AIG: The Plot Thickens
As if you hadn’t had enough.
I have located the text of the ‘Retention Plan’ that AIG is using to defend its payment of the bonuses, it says it is obligated to pay. Here it is in all its glory: AIGFP Employee Retention Plan
This is an extraordinary document. It lays out in detail exactly why AIG thinks the taxpayers should fork over about $100 million in ‘retention’ bonuses.
At least we now have a clear insight into what is going on.
It seems that in early 2008 this plan was put in place to encourage about 400 of AIG’s employees to stay on the job and help work down the derivatives portfolio, which now stands at approximately $1.6 trillion. The plan has a number of features tying payouts to 2007 earnings levels. The notion being to protect these employees from the downside of their own errors so that they would stay on. The assumption is that without these bonuses most if not all the affected group of employees would have left for greener pastures. Quite where those greener pastures are no one knows, but that’s the argument.
That seems clear.
And it’s actually neither unusual nor unreasonable. The calculation is clear headed: what could be worse than paying these idiots a 2007 level wage? Having them leave you in the lurch with a whole mess of incomprehensible derivatives contracts where only they know their way around.
So this resolves itself into a case of which poison is preferable.
Apparently the AIG managers think that the bonus poison is easier to swallow than trying to pick apart the derivatives trades. So much for having back up. This surely is another nail in the coffin for anyone defending the competency of the former AIG management.
One really interesting note for the finance geeks amongst you is the reference to the ‘cross default’ clause argument: AIG is arguing that by defaulting on its bonus obligations it would fall into default of the master agreement governing the entire structure of its derivatives business. In other words its is arguing that any and all of its derivatives counter-parties could sue AIG as being in default and thus claim full and immediate payout. Were this true AIG would be on the hook for that $1.6 trillion. Which, of course, it conveniently doesn’t have. That means the taxpayers have a choice. Swallow the $100 million of bonuses. Or swallow the $1.6 trillion of derivatives contracts.
That’s black mail of the most elegant and exquisite kind.
And don’t go telling me that they weren’t aware of this in ‘early’ 2008. Remember that these freaks are masters of arcane contractual nuances and language. It’s a good bet they knew exactly what they were doing. They knew they could build the ultimate defense of their own pay by resorting to this cross default argument.
For the record: I don’t think it holds water. Employee compensation is not a part of a derivatives contract as far as I am aware – although in the nefarious world of AIG it could be. So the master contract doesn’t cover or affect the Employee Retention Plan, or vice versa.
Nice try guys.
Sleaze everywhere. These people need to be cordoned off and washed down before they’re allowed out in public. They are seriously dangerous.
