The name of the game is “Bonus Bonanza Bingo”. The idea is to set the bonus as high as possible without having the masses scream bloody murder or Congress changing the rules. AIG took its turn and failed badly. Now Fannie Mae is at it.
Please consider Fannie Is Handing Out Its Own Sizable Retention Payouts.
More financial companies that are being propped up with federal money are facing political heat over bonus payments to executives.
Fannie Mae is due to pay retention bonuses of between $470,000 and $611,000 this year to some executives, despite enormous losses at the government-backed mortgage company. Fannie’s main rival, Freddie Mac, also plans to pay such bonuses but hasn’t yet provided details.
Fannie’s bonuses are smaller than ones paid by American International Group Inc. that have caused a political firestorm for that company. Seventy-three AIG executives received retention payments of $1 million or more recently, according to New York Attorney General Andrew Cuomo.
For 2008, Fannie and Freddie reported combined losses of about $108 billion, largely stemming from a surge in home-mortgage defaults. The Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie in exchange for preferred stock. The two companies have said they will need a combined $60 billion of that money to cover their losses so far.
On Tuesday, Sen. Robert Menendez (D., N.J.) wrote to Treasury Secretary Timothy Geithner, asking him to “use every legal means available” to stop $3 billion in previously disclosed retention payments to brokers at the new joint venture being formed by Morgan Stanley and Citigroup Inc.’s Smith Barney unit.
“These payouts constitute misuse of taxpayer money and are an insult to hardworking families who are saving every penny,” wrote Sen. Menendez.
James Lockhart, director of the Federal Housing Finance Agency, or FHFA, which regulates Fannie and Freddie, said the bonuses they are paying are “critical” to retain people needed to support the mortgage market and work on foreclosure-prevention efforts.
Foreclosure Prevention Efforts
Given that Fannie and Freddie have cost taxpayers $200 billion (only $60 billion is recognized so far) , exactly why is it we should believe the same crew that drove Fannie into the ground can come up with a good plan to prevent foreclosures?
I would rather spend $60 billion dollars to shut down Fannie and Freddie completely. It would be the only TARP money well spent to date.
Democrats’ Tacit Bonuses Approval May Undercut Rage
The outrage expressed by President Barack Obama and Democrats in Congress over $165 million in bonuses paid to American International Group Inc. may be undercut by their tacit approval of the payouts only a month ago.
The $787 billion economic stimulus bill approved by Congress Feb. 13 and signed into law by Obama three days later contains language that effectively authorizes bonus arrangements at companies receiving taxpayer bailouts as long as they were in place before Feb. 11.
The provision, on page 404 of the 407-page law, carves out those arrangements from new restrictions on pay at bailed-out companies that took effect with Obama’s signature. Now Obama and many of the same lawmakers who voted for the law, such as New York Senator Charles Schumer and Banking Committee Chairman Chris Dodd, are demanding AIG employees surrender their bonuses.
Dodd told CNN today he put the provision in the final version of the stimulus measure at the insistence of the administration, which was worried about lawsuits if existing compensation contracts were revoked.
“The fact is that the bill the president signed, which protected the AIG bonuses and others, was written behind closed doors by Democratic leaders of the House and Senate,” Iowa Republican Senator Charles Grassley said in a statement today.
“There was no transparency, so the only way the public will ever know who added the language to protect bailout company bonuses is if someone from the small group of Democrats in the room says so,” Grassley said.
AIG “Sucking The Tit Of The Taxpayer”
Senator Chuck Grassley says AIG “Sucking The Tit Of The Taxpayer”
On Monday, Sen. Chuck Grassley (R-Iowa) got in some trouble for saying that AIG executives should resign or “commit suicide.” On Tuesday he clarified, claiming that he “obviously” didn’t mean the suicide part literally.
Now Grassley’s made another eyebrow-raising comment about the insurance group, but this one might be more popular. At a press event today, told reporters that it’s “irresponsible for corporations to give bonuses” when they’re “sucking the tit of the taxpayer.”
Click on the link to see a video.
House Sets Vote on 90% Tax on Some Executive Bonuses
Now that the Democrats have completely fumbled the bonus issue they are hoping to rectify the situation via tax code. Please consider House Sets Vote on 90% Tax on Some Executive Bonuses.
U.S. House Democrats plan a vote tomorrow on a measure to impose a 90 percent tax on executive bonuses paid by American International Group Inc. and other companies getting more than $5 billion in federal bailout funds.
“I expect it to pass in overwhelmingly bipartisan fashion,” House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters today in Washington. House Speaker Nancy Pelosi, a California Democrat, said, “The American people are very upset about what they’ve heard about bonuses.”
The legislation would cover 75 percent of companies that receive federal bailout funds, according to the House Ways and Means Committee.
“We go far beyond AIG, Citibank, Freddie Mac, Fannie Mae and others,” said committee Chairman Charles Rangel, a New York Democrat. “This is not going to happen again, the light is flashing and letting them know that America won’t take it.”
The legislation wouldn’t attempt to impose the tax on foreign employees of companies such as AIG, said Ways and Means Committee spokesman Matthew Beck. Many of AIG’s bonus recipients work in the London office of the credit-default swap unit.
The Senate is readying a separate measure that would impose a 70 percent excise tax on the bonuses, split between the company and employee. That tax would be collected from foreign workers by making the company responsible for paying the employee’s 35 percent excise tax if the levy couldn’t be collected using normal withholding in place under existing tax treaties, according to a description released yesterday by the Senate Finance Committee.
The bonus decision “may jeopardize our ability to get the majority of this Congress to support further largess, to provide funds, to prevent a recession, depression or meltdown,” Representative Paul Kanjorski, a Pennsylvania Democrat who heads the capital markets subcommittee, told Liddy today.
The Real AIG Scandal
Eliot Spitzer is writing about The Real AIG Scandal.
Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
Eliot Spitzer nails it. However, any rage at this point is justified. Our best hope is the rage continues and Republicans get some new found backbone to block all further bailout efforts.
Dodd facing fresh political firestorm
Looking ahead, Dodd facing fresh political firestorm for his role in this fiasco.
Sen. Chris Dodd (D-Conn.) looks like he may be facing a fresh political firestorm.
Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision. .
“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon.
“But for that language, there would have been no language to deal with this at all.”
Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill. As late as today, Dodd’s spokeswoman denied the senator’s involvement.
Enough is enough. It’s time we stop the bailout madness. If that happens, and if Senator Dodd goes down in flames, these bonuses will have proven to be a blessing in disguise for the outrage they caused.
Mike “Mish” Shedlock
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