In case of AIG bonus payments, some contracts made to be broken

WASHINGTON — Obama administration officials are fuming with the rest of us real people over $165 million in bonus payments Sunday to key employees of the bailed-out American International Group. Taxpayers own about 80 percent of AIG’s outstanding shares, bought when the New York-based insurer received about $170 billion in bailout funds last year.

Larry Summers, director of the White House National Economic Council, said the bonuses were “outrageous” on ABC’s “This Week” and CBS’ “Face the Nation.”

The backstory here is remarkable.

The Obama White House’s ability to intercede in a company (too big to fail) dependent on taxpayer cash is limited, apparently. Treasury Secretary Timothy Geithner read the riot act to AIG Chairman and CEO Edward Liddy on Wednesday over the bonuses and got some important concessions over future payments and salaries. Liddy politely called the exchange an “open and frank conversation” in a letter he sent Saturday to Geithner about how AIG’s “hands are tied.”

WASHINGTON — Obama administration officials are fuming with the rest of us real people over $165 million in bonus payments Sunday to key employees of the bailed-out American International Group. Taxpayers own about 80 percent of AIG’s outstanding shares, bought when the New York-based insurer received about $170 billion in bailout funds last year.

Larry Summers, director of the White House National Economic Council, said the bonuses were “outrageous” on ABC’s “This Week” and CBS’ “Face the Nation.”

The backstory here is remarkable.

The Obama White House’s ability to intercede in a company (too big to fail) dependent on taxpayer cash is limited, apparently. Treasury Secretary Timothy Geithner read the riot act to AIG Chairman and CEO Edward Liddy on Wednesday over the bonuses and got some important concessions over future payments and salaries. Liddy politely called the exchange an “open and frank conversation” in a letter he sent Saturday to Geithner about how AIG’s “hands are tied.”

The Obama administration believes — as does Liddy, brought in by the Bush White House to run the multinational insurance giant — that legally they had no choice because the 400 employees of AIG Financial Products had contracts that mandated the bonus checks be paid. Those deals were made with these workers — considered key — last May, before the bailout.

The way Liddy explained it, many of these folks at AIG Financial Products had to be enticed to stay with the company because they were the only ones who could understand the exotic financial instruments on AIG’s books.

Think of a casino that has to woo croupiers to stay at the tables because they are the only ones who know how to play the games. In the case of AIG, some of these key workers were traders who, AIG maintains, oversaw “transactions that are difficult to understand and manage.” These traders, AIG says, had the keys to the kingdom. They knew how to “hedge the book.”

As one of many angry commenters on my blog put it, “Why are the contracts with AIG execs more valid than the contracts between the automakers and autoworkers? Congress INSISTED that the autoworkers take pay cuts — and MODIFY THE CONTRACTS they had negotiated — before the automakers got federal money? . . . If the federal government owns 80% of AIG, what control do we have over the actions of management?”

I see the point. With the mortgage foreclosure crisis, the Obama administration has moved aggressively to pressure lenders to renegotiate the terms of mortgages. Some contracts, as the saying goes, are made to be broken.