Tuesday, March 17, 2009

The Washington Post on AIG

Earlier, I commented that this article represents exceptionally bad journalism. I think it's fair that I highlight some of the many reasons why.

The mediocrity of the piece is foreshadowed by the suggestion, provided by an anonymous AIG executive, that if you don't like the bonuses you're part of a "mob effect" that is "putting people's lives in danger". (Mind you, he's keeping the bonus - he's just upset that you're mad about it.)
Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products' complex trades and who are trying to dismantle the division before it further endangers the world's economy.

"It's going to blow up," said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. "I have a horrible, horrible, horrible feeling that this is going to end badly."
How irresponsible to relate an anonymously sourced comment like that one. How lazy and apathetic would anybody who pretends to be a reporter have to be to not demand further explanation: "You're stating that after this much time and close to $180 billion in taxpayer money, you're company is still on the verge of a financial meltdown that will take out the world's economy?"

If you hadn't guessed by this point that this article was going to be stenography of the AIG viewpoint, that passage should take away any doubt.
Attorneys working for the Fed had been examining the matter for months and determined that the retention payments couldn't be touched because AIG would face costly lawsuits and be subject to penalties from states and foreign governments. Administration officials said over the weekend that they agreed with that assessment.
And the anonymous sourcing goes on. Nobody in the Obama administration will attach their names to these claims? Not one person?

If none of these people would go on the record, we deserve to know why. Is it because they fear retaliation? Because they want to hide their relationship to AIG? Because they're lying?

Also, if this analysis has been literally going on for months, it's been going on from the day Obama took office - probably longer. There would have to be a stack of memoranda and analyses explaining how the government concluded that nothing could be done, probably spanning two administrations. So why is it that, by all appearances, the only thing that's been made public is AIG's self-serving analysis? Why haven't we been able to review a copy of one of these amazingly bulletproof employment contracts.

Why, for that matter, was no question asked about how these contracts came into being in this particular form? No competent employer guarantees on year - let alone two years - of oversized bonuses to employees, with absolutely no recourse or ability to back away from those bonuses if those employees are found to have been incompetent, to have damaged company profits, to have engaged in misconduct or criminal activity, to have drowned the company in a bathtub.... What gives?
The payments represent only the most contentious of a larger group of bonuses being paid throughout AIG. The company's top seven officials, including chief executive Edward M. Liddy, agreed in November to forgo bonuses through this year.
If the excuse for not cutting off the bonuses to the division that killed the company - the Financial Products unit - is that it could constitute a default that would make trillions of dollars in obligations immediately payable, or that their transactions were so complicated that only they could undo the incredible damage they caused, what's the excuse for giving similarly "bulletproof" bonus deals to anybody outside of that division? Was this done in anticipation of a government takeover, to protect oversized bonuses against public pressure?
In addition, the company is set to pay another $600 million in retention awards to about 4,700 people throughout its global insurance units.
Just as "bulletproof", we should assume?
At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.
We're again bypassing the question of why this extraordinary bonus deal was entered, and why it was entered on terms that are so unfavorable to management. Yes, there are excuses of fearing the loss of "valuable employees", presumably offered to justify giving the most outrageous bonuses to AIG's most culpable bad actors, but even assuming that this was an exceptionally one-sided giveaway, and why it was extended to so many employees who were far less valuable or in other divisions? I recognize that state laws are protective of employees who aren't paid their wages, and how they could factor into the question of whether it's wise to default on the obligation, but are we to pretend that this was accidental?
Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company's collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts.
Oh, really? And we know this because you are again giving us anonymously sourced, undocumented stenography? Other than Joseph Cassano, precisely which of the senior executives from the Financial Products division left AIG? Exactly how much bonus money did their departure save AIG - and dare I ask, was the value of their severance packages greater than that savings?
Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.
This reflects the tin ear of this entire article. There is no upside for the taxpayer here. Nobody said to the taxpayers, "Hey, you mind if we spend a few hundred billion of your money bailing out AIG?" Nobody said, "You wanna be on the hook for all of the liabilities created by greedy, incompetent AIG executives in partnership with their Financial Products division?" And obviously nobody said, "Since we did all of that without asking you, anybody mind if we also give most AIG employees gargantuan, taxpayer-funded bonuses, with the biggest and best bonuses going to people in the Financial Products division?"

If you produce an article that so eagerly accepts and repeats the statements of AIG employees and government officials, without once challenging the claims made, asking obvious questions, or wondering, "Why won't anybody let me use their names," you're pretty useless as a reporter. Four Washington Post employees worked together to create this? Amazing. Bob Woodward must be spinning in his grave.1

Meanwhile, also offered as "front page news", comes this gem:
House Minority Leader John A. Boehner (R-Ohio) said the bonus issue added to his belief that there will be almost no Republican support for any expansion of a bank-bailout program that passed Congress last fall with broad bipartisan support.

"What is the government's exit strategy from this sweeping involvement in private business?" he asked in a statement, adding that "taxpayers are not receiving an adequate accounting from either the Treasury or the management of the companies that received taxpayer funds. Unfortunately, we have not yet seen such a plan."
At least Boehner was willing to be named, but would it have been to difficult to ask the obvious follow-up: "G.W. Bush led the team that took control of AIG and these massive financial industry bailouts - what was his exit strategy?" Why is it always somebody else who must come up with the exit strategy for Bush Administration boondoggles?


1. I know. It was a joke.

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