AIG Plans To Award Bonuses Even If Taken Over By US???

Oy:

Even if the U.S. government were to entirely take over American International Group, company executives would still be able to collect bonuses at taxpayer expense, according to a letter from AIG CEO Ed Liddy to employees disclosed in the company's recent SEC report.

"As this special award is being made to a very select group of executives, I ask that you treat it as confidential," wrote Liddy. The letter is dated less than a week after the government first bailed the company out.

The letter assured the select group that "in the event the AIG entity that is your employer (the Company') experiences a Change in Control (e.g., consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company), AIG guarantees the payment of the 2008 Special Cash Retention award on the dates and under the conditions specified above."

The United States is roughly a 79 percent owner of AIG, having pumped in some 170 billion in taxpayer dollars.

Elsewhere, the SEC filing reports that "AIG is working with the Department of the Treasury and NY Fed to establish a framework for further extending the period for earning retention awards and making them performance-based." (Now there's a crazy idea.)

Some of those in line to get bonuses have family in the right places, according to the filing. The daughter of top executive Edmund Tse, Ada K.H. Tse, is president and CEO of AIG Global Investment Corp. (Asia) Ltd. In 2008, she pocketed $400,000 in "retention awards" and $250,000 in a year-end bonus. She will be "eligible to receive an additional amount that has not yet been approved. Ms. Tse also will be eligible for retention payments in 2009 in the amount of approximately $600,000," reads the report.

Daniel Neuger is the son of another top executive, Win Neuger, and serves as "managing director of AIG Global Investment Corp. and AIG Global Asset Management Holdings Corp." He took in $75,000 in "retention awards" in 2008 and is on track for roughly $110,000 in 2009.

Liddy promised there was more to come. "I fully recognize the devastating loss of personal wealth you've suffered, and pledge to you my personal commitment to provide an opportunity for substantial wealth creation through a combination of cash and equity awards in the coming months and years," he wrote in the letter to employees outlining the bonus policy.

Banksters Control the US Govt

Perhaps obvious, but worth re-iterating-- Greenwald,:

Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.

The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials.

Special mention of Evan Bayh, for exceptional corruption with regard to banking, though of course there are many others...

"Eating Our Seed Corn"

A good essay and lots of good comments.

AIG and Covert Operations

The predecessor of AIG sowed destruction for the PTB:

They weren't just secret agents. They were secret insurance agents. These undercover underwriters gave their World War II spymasters access to a global industry that both bankrolled and, ultimately, helped bring down Adolf Hitler's Third Reich.

Is there any doubt they are still doing similar work?

Make Banks Boring

Paul Krugman and Simon Johnson agree.

Wall Street Rules the Government

Simon Johnson's essay in The Atlantic shows how the US is no better than a banana republic.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests— financiers, in the case of the U.S.— played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies— lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership— had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. (snip)

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

The Wall Street–Washington Corridor

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption— envelopes stuffed with $100 bills— is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital— a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

(snip)

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. (snip)

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

(snip)
In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country— and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom— trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.

Larry Summers Should Be In Jail-- Not In a Position of Power

Also Tim Geithner, Alan Greenspan and Robert Rubin should be in jail.

That's $135,000 paid by Goldman Sachs to Summers -- for a one-day visit. And the payment was made at a time -- in April, 2008 -- when everyone assumed that the next President would either be Barack Obama or Hillary Clinton and that Larry Summers would therefore become exactly what he now is: the most influential financial official in the U.S. Government (and the $45,000 Merrill Lynch payment came 8 days after Obama's election). Goldman would not be able to make a one-day $135,000 payment to Summers now that he is Obama's top economics adviser, but doing so a few months beforehand was obviously something about which neither parties felt any compunction. It's basically an advanced bribe. And it's paying off in spades. And none of it seemed to bother Obama in the slightest when he first strongly considered naming Summers as Treasury Secretary and then named him his top economics adviser instead (thereby avoiding the need for Senate confirmation), knowing that Summers would exert great influence in determining who benefited from the government's response to the financial crisis.

Last night, former Reagan-era S&L regulator and current University of Missouri Professor Bill Black was on Bill Moyers' Journal and detailed the magnitude of what he called the on-going massive fraud, the role Tim Geithner played in it before being promoted to Treasury Secretary (where he continues to abet it), and -- most amazingly of all -- the crusade led by Alan Greenspan, former Goldman CEO Robert Rubin (Geithner's mentor) and Larry Summers in the late 1990s to block the efforts of top regulators (especially Brooksley Born, head of the Commodities Futures Trading Commission) to regulate the exact financial derivatives market that became the principal cause of the global financial crisis. To get a sense for how deep and massive is the on-going fraud and the key role played in it by key Obama officials, I highly recommend watching that Black interview (it can be seen here and the transcript is here).

This article from Stanford Magazine -- an absolutely amazing read -- details how Summers, Rubin and Greenspan led the way in blocking any regulatory efforts of the derivatives market whatsoever on the ground that the financial industry and its lobbyists were objecting...

Motherfuckers.

Economist: US collapse driven by 'fraud,' Geithner covering up bank insolvency

In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.

But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.

The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.

AIG: Not Just Screwing Tax Payers!

To hear the folks at AIG describe it, it's in our interest to pay out all this money to their CDS counterparties and keep the bonus money flowing because -- in addition to not destroying the global banking system -- we've got to maintain the value of all the good parts of AIG that we're going to sell off and get our money back.

But there are disturbing reports emerging that outside of AIGFP, where everyone is getting paid out at full dollar value, at the tried and true subsidiaries they're stiffing people they owe money to and letting whole operations basically drive into the ditch.

Here's one example we've unearthed with AIG's real estate unit basically walking away from one of their ill-advised mega-deals for some sixteen thousand residential apartments. It makes this part of AIG look like the corporate equivalent of one of those trashed and abandoned subdivision homes now gone to seed because the owners have walked away from it when they couldn't pay the mortgage.

Whether this is representative of the rest of the company is not at all clear. But it suggests at a minimum that we -- as owners of the company -- need to be asking a lot more questions about just how this behemoth is being run.

Giant Ponzi Scheme

In fact, our investigation suggests that by the time AIG had entered the CDS fray in a serious way more than five years ago, the firm was already doomed. No longer able to prop up its earnings using reinsurance because of growing scrutiny from state insurance regulators and federal law enforcement agencies, AIG’s foray into CDS was really the grand finale. AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.

As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.

The significance of this for the US bailout of AIG is profound. If our surmise is correct, the position of Feb Chairman Ben Bernanke and Treasury Secretary Tim Geithner that the AIG credit default contracts are “valid legal contracts” is ridiculous and reveals a level of ignorance by the Fed and Treasury about the true goings on inside AIG and the reinsurance industry that is truly staggering.

AIG Stiffed Small U.S. Institutions, While Paying Off Foreign Banks in Full

Rep. Spencer Bachus (R-AL) just raised a new objection to the AIG counterparty payments--specifically that while AIG used government money to pay off their CDS obligations dollar-for-dollar to major (sometimes foreign) financial institutions, it repaid smaller U.S. institutions that made secured loans to AIG subsidiaries at a rate of only about 20 to 30 cents on the dollar.

Video forthcoming, but Geithner had no immediate answer to the query, which, to amateur ears anyhow, sounds like an interesting one.

Did Cassano Shut Out AIG Risk Officers?

By Zachary Roth - March 27, 2009, 1:38PM

Did AIG's entire risk management team fall down on the job? Or, like the firm's auditors, were they prevented from doing it?

Yesterday we told you about Bob Lewis, AIG's chief risk officer, who still has his job despite a rather obvious failure to ensure that the firm wasn't taking on an unmanageable level of risk.

But it looks like it's not just Lewis. The Wall Street Journal reports that several longtime members of AIG's Credit Risk Committee are also still in place. That committee, says the paper, was in charge of overseeing those disastrous credit default swaps.

At least five of the committee's ten members have served for several years. In addition to Lewis, the chief risk officer, they are:

- Kevin McGinn, chief credit officer and chairman of the committee
- Win Neuger, chief executive of AIG Investments;
- William Dooley, head of AIG's financial-services division, which includes the financial-products unit that sold the credit-default swaps, and...
- Barbara-Ann Livanou, director of financial institutions in the credit-risk-management department.

Lewis and McGinn appear to be the most directly implicated here. It was Lewis' department, of course, that handled the company's "major risks," according to SEC filings looked at by the Journal. (A former AIG exec yesterday confirmed to TPMmuckraker that Lewis' role would have been to avoid letting AIG get into the exact position that brought it down.)

AIG's Chief Risk Officer Still Has A Job!

It seems safe to say that if your job at AIG was to ensure that the company was managing its credit risks effectively, you failed.

Which is why it's interesting that the man who has had that post since at least 2000, Bob Lewis, still appears to have the job today.

An official list of AIG execs obtained by TPMmuckraker and created after CEO Ed Liddy took over last September shows Lewis as the firm's Chief Risk Officer and an executive vice president.

And a letter that looks to be from an employee of AIGFP's Paris office, obtained by the blog Clusterstock and posted earlier today, asserts:

By the way, the head of Risk Control for the whole of AIG, Bob Lewis, is still working in that role today.

Lewis may be one of the prime culprits of AIG's collapse. According to Robert Arvanitis, a former top AIG exec and a risk expert, what caused the firm's downfall was that, in addition to its credit default swaps, its investment division was heavily exposed to the sub-prime market, just like so many other banks were. When AIG's credit rating was downgraded, the Financial Products unit was forced to post more collateral to its counter-parties. But the investment division was unable to provide AIGFP with collateral in the amounts needed, because of its own sub-prime losses. It would have been Lewis' job, said Arvanitis, to have a global view of the company's risk exposure, and make sure it didn't get into that position.

Lewis himself would seem to agree. As Clusterstock notes, back in 2000 he told one trade magazine: "The CCO's ultimate responsibility is to see that credit risks are managed appropriately throughout the worldwide organization."

"Based on the results, I'd say he missed it by a wide mark," Arvanitis told TPMmuckraker, in what seems like an understatement.

"Did AIG explicitly lie about its bonuses?"

Greenwald:

One of the bizarre aspects of Secretary Geithner's claims not to have known about AIG bonuses until recently is that these bonuses have been the subject of intense controversy for months. Numerous members of Congress, such as Rep. Elijah Cummings, have been pressuring AIG since at least November, in the form of numerous letters, for details on AIG's retention bonus plan (more on that in a minute).

But this December 11, 2008 article -- from CBS News -- contains what seems to be a rather significant statement from AIG about its bonus plan:

Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. . . .

But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. . . .

Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit.

"Oh, it's terrible, it's terrible," he told CBS News.

Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans.

That AIG was scheduled to make millions of dollars in bonus payments has been public knowledge for many months -- since well before Geithner pressured Chris Dodd to insert an exception into executive compensation limits for already-existing employment contracts. But what is so notable here is AIG's express denial that "the retention program does not include anyone in the firm's financial products business," given what we now know is the truth:

[AIG's CEO Edward] Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses -- he did not call them that -- to executives.

He said the money was offered to executives in AIG's financial products section, where risky investments finally became the entire company's undoing.

And:

Retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.

The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.

Assuming the CBS News story reported the comments of AIG's spokesperson accurately, this seems to be a rather flagrant case of AIG outright lying about what its retention bonus plan entailed.

"The sanctity of AIG's contracts"

Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.

As any lawyer knows, there are few things more common – or easier -- than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.

Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.

The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so -- they haven't exactly proven themselves to be paragons of business ethics -- but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded "retention payments") is what is most notable here.

AIG-FP Employee Letter to NYTimes

NYTimes Op-Ed:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials.

Oh the outrage-- that they are being unfairly persecuted. And I'm this guy was oh so innocent-- just a hard working trader screwed over by unscrupulous colleagues (riiight). But "dismantling the company"? Is that what he means? Though clearly they helped to dismantle the economy!

Further-- a good rant from Matt Taibbi on this same letter--

Like a lot of people, I read Wednesday's New York Times editorial by former AIG Financial Products employee Jake DeSantis, whose resignation letter basically asks us all to reconsider our anger toward the poor overworked employees of his unit.

DeSantis has a few major points. They include: 1) I had nothing to do with my boss Joe Cassano's toxic credit default swaps portfolio, and only a handful of people in our unit did; 2) I didn't even know anything about them; 3) I could have left AIG for a better job several times last year; 4) but I didn't, staying out of a sense of duty to my poor, beleaguered firm, only to find out in the end that; 5) I would be betrayed by AIG senior management, who promised we would be rewarded for staying, but then went back on their word when they folded in highly cowardly fashion in the face of an angry and stupid populist mob.

I have a few responses to those points. They are 1) Bullshit; 2) bullshit; 3) bullshit, plus of course; 4) bullshit. Lastly, there is 5) Boo-Fucking-Hoo. You dog.

AIGFP only had 377 employees. Those 400-odd folks received almost $3.5 billion in compensation in the last seven years, a very large part of that money coming from the sale of credit default protection. Doing the math, that averages out to over $9 million of compensation per person.

Ask yourself this question: If your company made that much money, and the boss of the unit made almost $280 million in just a few years, exactly how likely is it that you wouldn't know where that money was coming from?

Are we supposed to believe that Jake DeSantis knew nothing about Joe Cassano's CDS deals? If your boss and the top guys in your firm were all making a killing selling anything at all -- whether it was rubber kayaks, generic Levitra or credit default swaps -- you really wouldn't bother to find out what that thing they were selling was? You'd really just mind your own business, sit at your cubicle and put your faith in the guys up top to fill you in if there was something you needed to know?

Is the AIG Financial Products Head a Secret Communist?

Hmmm-- this might explain some things.

AIG Bonuses: $33.6 Million for 52 People Who Have Left the Company

You just can't make this stuff up (note the 33).

And....a mystery mole fought to keep the bonuses in the stimulus bill--

Who in the Obama Administration pushed to weaken a key anti-bonus provision in the stimulus bill last month? Sen. Chris Dodd, who wrote the provision -- and ultimately agreed to defang it -- isn't saying.

More outrage--

Goldman Sachs and a parade of major European banks, including Deutsche Bank , France's Societe Generale and the UK's Barclays , were major beneficiaries of more than $90 billion (64 billion pounds) of money paid out by AIG in the first three-and-a-half months after its bailout by the U.S. government last September.

The disclosure by AIG on Sunday is likely to trigger further criticism of why Goldman, with its many government links, and the European banks were funnelled such huge sums of U.S. taxpayer money after making bad bets on various securities, as well as strengthening the case of those who believe the whole bailout was botched.

And definitely-- Geithner needs to go (Treasury knew about AIG bonuses earlier than Geithner claims).

AIG Bonus Outrage

Holy mother-fucking evil assholes:

Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve, the American International Group is preparing to pay about $100 million in bonuses to executives in the same business unit that brought the company to the brink of collapse last year.

In case you are not outraged enough-- here's the story of how Summers and Geithner tried so very hard to limit the bonuses.

More on AIG in London

AIG trail leads to London 'casino'

Since 1987 the American financier Joseph Cassano has divided his time between London and Connecticut, where AIG, the world’s largest insurance company, runs a subsidiary called AIG Financial Products.

For most of those 21 years life has been good for the bespectacled, intellectual-looking Cassano.

The Wall Street veteran rose to run his part of the insurer, AIG Financial Products. When in London he commuted from a company flat behind Harrods to his unit’s office at 1 Curzon Street in Mayfair’s hedge fund alley.

Cassano’s pay over the past eight years, according to US Congressional records, totalled $280m (£162m).

Then at the end of 2007 Cassano’s fortunes changed. The company’s accountants changed the basis on which they valued much of the collateral held by its units. Some half a trillion dollars worth of credit default swaps written by AIG Financial Products were marked down.

Credit default swaps, or CDSs, are quasi-insurance products bought by investors seeking protection against defaults on mortgage-backed securities and other credits.

In contrast to the remarkable profits it had tallied until 2007, the AIG subsidiary headed by Cassano began to report quarterly losses. The unit went from being star performer to vortex of a gathering nightmare.

On April 1 Cassano was nudged into retirement. In keeping with the bubble-time executive compensation practises established in the City and on Wall Street, however, the blow was softened. Cassano was allowed to continue using the company flat behind Harrods. He was given a consultancy and, according to former AIG chief executive Martin Sullivan, testifying to the US Congress, helped AIG unwind the rapidly devaluing CDSs held by AIG Financial Products. Cassano’s pay for this work was $1m a month for nine months.

(snip)

On September 16 the American insurer suffered a liquidity crisis following the downgrade of its credit rating. AIG had to beg the Federal Reserve Bank for an $85bn credit facility in return for giving up 80 per cent of its equity to the US government. This poured fuel on the fire ignited by the bankruptcy of Wall Street investment bank Lehman Brothers a day earlier.

A Sunday Telegraph investigation has determined, however, that there is a row brewing between the scores of regulators responsible for AIG’s activities in 130 countries. In the forefront of this row stands Britain’s financial regulator, the Financial Services Authority.

The operations of Cassano and his colleagues at 1 Curzon Street are attracting the attention of government officials in Washington, New York and Paris as well as London. Bumbling by the FSA, according to regulators in other countries, may have played an instrumental role in sparking the credit crunch that brought the global financial system to the brink of collapse.

This is already making political waves. Distancing himself and his government from the bad news, the Prime Minister Gordon Brown has repeatedly contended the financial crisis was made in the USA – where poor Americans in Rust Belt cities like Cleveland and Detroit fell behind on mortgage payments.

The reality has always been more complex. A financial chain links American sub-prime mortgages to the packagers and sellers of those mortgages in the City, as well as on Wall Street.

Now the role of AIG’s London office, and the FSA in overseeing what went on inside it may change all that.

(snip)

“We need an inquiry to establish what happened with the FSA’s regulation of AIG’s London operation,” Cable said.

Since AIG’s collapse in September, insurance regulators in various jurisdictions have played pass the parcel, each regulator seeking to distance itself from the CDS firm’s London business, according to politicians in Washington, such as the US Congress’s Waxman, as well as here.

The spectacle is reminiscent of the regulatory response to the collapse in the early 1990s of BCCI, a bank with operations in London, Luxembourg and the Middle East. BCCI regulators in its multiple jurisdictions, including London, dodged responsibility for not spotting BCCI’s $10bn fraud by blaming each other.

On Friday, Adair Turner, the FSA’s chairman, declined to answer questions about AIG’s London operation.

Meanwhile, people close to the City regulator explained that AIG Financial Products, the unit responsible for the insurer’s failure, fell outside its jurisdiction.

Under FSA rules, these people said, AIG Financial Products was deemed an “internal treasury operation” and, like the internal treasury operations of other companies, was not regulated.

But the FSA does have regulatory oversight responsibility for a number of AIG units in London, including a company called AIG FP Capital Management registered at 1 Curzon Street.

People close to the FSA said AIG FP Capital Management is a separate company from AIG Financial Products and is not involved in the business of creating credit default swaps.

There is little doubt, nevertheless, that US lawmakers consider London an epicentre of the AIG Financial Products disaster. During the hearing into the causes and effects of the AIG bail-out on October 7, the US House of Representatives Oversight Committee, led by Congressman Waxman, politicians pmentioned [sic] London a dozen times. California Congresswoman Jackie Speier referred to AIG’s Mayfair business as “the casino in London”.

Testimonies by former AIG chief executives Martin Sullivan and Robert Willumstad, along with a New York Times article on September 28, sketch the story of the AIG Financial Products unit in London.

It was originally staffed by executives, including Cassano, from defunct Wall Street investment bank Drexel Burnham Lambert. Drexel’s legendary junk bond king, Michael Milken, was investigated for insider trading in the 1980s and pleaded guilty to six charges.

(snip)

In contrast to standard practice, however, AIG Financial Products did not hedge its exposure to a possible fall in the CDS market. In a footnote to AIG’s 2007 accounts spotted by Forbes magazine, the company declared: “In most cases AIGFP does not hedge its exposures to credit default swaps it has written.”

Last November, when AIG’s accountants asked the insurer to change the way it valued CDS’s, the comparatively small base of capital on which AIG Financial Products had built a mountain of business became visible. This began the unravelling that led to AIG’s central role in sparking the global financial crisis.

To date, no British authorities have said anything about AIG. In the US, in contrast, there are multiple investigations. In addition to the October 7 Congressional hearing into AIG, the insurer’s London business is now under scrutiny by the Office of Thrift Supervision in Washington and the New York State Department of Insurance in Manhattan.

Last week New York State Attorney General Andrew Cuomo sent a letter to AIG informing the company it was under investigation for “irresponsible and damaging” expenditures, among other things, for executive compensation packages that were not cut even as AIG drew down on the Federal Reserve’s $85bn credit facility to keep itself afloat.

Although the FSA will not comment on AIG Financial Products, there are indications from America that it is belatedly looking into the unit’s operations.

“There have been meetings and conversations” between Washington’s Office of Thrift Supervision and the FSA,” said Janet French, a spokeswoman for the Washington agency.

A person close to the New York State Department of Insurance said: “You can be certain there have been talks with the FSA.”

I did a little bit of reading on the FSA. They seem innocuous enough-- seemingly civic-minded government regulators. But I suspect they are like the US FEC-- overworked, understaffed, and likely subject to political pressure over which companies to investigate and which to avoid. Plus there is this legal gray area of jurisdiction that sleazy international companies take advantage of that made the situation worse.