contract negotiations. Can I, as CEO, add a clause to every agreement that says that unless I, personally, am employed by the firm for the term of the agreement, ALL of its obligations are automatically in default?
How can this be justified in terms of fiduciary obligations to shareholders?
responding to your questions in order:
1. They are not common, but also not uncommon, depending on the context.
2. Quite legal.
3. Sure, you could add that clause. Whether the other party to the proposed contract agrees is another matter.
4. Depends on the circumstances, but it should be pretty easy to construct a scenario where this would be justifiable as to the sort-banks and the banksters. Would a contract involving Microsoft and another corporation which states Microsoft would be in default, and the contract void(able), if Bill Gates was no longer associated with Microsoft be justifiable in terms of the other corporation’s management’s fiduciary duties to its stockholders? Probably yes, especially if Gates was a primary reason for the contract existing in the first place. Would it be justifiable as to the fiduciary relationships between Microsoft’s management and stockholders? Probably yes.
What we have here is a bunch of people, not unlike Addington, Yoo, Bybee and Delahunty, who have undertaken to pervert the law into serving them nd their purposes, and against the purposes of the law. In other words, the worst.
You know, look closely at the way the white paper is written. It’s a very sneaky lawyerly way of trying to get the reader to think that Bonus Clawback = unhappy French subsidiary execs leaving = default resulting in crippling collateral call. But that’s not what it says and not what’s happening. The white paper merely says “departures can have regulatory consequences” and gives an example what might happen if the French subsidiary people leave. But they’e not AIGFP people. So it’s an inapposite example misleadingly juxtaposed in order to create the impression that the bonus clawback will cause a disaster. It’s worse than that, because I think the authors were well aware of the impending departure of the Frenchies (who are perhaps trying to stay a step ahead of the gendarmes) and all of the negative ramifications. So those Burson-Marsteller PR wizzes teamed up with some slimy lawyers to cook up this scenario so that after this pre-ordained event happens, they could later say, see, it’s all the fault of the angry mob who took our precious bonuses away. I predict that we something big come from someone at AIG those lines (as carefully and misleadingly worded as the white paper) with the media and the rightblogs making the not-carefully worded claim that the bonus clawback hordes caused the mess, when it is in fact just another wing of the mansion of cards that is falling of its own weight.
Fuckers.
The “white paper” was an advocacy position paper. Its intent was to gain acceptance and support for payment and retention of the bonuses. It paints a false and misleading picture.
That said, it is still possible for the FP bonus babies to trash the global economic system, but the white paper is bogus as to how it paints that fact.
False and misleading indeed. I have to confess that I misspoke about the Frenchies not being part of AIG FP, but I think the general point still stands: I think they were expecting those departures and that those departures were for reasons other than the bonuses. It is a peculiarly detailed and specific example. That said, I think you’re absolutely right that there are many ways that the bonus babies can sabotage things (further than they already have, given that they are responsible for creating a Doomsday Device).
There are also outright lies, such as “[a]t the time [the bonus contracts were created], AIGFP was expected to have a valuable, on-going role at AIG.” Now, AIG has been very cagey about exactly when these contracts were actually executed — the retention contract document that AIG produced bears no date, and the white paper uses euphemisms like “early in 2008″ and “first quarter of 2008.” My best guess is that it came out in March and was put together at roughly the same time as the Cassano “retirement” agreement (the one with the $1 million/month hush money in it). That would put both of those documents right after the PriceWaterhouseCooper biennial audit, which — massaged and compromised thought I believe it to be — made a couple of things clear: (1) AIG FP’s credit default swap portfolio was in deep, deep trouble; and (2) as of the end of December 2007, there were material weaknesses in accounting controls at Cassano’s shop. I’ll leave aside the peculiarity in the accoutning firm’s declaring that as of the audit period there were sufficient controls in place for the report to be an accurate assessment of the books according to GAAP, but that all of a sudden the world changed at the end of the audit period (after all, accounting controls do not usually evaporate overnight or in convenient accord with biennial audit periods). We now know (from the shareholder suit) that PWC accepted AIG FP’s valuation of its credit default swap protfolio for the last quarter of 2007 — likely because PAC couldn’t figure it out (which is very very bad for PWC, I think). We also know that at some point, Cassano would not allow either internal or external auditors to look at the relevant books (I would put that in the last quarter of 2007 as well).
In any event, the main point is that if I’m right about the timing of the contracts, AIG knew full well not only that they were in the shit (which they knew earlier anyway), but that the shit was way deep and probably was going to have some serious legal consequences. And what did they do? they locked in big bonuses for AIG FP people and they gave Cassano — who is likely going to jail for what he did — a very sweet resignation package.
This is very, very ugly. Hence the vehemence of the pushback. These people really are scum.
One other thing: This is small beer in the grand scheme of things, but I think you would apprecitae their slimy and upersuasive claim that the bonuses would be protected by Connecticut’s wage-payment law. In support of the statement that the “courts” have held tht bonus payments of this kind are “wages” under CT law, they cite one (1) decision–and it is an unpublished federal district court decision, not even an actual Connecticut state court decision. I haven’t read the case, but I would not be surprised if it’s less apposite than they make it out to be. This is John Yoo/Jay Bybee-style lawyering.
By the way, what up with the white paper’s having no indiciation of who prepared it, who asked it to be prepared, when it was prepared, and to whom it was addressed? Very peculiar legal memo.
Those guys ought to be careful with weapons. They clearly don’t know which is the business end.