More Due Diligence...AIG Bonuses

Even a dog knows better than to bite the hand that feeds him. But I guess that does not apply to congressional leaders that received donations in 2008 from their arch-enemy, the "greedy American International Group- AIG."

Heading the list was none other than the Senate Banking Committee Chairman Chris Dodd and then Senator and presidential campaigner Barack Obama. But then this is Washington politics. Here is a short list of some of the recipients of AIG political contributions:

1. Chris Dodd $103,100
2. Barack Obama $101,332
3. John McCain $59,499
4. Hillary Clinton $35,965
5. Max Baucus $24,750
6. Mitt Romney* $20,850
7. Joe Biden $19,975
8. John Larson $19,750
9. Rudy Giuliani* $13,200
10. Dick Durbin $11,000
    

*presidential campaign contribution

During this 2008 cycle 55 House members and 33 Senators received these payouts. I don't hear any of them rushing to give the donations back. Democrats were the chief recipients with $442,996 while Republicans received $142,792. So where is the American public outrage. I'll wait....

The "Blame Somebody" Obama Administration claims that Senator Dodd included in the $787B stimulus bill an amendment that provided exemption for contractually obligated bonuses agreed on or before February 11, 2009 which exempted these AIG bonuses paid this week. Dodd has denied inserting the "Dodd Amendment". He claims that he did not include those dates and that when the legislation left the Senate it did not contain that language but when it returned those dates were inserted. Fine Mr. Dodd but congressional record shows that you still voted in favor of the bill. If you were so outraged by the amendment then why the yea vote? I'll wait....

Now Dodd seeks to tax the bonus recipients so that the government can recoup some of the $165M that AIG is paying out. So the politicians seek to specifically craft a bill to only tax AIG managers and executives that received these bonus payouts. This is ludicrous since the bill would only be targeted at a handfull of individuals! So you know that the actual language of the bill will target all bonuses paid to managers and executives of any company in the United States. And if any of you have ever received a management bonus then you would know that it has almost 40% Federal withholding taken out prior to you getting your money. Yet these same congress members and president signed a omnibus spending bill that had over $8 billion of earmarks ala pork and that's o.k.? On a percentage basis this is more than the 1/10th of 1% that the AIG bonuses represent.

What is not being told is that some of these financial service executives agreed to take $1 salaries for 2009 in exchange for receiving their retention bonuses. These were deals that were struck with "Turbo Tax" Timothy Geithner when he was the head of the New York Federal Reserve and arranging for the AIG bailout. So he knew that they were in there. These retention payments range from $1,000 to $6.5 Million. So the worker getting $1,000 would be ostracized by American society for receiving such a pittance of a bonus.

America please wake up before it is too late. I'll wait....

That's my word! Please post yours!

Doing Due Diligence and AIG

When buying a company you should always conduct your due diligence in examining how that company operates, is financed and what ongoing contracts or obligations it has. In other words you ask for their financial books and you begin your due diligence discovery. On May 1, 2008, Delta Airlines and Northwest Airlines agreed to create the world's largest airline through a merger of the two companies. At some point prior to this announcement they both had to open their books for financial review to see if this potential marriage would work.

Along comes our Federal Government with its gotta get something done now mentality and buys $170 billion of American International Group, Inc. better known as AIG. Former Treasury Secretary, Hank Paulson, called the Wall Street company to Washington D.C. to iron out a proposed bailout of AIG which had gotten into deep money troubles with the collapse of our financial industry. What Paulson and the rest of the Washington knuckleheads did not do was ask all of the banks that were being bailed out to allow the government to examine their financial books thoroughly. $170 billion dollars later everyone is an uproar about $165 million in bonuses being paid out by AIG. In other words all of these intellectual dimwits did not do their due diligence for the American taxpayer. You and I spend more time reading our escape clause in our cell phone contracts than what was done here.

If this had occured just maybe someone would have seen the contracts for these bonuses. Because we are a country based upon the rule of law there is nothing anyone from Barney Franks, to Chris Dodd, to Nancy Pelosi or even Barack Obama can do. These bonuses are contractual and were already in place prior to the sky falling in for AIG. One way that these bonuses could have been eliminated is to have allowed AIG to go into a controlled bankruptcy and then the people who were slated to be paid bonuses for 2008 would have to get in line with the rest of the creditors as AIG tried to emerge from bankruptcy. Another way would have been to ask that the bonuses be deferred as long as the company was in trouble and owed the taxpayers.

Now that everyone on Capitol Hill is ranting about the timing of these payouts; they should look in the mirror. They are responsible for this not AIG. Had they taken the necessary time instead of rushing to the rescue there would have been better opportunity to review all of the operations of AIG and others. Paulson also set up the bailout so that these companies did not have to report how they planned to spend the monies lent to them. No court in this land will override the decision of AIG to pay these bonuses. Contracts are binding unless there was fraud by one party and since the recipients are getting what they expected and AIG indicates these bonuses are due then who was defrauded? Not the Federal Government. They never did their due diligence.

AIG is a holding company for many different companies. AIG has businesses in general insurance, financial services, asset management and life insurance & retirement services. And because we do not know who exactly will receive these bonuses and how each of the many companies under the AIG umbrella performed; it is not prudent to assume that someone is not deserving of their bonus. Nor do we know how each of the many companies performed individually. Some divisions of this organization may have been performing well above expectations and that is what helped trigger their contractual bonus payout. If it turns out that AIG is just paying bonuses to pay bonuses without the necessary performance triggers then shame on them and they deserve the intense scrutiny they are receiving. But our government set it up that they did not have to report as to how they are spending your money. Due Diligence not done! Necessary precautions not taken! No common or business sense. Government at its very best! You see what happens when Congress does things in haste. The good thing is that Obama and his team did not set these arrangements up but he did vote yes to the $750 billion bailout as Senator and Presidential candidate.

I am not opposed to anyone at AIG or any other bailout company receiving bonus payouts that were agreed to as long as the terms of the performance were met. Mr. Obama issued more of his rhetoric today, that Treasury Secretary, Timothy Geithner would be using any legal means necessary to stop or reverse these payments. This is the same Mr. Geithner that has yet to produce the plan for shoring up our financial and banking industry. The same Treasury Department that has yet to get a Deputy Treasury Secretary to assist Mr. Geithner. When is he going to have the time for this assignment? I'll wait......

That's my word! Please post yours!

"Hope Is Not A Strategy....

...nor is it a goal."

I recall several years ago I was giving a quarterly presentation in front of my colleagues, Regional Manager, Regional V.P. and Division President on my business plan for my branch. Things were going well until I received a challenging question on my estimated sales growth. I begin the answer with "I hope to be able to..." then it went down hill. These words resonate with me until this very day from my Regional V.P. "Hope is not a strategy and definitely should not be your goal." I spent the next 30 minutes defending every aspect of my quarterly business review while my colleagues grimaced and some snickered(better you than me). I survived and learned a valuable lesson and so did they. Never use Hope as part of an answer. Yet we have allowed ourselves to believe that Hope is the panacea for our ailing economy.

Americans voted for Hope on November 4, 2008. And Hope is what everyone keeps talking about when it comes to our economy. Here is how Barack Obama defined Hope during a campaign stop in New Hampshire last January; “Hope is not blind optimism. Hope is not sitting on the sidelines or shirking from a fight. Hope is that thing inside of us that insists, despite all the evidence to the contrary, that there is something greater inside of us.” That was then this is now!

I waited patiently for Timothy Geithner to bring forth his plan to spend the balance of the TARP funds in Hope of shoring up our financial institutions. Yet I am still waiting. He detailed a plan of still planning. I watched his boss, President Obama, tell us on Monday evening that "my Treasury Secretary, Timothy Geithner, will present to you on tomorrow the plan..." Geithner did say that it would be costly, "This strategy will cost money, it will involve risk and it will take time." We Hope that all of this works!

Attacking the financial collapse on three fronts:

1.) Working to restart the flow of credit. I don't hear a detailed plan in this. Must be Hope.
2.) Removing bad debt from the books of troubled banks. He did give greater details on this front.
3.) Providing assistance for ordinary Americans and small businesses. I'll wait for the plan.

Hoping for the best is the same as not having a strategy. It is dangerous if you do not take into consideration that the worst could happen and act from that standpoint. The Obama administration along with our congressional leaders are not acting rationally. We are in for a tough and long haul. It is going to cost trillions to put this Hope into action.

The final stimulus package that will go to the president will be about $790 billion. It will include lots of spending that should be part of the normal budgetary process but because Obama believes he has to do something now it got rushed to completion. Yes, something had to be done but why did it have to be done so quickly without much thought and oversight? Why was Kruella D'Pelosi given so much latitude with which to comprise such a bill? Why did the entire Republican delegation vote against it in the House? Why did all but 3 Republicans not vote for it in the Senate? Mr. Obama insists that he has to do something. But things done in haste always end up with waste. Since I have no idea what the compromise package is I will reserve criticism until it is presented. But remember that if you borrow from the economy then put it back as spending you haven't added anything except debt. But remember this: Hope is not a strategy!

Yet the American people hold out for Hope! Its what keeps some us going each day.

Thats my word. Post yours!