Liddy’s Lies to Congress: Meet AIG’s $6.4 Million Man

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As I noted this morning, Doug Poling was the guy whom AIG decided last year should get a $6.4 million "retention" bonus for sticking around a year. (He has since turned down the bonus.)

The WSJ has some details on what Poling has done to be worth so much money.

In August 2007, Douglas Poling sat in on a meeting at which Joseph Cassano, then-head of American International Group Inc.’s financial-products unit, berated an in-house auditor for raising questions about the accounting for a joint venture Mr. Poling led.

The auditor, Joseph St. Denis, resigned the next month after his reporting lines were changed to limit his communications with auditors at the parent company, according to an account of AIG’s dealings he detailed in a letter he wrote to Congress last October.

[snip]

A former Wall Street lawyer who joined the AIG unit in the early 1990s, Mr. Poling oversaw legal work on the contracts that sat at the core of the unit’s business — such as customized insurance-like swaps and other derivative contracts that generated a steady stream of fees, according to former colleagues.

[snip]

In May 2007, as AIG’s swaps problems began developing, Mr. Poling expressed confidence about the business approach of AIG’s financial unit toward one of its products, in an investor presentation with Mr. Cassano.

"We are very careful and disciplined and rigorous in the way in which we structure and document these transactions, and are very sensitive to ensuring that we have early termination rights so that if the rules change, we’re able to unwind those transactions and move on to other segments of the business that are more attractive," Mr. Poling said, according to a transcript of the investor presentation.

[snip]

The Poling-led joint venture discussed at the meeting preceding Mr. St. Denis’ resignation was a partnership announced in March 2007 between AIG’s financial-products unit and closely held Tenaska Energy in Omaha, Neb. AIG began unwinding the partnership in January. [my emphasis]

So, our $6.4 million man was one of the people cheering the safety of AIG’s CDS business, and one of the guys in charge of an energy deal that seemed to be based on dicey accounting. (For more on Tenaska, see page 6-7 of this).

Now, when he testified before Congress the other day, Edward Liddy repeatedly assured the Committee that the people who had put together the CDS business were gone. He stated clearly that the people left over were the good guys, people tied to "traditional" derivatives business. For example, here’s Liddy telling Bill Posey that the guys managing the derivatives–who are distinct from the guys who brought the company to its knees–are getting the bonuses.

Posey: We wouldn’t care about the bonuses if it weren’t for the bailout money. Read more →

President Obama Warns Americans about Threat from Financial Terrorists

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I first suggested that AIG’s masters of the universe had strapped themselves in semtex-lined vests in this post. I then noted that they had issued further threats on the pages of the WaPo.

Apparently, Obama has noticed the semtex-lined vests, too.

But today, President Obama took that rhetoric in a different direction. He actually upped the ante explaining that AIG is like a suicide bomber.

“We had to step in, it was the right thing to do, even though it is infuriating,” Obama said, explaining why the government needed to bail out the troubled banks.

“The same is true with AIG,” he said. “It was the right thing to do to step in. Here’s the problem. It’s almost like they’ve got — they’ve got a bomb strapped to them and they’ve got their hand on the trigger. You don’t want them to blow up. But you’ve got to kind of talk them, ease that finger off the trigger.”

Thing is, I’m not really sure we’re making any progress at talking them out of their terrorist attack, and I’m not convinced the terrorists have full control over whether or not their vests go off. 

The Fear-Mongering to Silence the AIG Employees

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The memo AIG sent to employees offering safety tips might lead you to believe that AIG is concerned about its employees’ safety. And, true, it offers really practical advice about how to limit the chances that someone is going to attack an AIG employee: hide your badge, alert security if people are hanging around.

I do hope AIG employees–and all the banksters–remain safe.

But there’s one fact that suggests this memo is simply a scare tactic.

Edward Liddy, someone who has been on TV as the public face of AIG, took the train to DC for his testimony.

Whatever Liddy’s personal record — he is taking $1 in salary this year without a bonus and took the train to Washington for the hearing — lawmakers didn’t stop in their quest for the names.

If you are genuinely concerned about the safety of your employees, you do not let the most public of those employees take public transportation on a widely-publicized trip.

So I would suggest that the warnings from AIG might serve a completely different purpose (aside from instilling a sense of defensiveness that might draw employees closer together). Consider this warning, for example, ostensibly designed to keep employees safe:

Avoid public conversations involving AIG and do not engage any media personnel regarding the company.

You see, all but a few of the warnings AIG gave its employees have a dual effect: they remind employees to guard their personal safety (and I do hope they remain safe). But they also ensure that anyone trying to report on AIG will be regarded as a physical threat.

And the net effect of such fear-mongering is articles like this one, in which the employees at the highest risk AIGFP employees quoted as being concerned about their privacy and safety (in an article, funnily enough, that provides names and towns of residence), are ignoring the guidelines AIG gave them on protecting themselves. They are talking to the press!!!!

But I’m guessing that’s not exactly what happened–that Jackpot Jimmy somehow ignored the warnings and instead decided to gab to the press. You see, I find it rather curious that the two AIGFP employees described in the article–Jackpot Jimmy and Douglas Poling, the latter of whom got the biggest bonus–are now returning those bonuses. Read more →

Is AIG’s Reinsurance Side a House of Cards, Too?

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The other day, Atrios pointed to this passage, explaining that AIG was reinsuring some of its own insurance businesses.

Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG’s supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being "healthy," as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it "a house of cards." Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG’s own 300-page annual reports, Gober argues that AIG’s 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree.

Most of this as-yet-undiscovered problem, Gober says, lies in the area of reinsurance, whereby one insurance company insures the liabilities of another so that the latter doesn’t have to carry all the risk on its books. Most major insurance companies use outside firms to reinsure, but the vast majority of AIG’s reinsurance contracts are negotiated internally among its affiliates, Gober says, and these internal balance sheets don’t add up. The annual report of one major AIG subsidiary, American Home Assurance, shows that it owes $25 billion to another AIG affiliate, National Union Fire, Gober maintains. But American has only $22 billion of total invested assets on its balance sheet, he says, and it has issued another $22 billion in guarantees to the other companies. "The American Home assets and liquidity raise serious questions about their ability to make good on their promise to National Union Fire," says Gober, who has a consulting business devoted to protecting policyholders. Gober says there are numerous other examples of "cooked books" between AIG subsidiaries. Based on the state insurance regulators’ own reports detailing unanswered questions, the tally in losses could be hundreds of billions of dollars more than AIG is now acknowledging. [my emphasis]

Masaccio pointed me to these two passages in AIG’s 10K, which sound like they may describe what Gober is talking about:

Various AIG profit centers, including DBG, AIU, AIG Reinsurance Advisors, Inc. and AIG Risk Finance, as well as certain Foreign Life subsidiaries, use AIRCO as a reinsurer for certain of their businesses, and AIRCO also receives premiums from offshore captives of AIG clients. In accordance with permitted accounting practices in Bermuda, AIRCO discounts reserves attributable to certain classes of business assumed from other AIG subsidiaries. (10)

Read more →

More Whines from AIG

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Funny. I never heard any UAW employees whine like this when they were falsely accused of ruining the domestic manufacturing industry because they demanded a completely fictional $75/hour.

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. “It is as bad if not worse than McCarthyism,” he said. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, “for their own political agenda.”

Geithner Still Pushing the “Lawsuit” Myth

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Apparently, Tim Geithner is about to go on CNN and admit he was the one who put the bonus loophole in the stimulus bill. But he’s still telling the "afraid of lawsuit" story that Larry Summers already spun.

Treasury Secretary Timothy Geithner told CNN Thursday his department asked Sen. Chris Dodd to include a loophole in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses.

In an interview with CNN’s Ali Velshi, Geithner said the Treasury Department was particularly concerned the government would face lawsuits if bonus contracts were breached.

Aside from the fact that the White House just made the Democrats’ most endangered Senator, Chris Dodd, take the fall for this in two media cycles, I gotta say I’m utterly disgusted that Geithner is still using Larry Summers’ already-discredited excuse about lawsuits.

We own these companies.

We saved them from bankruptcy.

We can demand–as we’re demanding of the car companies–that they forgo their bonuses.

But instead, in an apparent still half-assed charade of coming clean, Geither still wants to pretend that’s why he’s bribing these banksters to stick around the collapsing house of cards.

Wah! Wah! Wah! And More Semtex from AIGFP

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The WaPo is out with a story about how the remaining people at AIGFP are being unfairly lumped in with the banksters who broke the world economy.

A solitary flat-screen television hangs on the back wall of the trading floor inside the headquarters of AIG Financial Products here. Wednesday afternoon, the most-talked-about employees in America huddled around it to find out just how despised they have become. 

[snip]

A sense of fear hung in the room — the palpable, unsettling kind that flashes across people’s eyes. But there was anger, too. No one would express it publicly, of course. Who wants to hear a wealthy financier complain? And yet, within those walls off Danbury Road lies a deep sense of betrayal — first by their former colleagues, now by their elected leaders.

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

In it, Gerry Pasciucco contradicts the story Edward Liddy told yesterday, denying that the remaining AIGFP employees were irreplaceable.

"They are replaceable," Pasciucco acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time." 

Yet in the middle of this big sob story about how maligned these poor quants and their secretaries are, they return to the threats they issued in the white paper demanding the bonuses.

"Nobody is going to give it back and then stay," said one of the firm’s employees. "If they give back the money, then they will walk. And they will walk into the arms of AIG’s counterparties." 

Let’s see, aside from the fact that these guys’ contracts undoubtedly have confidentiality agreements–making such cooperation with counterparties a gross breach of contract–assuming their counterparties actually did anything with this information, they’d all be breaking the law. 

Don’t get me wrong–I believe Liddy when he says the US government stands to be exposed to the tune of $1.6 trillion if this happens. I believe this threat is real. 

But make no mistake. The kind of people who would threaten to do this are threatening to bring down the global finance system. Again. Read more →

What Did Geithner Know and When Did He Know It?

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 I’m with Jane.

I do not think that anyone understands that some Rube Goldberg model, where we pay out a billion in bonuses, and then try to get the money back in taxes, is going to be a winner. But that appears to be what the administration wants, because both Nancy Pelosi and Barney Frank are saying the same thing. Then again, we’re talking about a bunch that thought this wouldn’t be a big problem in the first place, at least not one they couldn’t solve with faux "outrage" and blaming Chris Dodd.

I’m fairly confident they’ll have a chance to rethink this in the near future — somewhere around the time Tim Geithner’s "I knew nothing" story crumbles. The only question is how much public rage they’ll have to suck up before they face that reality. [my emphasis]

The Administration is shortly going to be dealing with the uncomfortable job of admitting Tim Geithner knew a lot more about bonuses a lot earlier than he has let on.

And while news outlets like Time are chasing down precisely when Geithner learned the details of AIGFP bonuses, I’m more interested in an earlier round.

As Elijah Cummings described in the waning moments of yesterday’s hearing, Edward Liddy approved a round of retention payments back in September.

On September 18, 2008 AIG’s compensation committee of the Board of Directors approved retention payments for 168 employees. 

Cummings’ point is important, because it shows that, however distasteful Liddy may find paying off the banksters who broke the world economy, he’s willing to pay retention bonuses himself, even at a time when AIG was engorging itself on the federal teat. 

But the retention contracts negotiated in September also put them squarely in the time when Tim Geithner was intimately involved in bailing AIG out. We learned yesterday that he recused himself from matters pertaining to AIG once he was picked to be Treasury Secretary (that nomination was announced on November 24). But back on September 18, when this round of bonuses was approved, Obama hadn’t even won the election yet, much less picked Geithner to be Treasury Secretary. Back on September 18, Geithner was in charge of the well-staffed (his current excuse–that he’s not staffed up yet, doesn’t work here) NY Fed, and in charge of negotiating this bailout. Read more →

Financial Services AIG Hearing Liveblog, Liddy Testimony Part Two

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For earlier liveblog posts:

Royce: Any discussion with members of the Senate to guarantee payment of bonuses?

Liddy: We have a strict prohibition against lobbying.

Royce: Could you check?

Royce: Discussions with members of the Administration?

Liddy: Geithner. First discussion would have been about a week ago. One on a Tuesday and one on a Friday. When I said administration, I did not include Federal Reserve.

Royce: Please send any talking points. The issue to us is that Senator Snowe was concerned about this provision. That measure applied these restrictions retroactively.

[Once again, Royce refuses to chase this down. Liddy has just said he was talking to the Fed, but Royce still wants to be able to claim that Dodd was the one responsible, so he backs off any questioning about the Fed.]

Scott:  We are in effect at war. We need to hurry up and get this bonus issue off the table.

Posey: We wouldn’t care about the bonuses if it weren’t for the bailout money. A big bonus for these people is that they’re not in jail, and that they still have jobs. I can’t imagine that the demand is that great for someone who can screw up an entire company.  Have you seen any signs of what someone might normally consider criminal activity.

Liddy: Nothing has come to light that I am aware of. It really is easy to paint with one brush. There are people who worked on one piece called CDS. Another regulatory capital. Derivitives book. For the most part those are separate people. Those are the ones that brought our company to our knees. In the derivitives book those are the ones we’re asking to please wind this down. Those are the ones that got the bonuses.

Posey: Is there an obligation to report unethical behavior? To whom?

Liddy: Absolutely. 

Liddy: What we have at AIG is too much appetite for risk, too much appetite for business outside our core competence.

Posey: 73 people got bonuses that exceed 1 million, 11 are no longer with the company. 

Maloney: Submit questions in writing. On bonuses, you mentioned a number of people said they’d give back bonuses. On the floor tomorrow will be a bonus that will tax the bonuses. How many said they’d give back the money. I requested for many months now for a list of the counterparties. Read more →

Gary Peters: Why Is It Okay to Abrogate UAW Contracts But Not Wall Street’s Contracts?

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Gary Peters asks the question all Michiganders have been asking since September. Why are UAW’s line workers forced to renegotiate their contracts and GM’s engineers forced to forgo bonuses, but not the banksters who ruined the economy?