Senators to Geithner: You Could Have Backed Our Bonus Reforms
Washington can have a woefully short memory. But Sens. Ron Wyden (D-OR) and Olympia Snowe (R-ME) remember what TPMDC reported on just last month: their proposal to force bailed-out companies to rescind executive bonuses could have made it into the stimulus bill, but was stripped out by Democratic leaders at the last minute.
Wyden and Snowe are now asking Treasury Secretary Tim Geithner to support their bailout bonuses measure, which could have prevented much of the current AIG flap and was scored as a money-maker for the U.S. government.
The proposal would retroactively recover all cash bonuses to bailout recipients that exceeded $25,000, and companies that didn't return the money would be subjected to a 35% excise tax. (AIG, under this arrangement, would have had to pay about $58 million in taxes if it wanted to cling to its executive bonuses.)
Wyden and Snowe plan to quickly introduce their plan as free-standing legislation. In their letter, they remind Geithner:
The [stimulus bill] contained provisions that required you to review bonuses and "seek to negotiate" with TARP recipients regarding appropriate levels of compensation. This does not appear to have produced any results.
Ouch.
Josh
Elana
Matt
Eric
Huh? Someone's going to have to explain to me how a company that's taking a loss, indeed, is taking losses unparalleled in the history of capitalism, will end up paying any tax, must less "additional taxes."
March 17, 2009 3:14 PM | Reply | Permalink
I must have missed your explanation of how a company (any company) "that's taking a loss, indeed, is taking losses unparalleled in the history of capitalism" can give out bonuses and retention bonuses to employees who have left. I suggest that if they can pay bonuses, they can pay taxes.
March 17, 2009 3:34 PM | Reply | Permalink
Might they be talking about personal income tax?
March 17, 2009 3:35 PM | Reply | Permalink
The key word is "excise" tax. It's not based on income.
March 17, 2009 3:41 PM | Reply | Permalink
That's a $61 billion loss in the last quarter.
March 17, 2009 3:58 PM | Reply | Permalink
What would be the point? They're not making any money of their own...wouldn't they just be using taxpayer money to pay this "tax"?
March 17, 2009 3:25 PM | Reply | Permalink
The taxpayer money to AIG is in theory a series of loans. So at worst they'd be using money loaned from the taxpayer to pay us back...
March 17, 2009 3:34 PM | Reply | Permalink
That's the way I read it. It does not matter where the money comes from that AIG has to pay the government, only how much.
So for the sake of argument lets say that AIG owes the government $100 billion before the new rule goes in, and now they owe $101 billion dollars. We simply get a billion more than we would have otherwise.
Why do we care where the extra billion dollars comes from? If AIG decides to not spend 1 billion dollars of the original $100 billion on say dividends and renovating bathrooms in order to divert it back for repayment, then so be it, and I'd be quite happy to accept it.
March 17, 2009 4:10 PM | Reply | Permalink
If that is the case, then maybe we must ask Obama and his financial flunkies to take over the company outright. Alternatively, we can just give all our money directly to AIG and the other friends of Tim.
March 17, 2009 3:39 PM | Reply | Permalink
The proposal would retroactively recover all cash bonuses to bailout recipients that exceeded $25,000, and companies that didn't return the money would be subjected to a 35% excise tax. (AIG, under this arrangement, would have had to pay about $58 million in taxes if it wanted to cling to its executive bonuses.)
Taxing the companies won't accomplish anything; AIG would effectively be paying us back with our own money. The correct solution (being advanced by some Dems in Congress) is to tax the individuals.
March 17, 2009 3:25 PM | Reply | Permalink
Bingo.
The Snowe-Wyden idea would accomplish nothing.
Suppose next year AIG pays another $450 million in bonuses, then pays a portion of that amount to the federal government, then gets another $30 billion from the federal government.
As long as firms are getting endless money from the government, who cares what they temporarily give back?
It would make more sense to tax any compensation at bailed-out firms above $400,00/year at 100%.
March 18, 2009 12:30 PM | Reply | Permalink
A retention contract is now a cash bonus? What am I missing here as it relates to AIG?
And before we get too far in the weeds, remember that AIG is a holding company and their insurance companies are profitable--in fact, very profitable. These companies are also highly regulated and capitalized. There are buyers for these profitable companies--and there's no reason to sell these companies at fire sale prices.
Then we have the black sheep known as the Financial Products company who have wreaked havoc and who have apparently been savvy enough to get retention contracts that have created the current controversy.
Again, what am I missing? Do we want the employees at the profitable insurance companies that the AIG holding company wants to sell at the highest possible price to get stiffed on their earned bonuses--because "their" performance was excellent?
March 17, 2009 3:41 PM | Reply | Permalink
Huh? Care to restate that in English?
March 17, 2009 3:59 PM | Reply | Permalink
I think what he's saying is, what people are upset about right now is the bonuses at the financial products section of AIG; whereas this bill would punish ALL of AIG, including segments that are doing their jobs well and may well deserve bonuses.
To which my response would be, well, Congress can only act with blunt instruments. If AIG would find a way to do something about the questionable bonuses by themselves, then they wouldn't have Congress trying to punish the entire company.
March 17, 2009 4:12 PM | Reply | Permalink
When you finish business and finance courses, get back to me.
March 17, 2009 4:34 PM | Reply | Permalink
A retention contract is aimed at retention. How come a few were paid to people who had left. Retention in absentia?
I think we should fund the rest of our AIG aid by financing, via loans, the purchase of the good divisions. This pumps cash into AIG only if they make an honest effort to sell. It acts as a subsidy to other financial companies who we can then recoup the cash from over some period of time, presumably from the cash flows of the good businesses they have bought. After the loans are repaid those other companies are left with sensible acquisitions and the financial system is healthier for the reallocation of capital away from the yahoos of AIG.
Meanwhile AIG is forced to reduce itself steadily so that only the toxic bit remains. Once that is wound up AIG slips quietly into history where it belongs.
The employees of the good bits should not be penalized for good performance. So it is imperative we isolate the lunatics at the Financial Products Division quickly.
As you say they were 'savvy' in giving themselves retention contracts. We should pay these contracts out so as to preserve the rule of law. Then we should legislate excise taxes and claw back provisions to recoup as much of the money as possible. Perhaps in order to avoid harming the 'good folks' we can target the excise tax against 2009 or 2010 payroll within the asylum. Or allow AIG to offset it against the proceeds of sale of those good businesses.
What we should never allow is that AIG survives. It needs to be closed down. It was a cancer on the economy and should be treated as such.
March 17, 2009 4:31 PM | Reply | Permalink
You have the same good ideas that Bernanke had in September 2008. This is exactly what AIG is in the process of doing. And part of that process is unwinding the swaps that AIGFP (the Financial Products company) is still under contract for.
This is what I really dislike about TPM sometime--the lack of depth in the reporting.
March 17, 2009 4:50 PM | Reply | Permalink
I like the idea of creating a new tax that says any bonus received from AIG in the 2009 shall be taxed at a rate of 99.99, and may not be reduced by any offsets, losses, or other tax issues. What the government giveth, the government may take away.
March 17, 2009 4:15 PM | Reply | Permalink
Is it me, or is Geithner more and more on shaky ground?
March 17, 2009 4:21 PM | Reply | Permalink
It's not you. As each day passes, Geithner is looking and acting more like a friend-of-Wall-Street than a reformer. I have a lot of faith in Obama's decisions, but I'm getting really skeptical about his choice of Geithner and Summers.
March 17, 2009 4:41 PM | Reply | Permalink
I'd say shaking and quaking but who will replace him? Does any one know the involvement of the team of economic advisers? I don't recall any of them being Goldie boys. I was just listening to NPR and I'm starting to hear the excitement in the reporters voices they had for the campaigns - that slightly higher pitched 'I've got dirt' squeal. You know the one we first heard with 'shock and awe'. Kids at the state fair. Looking for first blood. I'll wait until I see Obama give it to them. I also realized that when I am hearing that tone, BS usually follows.
March 17, 2009 4:52 PM | Reply | Permalink
The bigger issue which these bonuses highlight is the lack of oversight. It's not just the sleaziness of rewarding failures and morons who destroyed this company and our economy. It is also that they have bailout money for the purposes of writing down losses. Squandering any money on bonuses or anything else is not getting AIG out of the hole, and it is shows that the board and management are not qualified or capable of discharging their responsibilties under TARP. The onyl solution I see now is to fire the entire board and upper mngmnt.
The US is now the largest stakeholder in AIG, so we shoudl demand results.
March 17, 2009 4:37 PM | Reply | Permalink
Slightly off topic, but not really: Just want to say thanks, George Bush, for the giant punchbowl turd.
March 17, 2009 4:39 PM | Reply | Permalink
"The correct solution (being advanced by some Dems in Congress) is to tax the individuals."
OTOH, you could throw them in prison instead.
March 17, 2009 4:55 PM | Reply | Permalink