AIG Gets Another $30 Billion: the Real Scandal

by Deb Cupples |   The U.S. government has agreed to lend AIG, the world's largest insurer, another $30 billion after the company reported nearly $62 billion in quarterly losses.  This new $30 billion is in addition to a roughly $150 billion aid package that AIG had already received.

Felix at The Portfolio seems to have a solid take on the AIG scandal:

"The scandal here is not the size of the losses from the global financial meltdown -- those are losses which sooner or later, in one form or another, would have had to be borne by the government anyway. Rather, the scandal is that AIG could have earned billions of dollars by selling insurance against a meltdown, even as it was wholly incapable of paying out on those policies. 

Amen!  That is the first question: why did regulators even allow such a thing to transpire?  The next question: how will regulators prevent such bizarre things from happening in the future?  Felix continues:

"I wouldn't be surprised to learn that [ex-AIG CEO] Hank Greenberg was still a billionaire, even as the policies his company wrote have cost the average American household some $1,600. It's time for his wealth to be confiscated: it might be only a drop in the bucket compared to AIG's total losses, but it would feel very right." (The Portfolio)

Yes, the buck needs to stop somewhere other than in AIG executives' personal, offshore bank accounts.

And yes, Mr. Greenberg's compensation -- alone -- might be a mere drop in the bucket. 

But Mr. Greenburg was not the only AIG exec or manager who pocketed millions while driving AIG off a cliff. 

My guess is that hundreds of AIG folks were taking huge compensation packages during the last few years (i.e., while contributing to AIG's now-government-stalled demise). 

In the final quarter of 2007, for example, AIG reported losses of $5 billion.  Then-CEO Martin Sullivan urged AIG's board to ignore losses and give out millions in bonuses to 69 executives under the so-called "Senior Partners Plan."  In March 2008, after years of bonuses, Mr. Sullivan was given a $47 million golden parachute when he resigned -- a resignation that seemed to result from AIG's massive failures under Mr. Sullivan's "leadership."

Another example: from roughly 2001-2008, AIG exec Joseph Cassano got $280 million in compensation.  When Mr. Cassano's division imploded in 2008, Cassano was essentially fired. AIG's Board allowed Mr. Cassano to keep  $30+ million in unvested bonuses AND kept him on a million-dollar-a-month retainer. 

In September 2008, ex-AIG-CEO Robert Willumstad -- after serving as CEO for three months -- rejected an offer of a $22 million severance package.  Kudos to Mr. Willumstad.  Shame on AIG's Board of Directors for even offering such a package -- especially given that we taxpayers had agreed to lend AIG $85 billion only a week earlier.

Funneling shareholder-dollars into golden parachutes and executive bonuses should have been the absolute-last thing on the minds of AIG's board members and executives.  Apparently, it was among the first.

My point is that AIG execs and Board members (like those of other big, public corporations) seem accustomed to funneling masses of shareholder money into management's personal pockets -- even when the company is heading off a cliff.

If compensation clawbacks are a lawful option, then they should aim at --

1) all execs and managers who gorged themselves at the shareholders' trough, and

2) multiple years of compensation that was based on the false appearance of profitability.

Such massive clawbacks might not refill AIG shareholders' bucket, but they would restore more than one mere drop.

Other Buck Naked Politics Posts:

* AIG Execs Redistributed Shareholder Wealth to Themselves

* Real Bonuses Based on Fake Profits

* Wall Street Execs Got Billions While Driving Economy Toward Cliff

* Save Jobs by Cutting Executive Pay

* Merrill Lynch Execs Shamelessly Spend Shareholder Dollars

* Bailed Out Bank Spends Gobs on Golf Tournament

* Citigroup Execs Want to Buy AirplaneInstead of Saving Jobs

* Bank of America CEO Surprised by Merrill's Massive Losses?

* Cleaning up Corporate and Political Culture Would Help Economy

* Greenspan Finally Admits Flaws of De-Regulation