On the AIG Debacle from an Insider

I will be paraphrasing and placing those elements from a family friend who was an executive at AIG in quotes.

Thank you for contactingn me about the current AIG crisis.  I am very worried about my wife and the pressure that she has been under in regards to this situation.

I have not been with AIG since October, but I did receive a retention plan payment (way under the $ 1 million payment though). The vast majority of people working at AIG-Financial Products Division had nothing to do with the transactions that are causing so much trouble.  10 employees out 400 executed and priced those transactions.  The rest of us at the company were pretty much clueless in regards to how these products were underwritten.  The AIG employees were told that the underwritten securities contained no risk.  However, the current AIG-FP employees (those who account for the 390 who had nothing to do with the underwritings) are enduring the most anger from the public.

I can understand why there is anger, however,  AIG-FP did not cause the ruin of AIG, that distinction belongs to AIG itself through its security lending program that has lost billion more than AIG-FP. Why is that not being discussed?  because it does not fit the class warfare discussion that is going on now. Its not conducive to the “crisis” to say that senior management at AIG was irresponsible and incompetent its much easier to say that and entire division of AIG (AIG-FP) and those greedy employees and credit derivatives destroyed the company.  

Now the History:

AIG goes to AIG-FP employees in late March of 2008 (not March of 2009 – these contracts were signed way in advance) with a retention plan because the head of FP is fired for the credit derivatives that are causing so many problems. The employees did not ask for the retention plans and most employees were not very happy about signing them either. 

AIG gives us two weeks to decide whether we want to sign these agreements.  As an AIG employee, if you did not sign the agreement you weren’t considered a “team-player” and your days at the office were numbered.  Yes, we benefited by signing the retention agreements, but the offset is that AIG wants to make sure that its employees do not walk out the door with the specific knowledge they have to deal with these products and the problems at hand.  Most of the employees sign the agreements, and most employees work their butts off figuring out how best to get us out of the mess.  The problem is that we did not know how bad the mess was and the economy continues to unravel, which exascerbates the problems.

Fast forward to the end of December, 2008 – the Fed and the new administration, current democratic leaders, all agree to the TARP money in late Fall for AIG, and the Treasury Secretary knows all about the retention plans because the plans were restructured for existing employees so that they could get some funds released prior to the March dead- line. Those that were downsized (me) were not allowed to be involved in these discussions nor were we allowed to benefit from the acceleration. All parties (Cuomo, Dept. of Treasury, Democratic Leaders, Obama, etc….) agree to the advance payment of the retention plans for those employees still at the company. This was all reported in the newspapers and news in January 2009 but how quickly and conveniently people forget!

Today:

Now it’s March 2009, and everyone is outraged by the retention payment plans; agreed to by the government, esp. the democrats, the Fed, the Treasury and AIG senior management.  A bunch of representatives, senators, and the administration get caught in lies in regards to the level of detail and their knowledge of these bonuses. The result is an assault on contract law.  The government proposed a specific tax on a select group of people and the very essence of this proposal violates the constitution.   The President telling jokes on Leno rather then dealing with the real issues at hand is appalling.  I understand why there is anger from the public in regards to the AIG-FP employees’ retention payments. There is so much blame about so many things but there is no plan, and thus the smell of fear and uncertainty are too pungent and mob mentality breaks out.  Everyone is worried about their own job, retirement money, increased taxes, etc.

I am now being asked to give my bonus back, which is fine with me, even though I have done nothing personally wrong. Here is the kicker:  you cannot even give the money back, because no one has decided or determine whether the government believes you earn the money that you want to give back. IF they decided you earn it and you gave it back, then you still pay taxes on the full amount you gave back as well as a possible additional gift tax ( but I am not sure how that comes into play). In essence, I will be paying 36% tax on phantom income.  And who do I make this payment to?  Nothing has been decided in that regard.  Do I pay back the government, the Treasury, AIG?   If I keep the money, because of the tax situation, which I did not create, then I am an evil person because I have no morals, but I pay 90% of real income and real cash. The unfortunate and very disheartening fact of the mattter is that AIG-FP names have been released to Cuomo and Rell (gov. of Connecticut) so that they can jump on the pile. Some names have been released to the press; media has been pounding on windows of employees or their neighbors’ windows. Some local and national newspapers have published employees’ house pictures and addresses, and now there are bus tours of peoples’ homes.  My fear is that there will be physical violence and that someone will get hurt… This is utter insanity and the epitome of a manufactured crisis and class warfare at its finest…

Share on Facebook