After listening to the hearing for hours yesterday via live streaming by MSNBC on the net, I can understand why those ‘bonuses’ are commonly misunderstood by both parties and the media. I misunderstood them too until I watched hours of the hearing.
As was finally explained by Mr. Liddy, in detail, late in the day,they were contracts to keep specific people on board for the specific task of unwinding their portfolio of derivatives thereby reducing the liability of AIG by doing so. Each portfolio was different and overwhelmingly complicated. These specific people were the only one’s that immediately understood the complicated nature of the book of business that they had personally built. [Later, you’ll see how they saved the company, and us, $1.1 TRILLION.]
The words ‘Retention Bonuses’ was a terrible PR gaff. These people were professionals who had been executing the corporate directive to build huge portfolios of derivatives for the company. Only they knew all the details of each client relationship. They were the ones best positioned to get rid of the toxic assets.
Here’s what wasn’t explained until yesterday and why the Treasury signed off on the agreements:
The ‘Retention Contract’ was designed to keep them at their desk until they reached the specific goal, numerically different for each of them, of unwinding , getting rid of, their books of billions of dollars of business thereby reducing AIG’s contingent liability for those books of business. When their individual book was ‘unwound’ and no longer existed they were free to leave.
That effort, from all involved, has to this point reduced the default threat of these contracts from 2.7 TRILLION to 1.6 TRILLION. For $165 Million in cash we saved having to shore up 1.1 TRILLION in potential defaults.
The effort to offload that portfolio continues. It was the one section that was dragging down the company. They are trying to sell profitably assets yet there is no one to buy them with the credit crunch being so bad.
All in all, I think the hearing showed off the ‘showboating’ and simple refusal of committee members to even hear the facts and figures, all of which could be verified, that the CEO was giving them. Idiotic. $165M to get rid of $1.1 trillion in liabilities is a bargain.
Again we see Politicians, Pundits and News people take the easy explanation rather than get into the details and understand the specifics of the situation.
Would we rather have an additional $1.1 Trillion dollars of liablities? No. It’s just that simple. No. But to get there took hours of testimony until the CEO could even get the chance to truly explain the reason for the contracts. Even when he did, no one listened.
No one commented, “You mean we saved $1.1 trillion in liabilities by spending $165 million? That’s less than 1/10th of 1 percent of what we saved. Maybe we should reexamine this subject. Can you provide us with citations and proof of your statement?”
This subject has become an easy PR target for both sides without any investigation or understanding. Each side Democratic, Republican and Media simply jumped on the headline. Sad. That’s not how you solve problems. It is the way to stir up the public and get yourself a lot of publicity.
When will we learn that the real answers to almost any situation is in the facts and figures not in the emotional response?