FDL has obtained a copy of the letter from AIG Chairman Ed Liddy’s letter to Timothy Geithner justifying the payment of $100 million in bonuses to their Financial Products Group (PDF), and a white paper explaining the legal justification for it (AIGFP Employee Retention Plan — PDF). The Financial Products Group, remember, was the London office run by Joseph Cassano that was doing all the derivatives trading that tanked AIG.
The white paper claims AIG has no choice but to make these payments:
We have been advised that the bonus provisions of the American Recovery and Reinvestment Act of 2009 prohibiting certain bonuses specifically exclude bonuses paid pursuant to pre-February 11, 2009 employment contracts.
According to attorney looseheadprop, the white paper is a Yoo-like document written to to find a reason “why they COULD make the payments. It’s all a beard.” She says:
These things are “bonuses” not salary. Words have meaning, even in law. If they are “retention bonuses” you are only contractually required to pay them if you want the executives to be contractually obligated to stay in your employ.
Liddy is making the claim that these bonuses are necessary to keep the “best” people. But according to Ron Glantz, cofounder of global macro hedge fund Pantera Capital Management, there is high unemployment right now among financial executives. He says that six months’ ago he had to fire a Rhodes Scholar finalist they had hired away from Goldman, Sachs who spoke fluent Chinese and was a magna cum laude graduate of Princeton — who has still not found work. He says that bonuses are now being structured as “hiring bonuses” to get around government restrictions.
There is a hearing on AIG scheduled by the House Financial Services Committee this Wednesday at 10am ET, where we’ll no doubt be treated to members of Congress hollering at AIG executives. But as attorney bmaz says, it’s time that the committee subpoenaed these and other AIG contracts and had a look at them:
Here is what we don’t see: The freaking contracts that supposedly demand these payments. Let’s see em. Give me a contract, I will find you a lawyer to take it apart at the seams. If the contracts were really that ironclad, there would have been a specimen contract attached, or the relevant clauses quoted. The fact that there was nothing resembling that tells me that it won’t stand up to hard scrutiny.
The letter from Liddy to Geithner suggests that the Financial Products Group saw the risk of the crash coming. When were their contracts signed? Were these executives demanding iron-clad contracts in the midst of early warning signals, even if AIG suffered massive losses from their defaults swaps triggering in 2008 and 2009?
We’ll never know unless Congress subpoenas these contracts. As satisfying as it will be to watch members of Congress yelling at AIG executive, without subpoenas it’s all just for show.