Economic Crisis of 2008/2009

[danin8r44]

Originally Posted by LynnieS

I'm not sure that this 90% tax thing will (1) stand or (2) work. Just because the House of Representatives okayed it doesn't mean that the Senate will pass it, President Obama will sign it into law, or the courts will not strike it down. Will it work also for non-U.S. residents as well? Not very sure, but it doesn't work for non-U.S. financial institutions but does make for good PR and sound bites.

Edit: If the tax doesn't work on non-U.S. residents of these companies, then what's to stop the companies from moving to hire people in offices outside of the U.S.? I'm not even sure how this will work for U.S. citizens who work for these companies but outside of the U.S., and there are plenty of these guys out there; U.S. citizens get taxed on their world-wide incomes, but there is a threshold. Accountants will have a field day trying to figure this stuff out.

OTOH, a lot of people also don't make the kind of money to trigger the tax so they would not be affected, esp. if they also don't work for these companies. It's also just the specific companies receiving aid so far. You might end up with non-TARP/TALF companies, U.S. or foreign, getting gung-ho about their stuff later.

As far as I know so far, the bill would tax at 90% every dollar over US$250,000 (bonus only?) per household for each of the financial institutions "helped" so far. So if you have 2 people (married to one another) working at such companies - and oftentimes, you can - and no matter what they do, as long as they make this threshold in terms of their total incomes, they get taxed. In such a case, how do you plan to not be hit? And if you make a lot of money in terms of your salary but get no bonus, does that trigger the tax? For this case and ATM, it seems not... And if not, then what is to stop someone from getting a large base salary and no bonus? The legislation looks vague so far.

It sounds more like "tossing the baby out with the bath water" than actually solving the problem. I'm not even sure they defined the problem aside from "let's punish them as a whole".

My point for the passing was that because there is so much popular support behind the bill, it would be odd for it not to be passed.

Also if I recall, doesn't this only apply to bonuses and not to base salary? While many Execs may get alot of their money from bonuses I think they can do fine on their base salaries. That's just my opinion though.

I do agree wholeheartedly though that this bill is still in it's infancy in terms of detail, but that's why it's still getting moved around.

[LynnieS]

Originally Posted by chikorita157

This is a result of rage and acting too hastily. In the stimulus bill, while congress was hastily wanting to have it passed, a bonus loophole that noone took notice was slipped in allowing companies like AIG to pay bonuses before February of this year. A 90% tax may or may not help, but congress should be working on a plan to solve this issue with bonuses and bailout once for all instead of hastily passing a 90% tax on bonuses which might be struck down in court. Am I against these bonuses? Yes.... but Congress should be working on a permanent solution to fixing Wall Street greed instead of feeding into the outrage of AIG.

Oops. I made one edit to my post after your reply.

I'm not sure people work for these companies for just their base salaries - at least, no one I knew did. An ex-roommate of mine back in NYC was an investment banker, and the guy worked 7 days a week for 15+ hours a day. He was getting peanuts, esp. for those hours, but it was the bonus that kept him going. I doubt that people like him will do that, going forward - at least, not for the TALP/TALF companies - so they will either go elsewhere (like a non-U.S. company) or demand a larger base salary, which would still be taxed at a lower rate. Neither one is too helpful.

I'm really not too sure what the U.S. administration (or those of any other country, for that matter) is trying to do - aside from seeming to spin their wheels to making sound bites on CNN/CNBC/etc.

Originally Posted by danin8r44

Also if I recall, doesn't this only apply to bonuses and not to base salary? While many Execs may get alot of their money from bonuses I think they can do fine on their base salaries. That's just my opinion though.

It should apply to anyone who makes more than US$250,000 in adjusted gross income (family income, I think, based on various sources out there) and receives a bonus and work for a company bailed out by the U.S. So in that case, if you don't work for such a company, this doesn't apply to you (so you can get as much as you can "ask"), and if you don't get a bonus, it doesn't apply. It doesn't limit by profession so a lawyer would be hit in the same way as a trader would, it seems. In a way, it rather looks like these companies are not meant to survive given that they are "handicapped" by this, and others are not...

[Xellos-_^]

just looking at that bill i am not sure if it will pass the consititution test. If someone take that law to court they got a good chance of winning.

[Nosauz]

If these bonuses are not returned there will be mob violence. I'm not condoning it but it will happen, just think about as many average joes are being layed off their TAX money is going to pay BONUSES for fat cats who have run AIG into the ground. This will cause massive civil unrest when Americans feel as if they are paying for extra things to those that help cause this financial crisis.

[Xellos-_^]

Originally Posted by Nosauz

If these bonuses are not returned there will be mob violence. I'm not condoning it but it will happen, just think about as many average joes are being layed off their TAX money is going to pay BONUSES for fat cats who have run AIG into the ground. This will cause massive civil unrest when Americans feel as if they are paying for extra things to those that help cause this financial crisis.

the thing is the Fat cats responsible for the mess already left the AIG. The people who are left are not the people responsible for the mess.

[Nosauz]

Actually thats not true, the division recieving bonuses have had some of the people leave but there are still people in FP that turned the blind eye to the subprime mortgage crisis. These are the same people who said that AIG had enough assets to cover the losses from the collapse of the subprime mortgage fiasco. Saying they all left is just ludicrous because EVEN Liddy said those people were the ones responsible.

[LynnieS]

Actually, the bill, if written to not be (1) grandfathered to affect back-dated bonus payments and (2) single individuals/groups within a company, has a pretty good chance to withstand court challenges. The ability to tax is within Congress's domain so long as it doesn't run into a problem with the Constitution, I don't see much leeway done by the courts. You are, OTOH and IMHO, making the playing field more uneven for these companies versus everyone else. Not that great if so.

Nosauz is right, though, in that not everyone has left AIG yet, but I don't feel tar-and-feather'ing everyone in a company for something a few did or allowed is a good thing. Yes, people outside got hurt, and they didn't have anything to do with this directly; however, two wrongs don't make a right. It just becomes revenge, IMHO.

AIG did CDS'es also, and the whole mess goes beyond them - although I'm fairly sure the ML staffers at BoA are happy that attention moved away from them now.

[iLney]

Oh boy, I hope this bill got owned in Senate; otherwise, it'll be a dark mark in history...

[Demongod86]

This insanity is why I want to take my quant finance skills not to some silly wall street no-name firm, but to one of two hedge funds:

D.E. Shaw or Renaissance Technologies.

Their mad scientists just sit there laughing at all of the wannabe knockoffs.

And of course, wherever there's trouble brewing, Goldman Sachs is always involved and somehow always is the one that's the big winner. Maybe because GS has two branches:

Goldman Sachs and Government Sachs. A bunch of Magnificent Bastards, they are.

[yezhanquan]

Goldman Sachs have at least the sense not to shoot themselves in the foot, which is more than what I can say for AIG. But they are MBs alright. Their lobby is, quite frankly, rock solid.

[karasuma]

Originally Posted by yezhanquan

Goldman Sachs have at least the sense not to shoot themselves in the foot, which is more than what I can say for AIG. But they are MBs alright. Their lobby is, quite frankly, rock solid.

You sure about that? The biggest counterparty of AIG is GS. Do you know why TARP is a system to inject 700B into banks whether they want it or not? Because they don't what people to know who really need the cash.

Somehow, a lot of connections lead back to GS.

[yezhanquan]

Well, some (read: in the region of billions) of AIG's bailout had went to GS. At least GS go about their gold digging quietly, relatively speaking.

[TinyRedLeaf]

Perhaps it's time for American "fat-cat" executives to learn a lesson in humility from their Japanese counterparts:

'Modest' Japanese executives escape public ire

Tokyo (March 22): While bosses in the United States are under fire for "fat-cat" bonuses, Japanese executives have largely avoided a row over corporate greed by cutting their own pay, or even working for free during the economic crisis.

When US car bosses were being lambasted recently for flying to Washington in private jets to plead for government aid, the head of Japan Airlines (JAL), Asia's biggest carrier, was taking the bus to work with regular commuters.

JAL president Haruka Nishimatsu cut his own pay and even lines up with other employees for lunch in the company cafeteria.

At Japanese computer chip-maker Elpida Memory, group president Yukio Sakamoto voluntarily went without a salary for two months last year to help turn around the group's poor performance.

He is not the only one making sacrifices. According to a survey by the Nikkei business daily, the heads of more than 200 listed Japanese firms have cut their own pay since last April.

Even before the recession began, Japanese bosses' salaries were relatively modest compared with their US peers. The main reason is that a Japanese boss is a kind of a "representative of the employees" and will have typically joined the firm as a graduate and competed with colleagues for promotion.

In this kind of situation it is hard to pay the company head significantly more than colleagues of a similar age. Of course, most Japanese executives are still whisked to the office in chauffeur-driven cars, but in general they do not flaunt their wealth and bosses are often quick to step down when things start to go wrong.

The humble approach in Japan, where it is common to see bosses bowing in apology in front of the news cameras, has helped executives here to avoid the kind of backlash seen in the US over corporate excess.

The woes of once-mighty US companies have prompted debate in Japan over whether firms should put the brakes on a slow shift towards Western-style practices, such as performance-related pay.

- AGENCE FRANCE-PRESSE

Of course, Japanese corporate culture suffers from its own share of problems. American business leaders, on the other hand, simply appear stupendously greedy.

It astounds me that any one of these AIG executives even have the gall to accept the bonuses, given all that has happened due to their failed business judgment. These are supposed to be performance-related bonuses, are they not? Does this mean it's ok in the US to reward incompetence?

[TrueKnight]

The case is still being investigated, heh. One event that spreads to many.

AIG Gives Connecticut’s Blumenthal Data on Bonuses

March 21 (Bloomberg) -- American International Group Inc., whose compensation policies before and after its U.S. bailout are being investigated, turned over information on its executive bonuses to Connecticut’s attorney general, who said the insurer paid out $218 million.

That amount is more than the $165 million in bonuses previously disclosed by the New York-based company. The insurer provided a list of bonus amounts and contract terms to Richard Blumenthal, who said the information supports his view that the basis for paying the bonuses is “completely unjustified,” according to a statement he issued yesterday.

“These contracts rip the rug from under AIG’s excuses -- revealing no basis under Connecticut law for these mega taxpayer-funded bonuses,” Blumenthal said. “AIG’s own documents reveal that it turned an emergency bailout into a meritless handout, paying windfalls to employees as reward for financial failure.”

Blumenthal said he asked AIG’s lawyers to explain the difference in total bonus amounts.

“We don’t know why the numbers are different,” Blumenthal said today in an interview. “That’s what we are asking the company to explain.”

The documents Connecticut received showed that 418 people received bonuses, from $1,000 to $6.4 million, he said. At least 73 people made $1 million or more, and there were seven people who made $4 million or more, Blumenthal said.

“Mr. Blumenthal’s claim that he has discovered additional AIG FP retention payments is incorrect,” said company spokesman Mark Herr in an e-mailed response to questions about AIG’s financial products division from Bloomberg News. “The payments he appears to be referring to were made months ago, have been widely reported on and we specifically disclosed to the Treasury.”

Not Received

The Connecticut attorney general said he hasn’t received the names of those who received the bonuses.

“They did not provide the names because our Freedom of Information Act could be interpreted as requiring a release of that information,” Blumenthal said. “We don’t agree with them that the information would be necessarily released, but they withheld the names and addresses from us.”

Blumenthal said Connecticut has a much stronger Freedom of Information Act law than New York, where that state’s attorney general received the names and said he would do a risk assessment before releasing them.

“They are concerned about security and safety, and so are we,” Blumenthal said of AIG. “The company and we are doing an assessment as to whether there is a real threat.”

Blumenthal said “the documents further undercut their claim they were compelled to pay them,” he said of the bonuses. “There was no requirement of law that they pay them in Connecticut statute.”

Edward Liddy

Blumenthal and Connecticut legislators said yesterday that they have subpoenaed AIG Chief Executive Officer Edward Liddy and other company officials to a hearing on bonus pay.

When Liddy appeared before Congress March 18 for a hearing on AIG bonuses, he reminded lawmakers that he took the CEO job after the U.S. government loaned the company $85 billion in September and said he wouldn’t have approved the bonus contracts if he’d been in charge earlier.

AIG said today in a statement responding to Blumenthal that “a payment under the retention program was made in December before this latest March payment. At this point, not having seen what Mr. Blumenthal said, we believe that’s what he is referring to. The March payments were $165 million, not $218 million.”

Activities at the AIG Financial Products unit in Wilton, Connecticut, will be the topic of a March 26 hearing in Hartford before the state’s Banks Committee, according to a statement from lawmakers.

Lending Markets

The division’s actions have destabilized the mortgage and lending markets in Connecticut, and excessive compensation could have led to employees taking risky measures that caused further destabilization, the legislators said in the statement.

“They put their stamp of approval on bad securities products and sold them like gold,” Democratic state Representative Ryan Barry, co-chairman of the General Assembly’s Banks Committee, said in the statement. “We want to examine the pay structure and fee incentives that led to this quick-sale, high-risk culture and see what regulatory gaps exist that can be tightened.”

Regarding the subpoenas demanding the testimony of Liddy and other AIG officials, Blumenthal said today that “we have not received a response as yet.”

AIG sparked a national furor by paying $165 million in bonuses last week after receiving a $173 billion federal bailout. The U.S. House of Representatives responded to public outrage on March 19 by voting to impose a 90 percent tax on employee bonuses at AIG and other companies that get at least $5 billion in taxpayer bailout funds.

Subpoenas Will Be Served

In addition to Liddy, subpoenas will be served on 11 other AIG executives who are believed to have received bonuses, Connecticut officials said, including Douglas Poling. Poling, an executive vice president, got a $6.4 million bonus, said a person familiar with the bonuses.

New York Attorney General Andrew Cuomo, who also has subpoenaed AIG, said $6.4 million was the biggest individual award of the more than $160 million in bonuses paid on March 13.

Cuomo said March 19 he had received a list of the AIG employees who received bonuses, as he requested by subpoena. Cuomo said he would conduct a risk assessment before making public any of the AIG employees’ names. He said he was aware of security concerns of AIG employees.

Retention Bonuses

Cuomo has said AIG paid retention bonuses of $1 million or more to 73 people of the money-losing unit, including 11 who no longer work at the firm. Alex Detrick, a spokesman for Cuomo, didn’t immediately return a call today about the higher total bonus amount reported by Blumenthal.

In addition to testimony, the Connecticut legislators requested documents about the retention bonus plan and any related contracts and agreements.

“Taxpayers feel misled and manipulated,” Blumenthal said yesterday in his statement. “We must fight, with every legal remedy available, to recapture every cent of these scarce taxpayer resources. AIG relied on contracts and Connecticut law as a flimsy and fatally flawed legal camouflage to reprehensibly enrich employees.”

In a separate matter, an AIG unit was sued on March 18 by Bank of America Corp.’s Countrywide Financial for refusing to pay insurance claims for defaulted loans originated by the mortgage lender. United Guaranty Mortgage Indemnity Co. “announced unilaterally and without justification or excuse that it does not intend to pay any claims for defaults on loans that are part of” 11 mortgage-backed securities, Countrywide said in a complaint filed March 18 in Los Angeles County Superior Court in California.

United Guaranty sued Countrywide the following day in federal court in Los Angeles, claiming the lender misrepresented its underwriting standards for the loans.

Source: http://www.bloomberg.com/apps/news?p...mRMU&refer=law

Originally Posted by yezhenquan [/quote

At least GS go about their gold digging quietly, relatively speaking.

You mean like your country's Temasek?

[Nosauz]

Originally Posted by TinyRedLeaf

Perhaps it's time for American "fat-cat" executives to learn a lesson in humility from their Japanese counterparts:

'Modest' Japanese executives escape public ire


Of course, Japanese corporate culture suffers from its own share of problems. American business leaders, on the other hand, simply appear stupendously greedy.

It astounds me that any one of these AIG executives even have the gall to accept the bonuses, given all that has happened due to their failed business judgment. These are supposed to be performance-related bonuses, are they not? Does this mean it's ok in the US to reward incompetence?

Yep, just look at Midway... god that stuff pisses me off. They layoff hundreds of workers, pay big bonuses to CEO's, then CUT SEVERANCE PAY... you just layed off HUNDREDS OF WORKERS, gave extra money to a man who ran your business in the ground and then cut pay for those in desperate need of that money, all in the worst economic crisis that rivals the depression. FACEPALM. The mantra of me first in America though serves some credence is still sometimes the epitome of American and ultimate wrongly so, capitalism's greed. Not to say that there aren't Americans who are humanitarians, but corporate greed seems to overshadow these good people. Frustrating at is, big changes will be coming to the financial sector and wallstreet if we survive the financial markets meltdown.

[yezhanquan]

On Temasek, I don't really care if people took money. I think of it as grease. The slippery slope? Well, we have to wait. That's the cynic in me, btw. No institution is 100% corrupt-free. 0.

1) They don't rub it in your faces.
2) Long term-wise, investments pay off. Long term being 30-40 years, or at least 20 years.

[Demongod86]

Originally Posted by yezhanquan

Well, some (read: in the region of billions) of AIG's bailout had went to GS. At least GS go about their gold digging quietly, relatively speaking.

Well, GS understands the mantra of "you only eat what you kill" quite well, and whether it's a full-frontal assault through the conventional means of analyst predictions on CNBC, or a dagger in the back, GS sure knows how to annihilate any publicly traded company.

I mean honestly, why do you think Lehman didn't get helped? Because Paulson knew they were strong competitors, so he saw to their demise.

Basically, not only does GS have the refs on their side, but...GS *IS* the refs.

That said, I feel a LOT safer and more confident when GS alumni are running the treasury. It's certainly a lot better than a bunch of bumbling DC bureaucrats or fed bankers.

I mean honestly...Geither needs to grow a set of balls and not take any shit.

Though frankly, I'd be MOST confident with Renaissance Technologies or D.E. Shaw taking over the treasury with their wizardry models.

[yezhanquan]

Sounds like a clean-up is impossible. Too much time has been lost in the past to the deregulation nonsense, and starting from 0 will implode the economy.

[Karnot]

If these bonuses are not returned there will be mob violence.

I'd like to see that. US School shootings became rather stale lately, though still quite enjoyable.

[chikorita157]

Originally Posted by yezhanquan

Sounds like a clean-up is impossible. Too much time has been lost in the past to the deregulation nonsense, and starting from 0 will implode the economy.

Recovery is still possible (remember, nothing is impossible), but it's very difficult than the previous recessions than before because now we have problems with banks with bad assets and now all the jobs are off-shored, so it creates a bigger mess. Simply throwing more money like the so-far failed TARP bill to fix the banking problem isn't going to help, nor did it help since it's still difficult to even get any credit even with a high credit rating and caused more problems with bailed-out banks paying big bonuses (like AIG and other banks).

Also, the US government really needs to stop deregulation and add more regulation to prevent this from happening again.