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AIG Financial Products Chief Cheers As His Unit Loses Executives -- And Another $234 Billion?

That AIG Financial Products trader who resigned -- and stridently refused to return his million dollar bonus -- in yesterday's New York Times, apparently gave some notice. Yesterday, in latest installment of the Wall Street Ends Its Contrite Silence trend we highlighted yesterday, the Wall Street Journal reports, he showed up for work to a standing ovation! And conspicuously not sitting out the ovation was AIG FP president Gerry Pasciucco. Wow it is just like that scene in Dead Poet's Society!

A less inspiring trend DeSantis' resignation highlights is this: AIG is hemorrhaging executives as fast as it is money, and if the company is to be believed the losses will cost the system hundreds of billions more dollars. In fact, the loss of two Paris-based executives, James Shephard and Mauro Gabriele, could trigger nearly a quarter trillion dollars in defaults. Say that again?

Essentially AIG "insured" senior "tranches" of assets (like real estate, etc.) for banks against the risk of default, enabling the banks to use those assets as collateral to borrow way more money than they would have under European banking regulations. (This business is, according to the Journal one notable area in which AIG Financial Products' business hasn't imploded.) But it could, unless the company replaces the two executives to the "satisfaction" of French regulators, because if said regulators decide to take the appointments into their own hands, that would, under the terms of the banks' contracts with AIG, constitute a "change of control" that would allow the banks a way out of the contracts, and contract law is stronger than gravity.

Unfortunately, AIG Financial Products famously underpriced pretty much all their derivatives by the dictates of models hatched by mathematicians who had never actually read any of the contracts, which is they are now owned by taxpayers.

Who now can only hope Gerry Pasciucco stops cheering on the exodus from his division of the company long enough to convince two derivatives geeks to move to Paris.

That may be easier said than done, if the "populist fury" thing bothers finance guys as much as they say. (The Journal reports rumors today that AIG offspring are being harassed at school!.) They hold executives hostage in France, you know. (On the plus side, geeks, that usually only happens to CEOs at companies that make things and employ people.)


53 Comments

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Sue them for the trillions in losses that they are now causing. They deserve to get paid for working, their contracts should be renegotiated.

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sure they deserve to be paid for working, but they won't get a standing O like they do when going Galt.

This is actually fascinating. They're bound and determined to prove Rand right. Since they were losing billions by staying or going, now it seems they'll just go, and pretend the company is losing billions due solely to their absence.

that'll show those losers! we really are indispensable!

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Wait a freakin' minute. This guy got his bonus and no one has YET taken it away. This guy is just looking for an opportunity to run from his responsibilities. Oh and Madoffs inner circle rooted for him too!

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I thought DeSantis quit. What, did he go in to clean out his desk?

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To be fair, this executive wrote that he's giving 100% of his post-tax bonus to charity; he added that he wants to be the one to choose where it goes, not the government. You might question whether he'll come through on that promise but if he does it seems inaccurate to say that he "clung" to the bonus.

And in the NYT piece he made it clear that he's essentially giving his 2 weeks notice; he didn't walk out the day he wrote that email.

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I don't know who this Moe Tkacik asshole is, but journalistic integrity isn't one of his priorities.

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Yeah, the mob-mentality pseudo-populist uproar on AIG retention contracts is misplaced anger in action. It seems to be promoted by TPM and other bloggers eager for anything to sensationalize in order to keep web traffic, aka advertising revenues. If you think the MSM is corrupt, don't stop your thinking with that.

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Ayep!

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Right

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And take the charitable income tax break too, no doubt.

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Anyone who accepts welfare is subject to the rules and regulations of that particular welfare program.

AIG is willing to accept the welfare payments but thinks it doesn't have to abide by the rules that other welfare recipients do. I suppose that's because they took a private jet to sign up instead of the bus.

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How the hell is AIG supposed to retain the help of experts to facilitate the selling off of it's various holdings without paying them? They've got to be paid or they will go elsewhere (other companies want their skills, too, ya know?).

DeSantis actually sold off part of AIG for ONE BILLION Dollars!! And that money went right into US Coffers. Seems like a good deal for us taxpayers to me...

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Um... nobody is talking about "not paying" people for working. People are angry about businesses like AIG, which are now largely taxpayer-owned, paying obscene bonuses to people who effed everything up.

If I recall correctly, every time there was a problem in the auto industry, weren't the workers forced to take pay cuts, even though the industry's problems really weren't caused by them? Yet if someone suggests that MAYBE white collar con-men shouldn't collect enormous bonuses while their companies are on taxpayer-sponsored life-support, suddenly that's "not paying the workers"?

I don't understand the bubble some of this country's Wall Street worshippers live in.

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I'm not exactly a wall street worshiper...

The fact is: If you don't pay these fellas the going rate for their services, somebody else will.

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What's the going rate for apocalyptic failulre?

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You're a bit dramatic.

He sold off part of AIG for ONE BILLION Dollars.

So he gets $1 Million dollars (which he's promised to give away)... That Billion Dollars comes right back into our pockets (i.e. It goes toward repaying the LOAN "We" gave AIG. You wanna be paid back, right?)

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Ah. His taxpayer-subsidized company is dragging down the world financial markets, he gets a $1 million bonus from said company, but *I'm* dramatic in noting how outrageous and absurd that is.

Got it.

Once again: What's the going rate for failure?

By the way, if this "they messed it up, so only they can save us!" logic holds water, then why don't we pay murderers to help solve their own crimes? After all, if we don't pay them, they'll take their murdering expertise somewhere else!

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That's a valid concern.

Letting the foxes continue to guard the hen house, right?

But frankly, as long as the loans get paid back with interest, I'm not really too concerned because in the meantime there are other forces at work to apply new RULES to the game so we don't find ourselves in this spot again.

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Ickyma:

What makes you think the part of AIG that was sold off for $1 Billion dollars was worth less than $10 Billion dollars?

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Also... Without the services of knowledgeable people like DeSantis AIG is likely to be UNable to pay off those loans...

If they don't pay us back then we would indeed be closer to failure you mention.

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...unable to pay off the loans that they're ALREADY unable to pay off, except by handing the bill to American taxpayers?

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The bills they are unable to pay off are those owed to GAMBLERS/"Investors" who bought Credit Default Swaps.

This burns me up! I think these gamblers should be told, "You gambled and lost!"

Then we wouldn't have most of these problems...

But here we are... we've given the money to AIG so they can pay off the Gamblers... Now AIG OWES THAT MONEY PLUS INTEREST.

They are doing it... they have been making payments... they CAN pay it all back plus interest.

I think it's in our best interest to make sure they have the most capable people there to make sure they succeed. :shrug:

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I actually agree with you, except that I think the gamblers AND their bookies should be told to go take a hike. AIG is one of the bookies.

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That's what I think "Should" have been done...
..that's not what was done.

We need to do the best with what we have right now.

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Yay for the "gamblers" mention! I've been pushing the term without seeing much for it. :-)

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If the only way we "save ourselves" is to hand AIG the money so it can pay us back, aren't we just paying ourselves? How again do the AIG executives' million-dollar bonuses figure into this again, except to drain resources from an already insolvent company?

1. Through mismanagement, AIG becomes insolvent.
2. The US government gives taxpayer money to AIG.
3. [Something magical happens.]
4. Everybody gets all their money back, AIG executives get their bonuses, and unicorns farting rainbows roam the land, while little mice in feetie pajamas dance on toadstools, singing the praises of AIG's wise executives.

I'm not sure, but I think the flaw in the plan is somewhere around #3.

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No they don't drain resources at all... They RETAIN resources.

Again: If you don't pay them their worth they will go somewhere that will.

This money is a good 'INVESTMENT'.

The difference is that we get a ROI (Return on Investment) with these folks.

It's smart

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I understand your argument, but I disagree. I don't think it's ever "smart" to continue to hand over money to people (or companies) who have demonstrated themselves to be con-men and criminals.

Capitulating to AIG because they're holding a financial gun to our heads is much closer to Stockholm Syndrome than to shrewdness.

To switch metaphors, if the car is hurtling towards a cliff, maybe it's time to change drivers, not trust that the psychopath behind the wheel is the only Great Man who can get us out of the situation he created.

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I think replacing the drivers of a stick shift Lamborghini with drivers who only know how to drive a Subaru Automatic Transmission is a good way to wreck.

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(A) Who says the only people who can fix this situation are the people who created it? Seriously, there aren't ANY other financial people who are AT LEAST as competent as those at AIG?

(B) If we're going to continue with the metaphor, I'd rather take my chances with any other driver than the one who has demonstrated a heedless, enthusiastic willingness to drive us all off a cliff. (However, I do not accept that there are no other competent drivers available. There! I've beaten the car metaphor within an inch of its life.)

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I think the people who know this company best are more likely to get the most out of it's sell off.

:shrug:

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You know, there is such an arrogance and sense of entitlement from these executives that makes people despise them for what they've done. These people haven't stolen just our wallets, these people have stolen our future. Are they so tone deaf that they can't hear the anguish, are they so myopic that they can't see what they've done?

They just cannot understand why people are so angry at having to pay these people bonuses for sticking around to undo the damage that they've done to this country. They have no duty, no allegiance, no sense of obligation and responsiblity to anyone or anything but themselves.

They're suing the U.S. taxpayers for a return of overpaid taxes (according to them) for their own overevalutation of their income to protect the fact that their bottom line was chimera, a false image to boost their own profitablity and attraction to investors. Now, because of their greed, their chicanery, their downright thievery, they have the chutzpah to demand that money back.

They get on their private jets and fly to Washington D.C. to ask lawmakers, at the expense of the American taxpayer, to fashion a welfare program explicitly for them, not because they're starving in the streets, or they lost money in sacrifice to the country, but because of their own stupidity and greed and then complain when they are held to the standards of the contract that they entered into with the taxpayers of this country. It states specifically in that contract, that executives' compensation is subject to the review and sanctions of the lawmakers themselves.

These people are welfare recipients, they are like every other welfare recipient in this country subject to the rules and regulations of that program.

To obtain a tax advantage, they took the gamble of deferring their 2008 income tax until 2009. When you take that kind of gamble, you are subject to the taxes of the year in which the income is paid, not the year for which it is earned. This income is not only subject to the tax code of 2009, it is subject to the review of congress, which they readily agreed to when they asked for the bailout.

These people have received unprecedented tax breaks, bailouts and advantages that the office worker that was just laid off because of their rank greed and stupidity does not have. He has no place to go to receive a bailout, he has no advantage of deferring his income to lessen his tax burden, he sees his entire future being swallowed up by these carrion - I'm surprised he's not more angry than he is.

Now I don't expect these incredibly greedy little pigs to take responsibility for what they've done, but the very least they can do is stop whining about the rules they agreed to when they took the money.

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Good points.

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To obtain a tax advantage, they took the gamble of deferring their 2008 income tax until 2009.
That's just not an accurate description of how this came about. Are you seriously saying that these guys set up a program with a $1 salary, zero bonus on any profits generated by their work, and a retention agreement that pays out if they indeed stay for a set period of time as a tax dodge?

That's baloney. This structure is a result of an agreement made in October with Cuomo that he has apparently erased from his memory.

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OK, I admit that I'm getting lost in the circles-upon-circles of irony and self-referential post-modernistic whatever here, but I can't handle the CEO of AIG-FP wearing a Che Guevara T-shirt.

Oh, NOW I get it. They're both trying to destroy capitalism.

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Thank you. I've been wondering how to put in words the amazement of seeing that shirt on this man.

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Seriously... It's in all our best interests that AIG "succeed" at selling off these various holdings!

They were not GIVEN the Billions... they were LOANED the billions... And they've been making payments PLUS Interest... and, as long as they are able to sell off the bad assets they will pay back a lot of money...

If we grab pitchforks and torches and chase off all the most capable people, then we jeopardize AIG's ability to PAY US BACK!

Folks, if AIG is able pay off the loan PLUS interest then WE ALL have made a good deal (as painful as it was upfront).

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And they've been making payments PLUS Interest...

This is simply not true, Ickyma. We (the People) gave them their first injection of money in September. Since then we have given them more money on two or three occaisions (I'm losing count). In Q408 (October thru December) AIG lost $62 Billion. We paid them $30B more, as recently as February.

Where on Earth did you get the idea that AIG have started paying us back already, with interest??

-- ARG

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I'll dig it up for you. (:Goes off to find links:)

These are LOANS... and they have been paying them back (although it's true they've borrowed more than they've paid back so far).

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The original injection of cash, $85B if memory serves, was in exchange for warrants equivalent to an 80% ownership stake in AIG. That is not a loan.

Additional funds since then may well be loans. However, I still challenge the notion that they are paying these back with interest already, when we are still giving them additional loans.

If I get a credit card from Bank X, and max it out, then I get another credit card from the same Bank X, and start using the second credit card to pay off the first, am I really paying them back with interest? (I suppose it's "with interest" insofaras I am increasing my overall debt every month. But "paying them back", not so much.)

-- ARG

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Also... this fella in particular sold part of AIG for 1 Billion dollars... which went right into "our" coffers...

This is what we want out of AIG... We want our money back - With Interest!

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AIG Unlikely to Pay Back All of Bailout
By STEVENSON JACOBS, IEVA M. AUGSTUMS and DANIEL WAGNER
,
AP
posted: 9 DAYS 5 HOURS AGO
comments: 351
filed under: Financial Crisis
PrintShare
Text SizeAAA
(March 16) - Pressure is mounting on the government to revise its bailout of AIG to ensure that taxpayers are repaid as much as possible of the $170 billion lent to the troubled insurer.
Experts warn we shouldn't expect to get much back.
The problem stems from AIG's obligations to its trading partners. So far, the hobbled insurance giant has honored in full its contracts with U.S. and foreign banks. It's paid out more than $90 billion in taxpayer money to keep some of the biggest names in finance from losing money on bad bets linked to subprime mortgages and other risky assets.


More:

http://money.aol.com/news/articles/_a/bbdp/aig-unlikely-to-pay-back-all-of-bailout/384922

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It says "SO FAR" AIG has honored its contracts... this implies they've been paying as promised.

I'll see if I can find some other (more clear) sources.

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December 22, 2008 7:06 AM EST

American International Group, Inc. (NYSE: AIG) announced an agreement to sell its wholly owned subsidiary HSB Group, Inc., to the Munich Re Group. HSB, the parent company of The Hartford Steam Boiler Inspection and Insurance Company, is a leading worldwide provider of equipment breakdown and engineered lines insurance and reinsurance.

Under the terms of the transaction, Munich Re will acquire 100% of the outstanding shares of HSB Group for $742 million in cash and assume $76 million of outstanding HSB capital securities.

http://www.streetinsider.com/Mergers+and+Acquisitions/AIG+(AIG)+Sells+HSB+Group+To+Munich+Re+Group+for+$742M/4255768.html

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This money was paid back to "Us" upon the Sale.

There's over half a Billion right there...

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I looked into this a bit. It's confusing as hell and there isn't really a statement either way. There are many implications that indeed they are making payments, but I cant't put my fingers on what rate.

But I found all sorts of other interesting stuff too.

Look at this deal: AIG CDO LLC Facility

IMO much of the AIG bailout has been a front to funnel money to entities other than AIG. I just don't see how we can pin that on people like DeSantis and others who, in good faith, continued at AIGFP. It's intellectually dishonest and it lets the real culprits off the hook.

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Yes! The "real culprits" seem to have left AIG a little while ago under the cover of night...

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I wonder if DeSantis' attitude is affected by the decision of his former Swiss Employer, USB, to turn over the names of 250 of its US clients to the IRS. Maybe he just suddenly realized that he's gonna need some deductions.

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Pure speculation... but it's an interesting question.

As I recall the Swiss Banks had originally said they were going to release ALL the names... Then they changed their mind and said this would violate Swiss Law... and they'd only release a couple hundred. I'm not sure how that's not also a violation of Swiss Law...

Hopefully ALL names will be released.

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Sorry to be such a cheap and mean populist, but I wish Che Guevara were alive, just so he could give Gerry Pasciucco a well-deserved cockpunch.

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We need to refocus this anger. Yes, Goldman would have been fine had AIG gone into default, per the 2005 bankruptcy reform they would have had first claim on AIG's assets. All the holders of AIG's regulated issurance products would have been wiped out. The repercussions due to breach of contracts caused by lack of liability insurance would have brought all real activities in the US to a halt. The 2005 bankruptcy reform has given the power to destroy the economy to the purchasers of AIG CDS's. The real outrage needs to be focused on the Congress members who subjegated the claims of regulated financial activities to the claims of unregulated financial activities.

Then again if Glass Steagell had not been repealed by Congress and bclinton, the deriviatives market would not have been able to flourish in outside companies like AIG and for them to gobble up other industries...AIG's insurance division was solvent --it was the Financial Products division that took them down...along with the Lehman fiasco..

The pay structure on Wall Street is based on a low base -outragous by American taxpayor standards- then a bonus on productivity...AIG-JPM, Merrill, Citi, and Bof A all say it is for retention...but the crap shot for the traders is the above--not retention!

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Just one note:

Being able to sell a division of a multibillion-dollar company for a billion dollars does not say anything about a person's abilities unless you know what the previous and future valuations of the division might be.

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