You'd think the deal would be a clearance mechanism to get rid of crap games, but not so. Some of the titles eligible are the murderer's row of The Beatles: Rock Band, Batman: Arkham Asylum and Uncharted 2: Among Thieves, all of which are spectacular.

Of course, you have to take into account the fact that most new video games are ludicrously overpriced, and even the bestsellers are known to drop significantly in price less than a year after they're released. If you're an enterprising sort, you could buy some games, sell them online for about the same price and pocket the $40 credit as profit.

Spend $80 on games at Amazon, get $40 in credit [Joystiq]
(Photo: Great Beyond)

The White House, being the buzzkill that it is, is telling the bailed-out company to trim those back a bit, the Washington Post reports:

Kenneth Feinberg, the U.S. Treasury's point man for compensation, has indicated he wants future retention payments reduced at the troubled AIG Financial Products unit, according to a new report from the special inspector general overseeing the government's financial rescue program.

A public furor erupted earlier this year when AIG paid about $168 million in retention bonuses to employees at Financial Products, the unit whose complex deals nearly wrecked the insurance giant last fall. The same contracts that guaranteed those awards also promised similar payments in March 2010, and for months AIG has been scrambling to redraw those agreements in hopes of preventing another public debacle.

What sucks here is that AIG employees obviously deserve these retention bonuses, what with every other corporation in America that aspires to Worst Company status falling all over one another to recruit them away. If AIG wants to keep its magic going, the company — and the taxpayers — needs to pay the hefty price tag to keep those miracle workers under the AIG banner.

AIG Advised to Limit Its Next Round of Bonuses [Washington Post]

When BoA's CEO Kenneth Lewis fired Merrill Lynch's CEO John Thain this past January, it was because Thain had allegedly fast-tracked bonuses for employees without BoA's knowledge or approval, and had withheld the true amount of losses that Merrill Lynch faced for 2008 (a record $27.6 billion ultimately). Thain, who spoke yesterday at Wharton Business School in Pennsylvania, says that wasn't true at all:

Thain said he didn't speed up the bonuses and Charlotte, North Carolina-based Bank of America shouldn't have been surprised by the fourth-quarter loss .

"When I got fired in January and they said ‘John Thain secretly accelerated these bonuses,' they were lying," Thain said. "And that has now trapped them into a lot of trouble, because there is a document that says yes, in fact, they agreed to this in September."

Thain also joked that if he had to redecorate that office again, he would have gone with IKEA, which would have been genuinely funny if he at all meant it.

Cuomo's office is also investigating whether federal regulators pressured BoA into completing the deal whether they knew about Merrill Lynch's huge losses or not, which is what BoA executives have said.

"NY AG Subpoenas 5 BofA Board Members" [ABC News]
"Thain Says He Should Have Picked Ikea Furniture for Merrill" [Bloomberg]

RELATED
"Judge: BoA SEC Deal Violates 'Most Elementary Notions Of Justice And Morality'"
"Thain's $35,000 Commode On Legs Actually Chest Of Drawers"
(Photo: mrkathicka)

Rakoff — who had earlier warned that he wouldn't let the proposed settlement go through — had plenty of choice words for both BofA and the SEC. The deal would have forced shareholders to foot the bill to settle a case involving $3.6 billion in bonuses awarded to top Merrill brass at the same time that the company was crying poverty and begging for a savior.

The judge said the settlement plan:

... suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.

Of course, this isn't Rakoff's first run-in with Bank of America over the Merrill bonuses. Just last month, scolded BofA lawyers who tried to cast bonuses averaging about $91,000 per employee as chump change. "I'm glad you think that $91,000 is not a lot of money," the judge said. "I wish the average American was making $91,000."

We can only hope that after Rakoff is done taking care of all of Wall Street's excesses, he goes into broadcasting. TV and radio might be filled with angry old men, but we can't imagine any of them using Oscar Wilde to slam the SEC, as Rakoff did today, when he compared the agency to a cynic who "knows the price of everything and the value of nothing."

Judge Rejects Settlement Over Merrill Bonuses [NYT]

Previously: Judge Attacks Merrill Pre-Merger Bonuses

The report says that combined, these three firms earned $9.6 billion, paid bonuses of nearly $18 billion, and received TARP taxpayer funds worth $45 billion. Why did this happen? Because, according to Cuomo, when times were good the bankers rewarded themselves based on performance. When the economy started to sour — they decoupled the bonus structure from reality and kept rewarding themselves.

From the report:

As one would expect, in describing their compensation programs, most banks emphasize the importance of tying pay to performance. Indeed, one senior bank executive noted recently that individual compensation should not be set without taking into strong consideration the performance of the business unit and the overall firm. As this executive put it, "employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak."

But despite such claims, one thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees. In many ways, the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based.

But even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks' financial performance. Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.

So, how was this allowed to happen? Why did the bankers feel justified in rewarding themselves as the ship sank?

In some senses, large payouts became a cultural expectation at banks and a source of competition among the firms. For example, as Merrill Lynch's performance plummeted, Merrill severed the tie between paying based on performance and set its bonus pool based on what it expected its competitors would do. Accordingly, Merrill paid out close to $16 billion in 2007 while losing more than $7 billion and paid close to $15 billion in 2008 while facing near collapse. Moreover, Merrill's losses in 2007 and 2008 more than erased Merrill's earnings between 2003 and 2006. Clearly, the compensation structures in the boom years did not account for long-term risk, and huge paydays continued while the firm faced extinction.

The AG says that the bankers explained the need to do this by claiming that they had to pay bonuses to individuals working in divisions that were still making money for the firm. The trouble with this rationalization is that banks continued paying bonuses to people in losing divisions.

We recognize, of course, that there can be situations where the distribution of profits to employees who created real profits would be appropriate even though the overall firm may have lost money. This might be the case, for example, where one division of a firm earned large profits but another division lost profits. A principled and consistent approach would, however, balance the need to reward and retain those who created profits with the need for bonuses to reflect the overall performance of the firm. In any event, our investigations have shown numerous instances where large bonuses were paid to individuals in money-losing divisions at firms who saw either substantially reduced profits or losses in 2008.

The entire report can be downloaded from the AG's website, here. (PDF)

That's how I imagine the meeting went where AIG decided to award more bonuses to executives next week.

You may recall that their previous round of bonuses were wildly unpopular with the public. This next round are actually bonuses delayed from 2008, seeing how 2008 was such a banner year for AIG.

In November, AIG's top seven executives, including Chairman Edward M. Liddy, agreed to forgo their bonuses through 2009. Then, in March, facing pressure from Treasury Secretary Timothy F. Geithner and other government officials, the company restructured its corporate bonus plans for the remaining top 50 executives. As part of this agreement, the senior executives were to receive half their 2008 bonuses — which totaled $9.6 million — in the spring, with another quarter disbursed on July 15 and the rest on Sept. 15. The last two payments would depend on whether the company made progress in revamping its business and paying back bailout money to taxpayers.

AIG plans to run the bonuses by Kenneth Feinberg, the Obama administration's compensation czar. Even though they don't technically need to. Maybe they're afraid of more taxpayers with torches if they don't.

AIG Seeks Clearance For More Bonuses [Washington Post]

(Photo: me and the sysop)

The insurance policies essentially are informal pension funds for executives: Companies deposit money into the contracts, which are like big, nondeductible IRAs, and allocate the cash among investments that grow tax-free. Over time, employers receive tax-free death benefits when employees, former employees and retirees die.

Update: Here's a bit more information on the practice, since (as Esquire99 points out below) any policies taken out since 2006 require employee consent.

Efforts to rein in the practice largely have been unsuccessful, including the most recent rules Congress enacted in 2006. The rules limit companies to buying life insurance to just the top third of earners, who must provide consent. But the rules don't apply to life-insurance that employers bought before the August 2006 rules, which cover millions of current and former employees.

"WSJ: Banks Using Life Insurance Policies..." [Crooks and Liars] (Thanks to Greg!)

Responding to detailed questions from Rep. Elijah Cummings, AIG disclosed a new figure for its employee bonus pool — $454 million for 2008.

"I was shocked to see that the number has nearly quadrupled this time," said Cummings. "I simply cannot fathom why this company continues to erode the trust of the public and the U.S. Congress, rather than being forthcoming about these issues from the start."

POLITICO says that the last time they asked AIG about the total bonuses (which are different from and in addition to retention payments), they were given a figure of $120 million.

On March 19th, POLITICO asked AIG in an e-mail, "What was AIG's total bonus pool (outside the retention agreements) for 2008?" To that, after some back and forth, AIG offered the $120 million figure.

Later in March, Congressman Cummings submitted written questions to AIG, asking: "Please specify the exact amount in bonuses - not retention payments or any other form of compensation - paid by AIG to employees of any division of AIG in 2008 or paid in 2009 for work performed in 2008."

To that question, AIG disclosed a division by division breakdown of payments totaling $454 million.

AIG spokesman Ashooh said the company's revised accounting is the result of different wording of the questions asked by Cummings and POLITICO.

Just in time for the next round of Worst Company in America.

AIG bonus pool higher than reported [Politico via Gothamist]

One of the newsroom jobs that was eliminated belonged to 20-year veteran reporter Lou Carlozo. Mr. Carlozo had been assigned to write a series called, "The Recession Diaries," for the Trib.

I wanted to post a final blog Wednesday to readers explaining that I had lost my job, a victim of the very recession I covered. I posted this without management's approval. I then informed management. Management took it down.

Lou posted the censored entry on TrueSlant.com. Here it is:

Goodbye from Lou Carlozo

The recession has truly hit home.

This will be my last post as a Chicago Tribune staff writer, and the author of the Recession Diaries.

Today, just an hour ago, I received word that this will be my last week as a Chicago Tribune employee. So as you can see, no one is immune from the recession–not even someone who writes about it daily, diligently and with an eye towards serving those who have had their bank accounts drained, their retirement accounts dashed, their hearts broken, and their hopes placed under a dangling sword of despair.

I, for one, refuse to be bitter or ungrateful. While it will take me some time to process being unemployed after 20-odd years in the field I love, I recognize now how much I need to take the advice I gave to you with every ounce of my passion. That is: Account for those things no recession can take away from you. Your faith in God. Your family. Your friends. Your health. Your many blessings.

I am part of an industry-wide trend that will likely result in the death of print journalism within five years time. That is not what the higher-ups would like me to tell you, nor is it a result of anything wrong that they have done. On the contrary, I admire Sam Zell and all he has done to keep this company going. I have not always agreed with the new ownership's decisions or rationale, but my opinions come from an uniformed perspective. I write for deadline; I do not know the intricacies of finance and balancing the books. (Perhaps my early dispatches on the recession front have proved this.)

So where will I be? Looking for a job. Playing with my kids. Walking, talking and praying with my wife. And of course, praying for and hopefully hearing from you, my readers, who have made this year of 2009 one of the most rewarding ever. I started in this business in 1989 as a long-haired kid without a clue about journalism, but a heart for the written word, public service and fighting for the little guy. My hair has long since vanished–oh, the vagaries of middle age!–but the idealist and optimist in me refuses to walk gently into that good night. Nor will I allow it to do so.

Also, a tip of the hat to the best boss a man could ask for, Lara Weber. It was her idea to start this blog, and without her inspiration, support, and most of all guidance and good cheer, I could not have achieved anything on the recession reporting front. She's a woman any journalist would be lucky to call boss, confidant and dear, dear friend. I will miss you, Lara.

Please stay in touch, and wish me luck. feedbacker@aol.com.
In God's Peace, Lou

Meanwhile, Crain's says that the Tribune company considers paying the $13 million in bonus vital for the survival of the paper.

The payments are "vitally necessary" to reward employees for a difficult year and motivate them during the current year, according to Tribune's motion filed with the court Wednesday. The top ten executives in the company are not eligible for the payments.

The Tribune also said that it will be hiring new people to expand its consumer coverage.

The paper will expand its local news operation and establish a new "watchdog unit to increase our consumer and investigative coverage," Mr. Kern told his staff.

Hey, take it from us, the experts — advertisers just love consumer watchdogs.

Maybe the new watchdog unit can literally watch dogs. For money. When you're out of town.

What do you think? Will any of this help?

Tribune cuts jobs, parent seeks approval for $13M in bonuses [Crain's Chicago Business]
I am the news today, oh boy: A recession writer gets laid off [TrueSlant]

The maximum bonus for any employee will be $1.5 million, the regulator said. Freddie's bonuses are going to 80 percent of its employees, while Fannie's are going to 61 percent of its employees.

Ninety-two Freddie employees will receive $100,000 or more in 2009 and 121 Fannie employees will get bonuses of $100,000 or more. The FHFA declined to name the recipients, citing privacy concerns.

At Fannie Mae, chief operating officer Michael Williams is in line for a $1.3 million bonus, according to regulatory disclosures. Deputy chief financial officer David Hisey is slated for $1.1 million, while executive vice presidents Thomas Lund, responsible for the mortgage business, and Kenneth Bacon, responsible for housing and community development, are each in line for $1 million.

The director of the Federal Housing Finance Agency, the housing regulator that approved the bonuses, says that they are needed to keep the klutzes who ruined our housing market from ruining something new.

And you thought AIG's $165 million in bonuses were bad...

Fannie, Freddie Budget $210 Million On Bonuses, Draw Lawmakers' Fire [The Washington Post]

Jake DeSantis writes:

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in - or responsible for - the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company - during which A.I.G. reassured us many times we would be rewarded in March 2009 - we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I'd like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute's generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.'s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable - in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.'s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity - directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country's call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn't defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That's probably why A.I.G. management assured us on three occasions during that month that the company would "live up to its commitment" to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts "distasteful."

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts - until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It's now apparent that you either misunderstood the agreements that you had made - tacit or otherwise - with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You've now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.'s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.'s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to "name and shame," and his counterpart in Connecticut, Richard Blumenthal, has made similar threats - even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There's no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn't disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.'s or the federal government's budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less - in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company's diverse businesses - especially those remaining credit default swaps. I'll continue over the short term to help make sure no balls are dropped, but after what's happened this past week I can't remain much longer - there is too much bad blood. I'm not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I'll leave under my own power and will not need to be "shoved out the door."

Sincerely,

Jake DeSantis

Dear A.I.G., I Quit! [NYT]

Cuomo Says Most Huge A.I.G. Bonuses Were Returned [Dealbook]

Mr. Cuomo says:

I have received the list of AIG FP employees who received retention payouts. Mr. Liddy testified in Congress yesterday that he intended to comply with our subpoena and expressed concern for employee safety. Mr. Liddy has in fact now complied with the subpoena. We are aware of the security concerns of AIG employees, and we will be sensitive to those issues by doing a risk assessment before releasing any individual's name. The Attorney General's Office is a law enforcement agency and is experienced in making these assessments.

As we perform our review, we will simultaneously be working with AIG over the next few days to determine which employees received payments and which chose to return the money they received.

The Attorney General's Office will responsibly balance the public's right to know how their tax dollars are spent with individual security, privacy rights, and corporate prerogative.

At this moment, with emotions running high, it is important that we proceed diligently, with care, reflection, and sober judgment.

We thank AIG for their compliance.

Do you think these names should be made public, or it enough that the Attorney General knows who they are?

ATTORNEY GENERAL CUOMO ANNOUNCES SIGNIFICANT DEVELOPMENT RELATED TO AIG [NY AG]

From the Washington Post:

The House bill would tax 90 percent of bonus income for individuals with a household income of at least $250,000. Senate Finance Chairman Max Baucus (D-Mont.) said the Senate bill would impose excise taxes of 35 percent each on both AIG employees and the company. Combined with the personal income tax paid by the executives, the Senate levy would capture more than 90 percent of the bonuses.

Separate provisions would target recipients who are foreign nationals. Both the Senate and House taxes would apply broadly to bonuses paid to employees of firms receiving government aid under the $700 billion Troubled Asset Relief Program (TARP), approved last year by Congress to prevent the collapse of the financial sector.

We suppose when all else fails, make the IRS do your dirty work....

House to Consider Tax on AIG Bonuses [WaPo]

Grassley suggests:

"I suggest, you know, obviously, maybe they ought to be removed. But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide. And in the case of the Japanese, they usually commit suicide before they make any apology."

Somehow we doubt the AIG executives feel the same way...

GOP Senator Suggests AIG Bonus Execs Kill Themselves [Gothamist]

March 16, 2009

Edward M. Liddy, Chairman & CEO American International Group, Inc.
70 Pine Street New York, NY, 10270

Re: AIG Compensation Investigation

Dear Mr. Liddy:

The Office of the New York Attorney General has been investigating compensation arrangements at AIG since last Fall. We were disturbed to learn over the weekend of AIG's plans to pay millions of dollars to members of the Financial Products subsidiary through its Financial Products Retention Plan. Financial Products was, of course, the division of AIG that led to its meltdown and the huge infusion of taxpayer funds to save the firm. Previously, AIG had agreed at our request to make no payments out of its $600 million Financial Products deferred compensation pool.

We have requested the list of individuals who are to receive payments under this retention plan, as well as their positions at the firm, and it is surprising that you have yet to provide this information. Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system.

In addition, we also now request a description of each individual's job description and performance at AIG Financial Products. Please also provide whatever contracts you now claim obligate you to make these payments. Moreover, you should immediately provide us with a list of who negotiated these contracts and who developed this retention plan so we can begin to investigate the circumstances surrounding these questionable bonus arrangements. Finally, we demand an immediate status report as to whether the payments under the retention plan have been made.
We need this information immediately in order to investigate and determine:

(l) whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout;
(2) whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions;
(3) whether such contracts may be unenforceable for fraud or other reasons; and
(4) whether any of the retention payments may be considered fraudulent conveyances under New York law.

Taxpayers of this country are now supporting AIG, and they deserve at the very least to know how their money is being spent. And we owe it to the taxpayers to take every possible action to stop unwarranted bonus payments to those who caused the AIG meltdown in the first place.

If you do not provide this information by 4:00 p.m. today, we will issue subpoenas and seek, if necessary, to enforce compliance in court.

Andrew M. Cuomo
Attorney General of the State of New York
cc: AIG Board of Directors

Re: AIG Compensation Investigation (PDF) [Office of the Attorney General of New York]

The bonuses will be paid to executives at American International Group's Financial Products division, the unit that wrote trillions of dollars' worth of credit-default swaps that protected investors from defaults on bond backed by subprime mortgages.

Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.

Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and "retention pay" had been agreed to in early 2008 and were for the most part legally required.

The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.

The second group of bonuses cover some 2008 retention payments from contracts entered into before government involvement in A.I.G. that the company says it is legally obligated to fulfill. The official said Treasury concluded those contracts could not be broken.

Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

Six fair-minded chaps, including Mr. Liddy, have declined the bonuses. Others will get between $1,000 and $6.5 million. Seven execs in the financial services unit will get around $3 million.

Don't worry, though, AIG, which has taken $180 billion of our dollars so far, will do its best to reduce its taxpayer-funded bonuses next year to only $70 million.

A.I.G. to Pay $100 Million in Bonuses After Huge Bailout [The New York Times]

The letter is very direct. Here it is:

March 9, 2009

Kenneth D. Lewis Chairman, Chief Executive & President
Bank of America Corporation
100 Tryon Street Charlotte, North Carolina 28201
c/o Cleary Gottlieb Steen & Hamilton

Re: Bonus Information

Dear Mr. Lewis:

We write to demand on behalf of taxpayers that Bank of America immediately disclose individual bonus data for all individuals at Merrill Lynch and Bank of America who received 2008 bonus awards of $1 million or more.

We believe that as a matter of transparency and disclosure, taxpayers have a right to know where their tax dollars go once received by TARP recipients. Accordingly, all TARP recipient institutions should disclose individualized executive bonus information to taxpayers.

As you know, late last year Merrill Lynch moved up its planned date to allocate bonuses and then richly rewarded many of its executives. Merrill Lynch did this knowing full well that they were going to suffer huge losses for the fourth quarter and the year. At the time of the bonus awards, Merrill was in the process of being acquired by Bank of America, a TARP recipient. Moreover, Merrill Lynch also knew at the time that they had received a credit line of billions of dollars, in TARP funds.

As a result of Merrill's huge losses, taxpayers were forced to help Bank of America acquire Merrill by providing billions of additional TARP funds as well as insurance against losses from Merrill's toxic portfolio. In short, the combined Bank of America-Merrill Lynch entity received $45 billion in taxpayer funds as well as $188 million in taxpayer-funded insurance.

Despite this massive infusion of taxpayer money, Merrill Lynch paid out bonuses totaling approximately $3.6 billion and Bank of America distributed a pool of more than $3.3 billion.

Taxpayers who are footing the bill obviously demand accountability and want to know who received these funds and why.

Our mutual goal is to stabilize and enhance our country's financial institutions and system. The taxpayers of this country have given mightily to that cause. They deserve to know where their money is going and how it is being spent. Furthermore, we all agree that trust and confidence in our financial system must be restored. Transparency and disclosure are the building blocks of that trust and confidence.

Your refusal to reveal compensation information fuels distrust and cynicism at a most sensitive time.

Very truly yours,

Andrew Cuomo
Attorney General of the State of New York

Barney Frank
Attorney General of the
Chairman, House Financial
Services Committee
U.S. House of Representatives

CUOMO - FRANK LETTER TO KENNETH LEWIS REGARDING BONUSES PAID AT MERRILL LYNCH/BofA [New York Attorney General]

"Bank of America has made the decision they don't want to turn that information over to us and we, therefore, tonight served Bank of America with a subpoena to turn over that information," said Special Assistant to the New York Attorney General Benjamin Lawsky Thursday evening, "and we intend to get that by whatever means is necessary going forward."

Ken Lewis, CEO of Bank of America, told the media that he was fully cooperative when he met with the NY AG, but ABC News says that New York officials are telling a different story.

New York officials told ABC News the session with Lewis was ugly and combative. They accused Lewis and the bank of stonewalling, saying they refused to provide a list of which executives got what of the billions in bonuses.

ABCNews also took an opportunity to make fun of Lewis' mode of transportation — a $50 million private jet. Hey, lighten up, maybe he bought it off Starbucks used.

Stonewalling in Style: Bank of America Subpoenaed [ABCNews]

NY AG Andrew Cuomo is seeking to force John Thain, former CEO of Merrill Lynch, to release the names of the Merrill executives who shared over $3.6 billion in bonuses before the merger with Bank of America. Thain is refusing, and said this about the bonuses:

"Bonuses were determined based upon the performance and the retention of people, and there is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing," Thain said, according to the transcript.

Mr. Cuomo's office recently released information that suggests that Merrill Lynch may have moved up the bonuses in order to pass the cost on to tax payers, and claims that the bonuses were not spread evenly throughout the organization — but were structured in such a way as to enrich the top Merrill executives. Cuomo says that the top four bonus recipients received a combined $121 million, and that 696 individuals received bonuses of $1 million or more.

Cuomo said the bonuses were set Dec. 8 and not adjusted later when it turned out pretax losses were $7 billion more than expected. Merrill reported Jan. 16 that it lost $15.31 billion in the fourth quarter and $27 billion for the year.

Thain was dismissed in January by Bank of America chief executive officer Kenneth D. Lewis. The move came after disclosure of the bonuses and Merrill's unexpectedly large fourth-quarter loss.

Cuomo Seeks to Force Thain to Reveal Merrill Bonuses (Update2) [Bloomberg]

As you probably know, Merrill Lynch posted a $15.31 billion loss in the 4th quarter, which forced taxpayers to help Bank of America acquire the firm.

Cuomo writes:

One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding. We plan to require top officials at both Merrill Lynch and Bank of America to answer this question and to provide justifications for the massive bonuses they paid ahead of their massive losses. As you know, my Office recently issued subpoenas seeking the testimony of former Merrill Lynch CEO John Thain, as well as the testimony of Bank of America Chief Administrative Officer J. Steele Alphin. I expect we will also be seeking the testimony of other top executives at these firms.

In addition, the AG goes on to bust the myth that Merrill's hefty bonuses were spread out among a wide swath of employees, and were therefor actually quite modest. It turns out that while they did pay bonuses to some 39,000 employees, Merrill made 700 employees millionaires overnight. Cuomo says, "the vast majority of these funds were disproportionately distributed to a small number of individuals."

Cuomo writes:

Bearing in mind that Merrill moved up its bonus payments in advance of its announced $15 billion quarterly loss and $27 billion annual loss, we have determined that Merrill Lynch made the following bonus payments:

• The top four bonus recipients received a combined $121 million;
• The next four bonus recipients received a combined $62 million;
• The next six bonus recipients received a combined $66 million;
• Fourteen individuals received bonuses of $1 0 million or more and combined they received more than $250 million;
• 20 individuals received bonuses of $8 million or more;
• 53 individuals received bonuses of $5 million or more;
• 149 individuals received bonuses of $3 million or more;
• Overall, the top 149 bonus recipients received a combined $858 million;
• 696 individuals received bonuses of $1 million or more.
  Again, these payments and their curious timing raise serious questions as to whether the Merrill Lynch and Bank of America Boards of Directors were derelict in their duties and violated their fiduciary obligations.

You can read the full letter here. (PDF)

Of course, that $18.4 billion is much less than 2007 — the record year for bonuses. The Times points out that while things may have been going well in the past — the "gains" of those boom years have vanished — leaving only the bonuses.

Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.

But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.

More troubling than the blockbuster bonuses of the past are the bonuses of the future. Why are companies that are taking taxpayer money paying bonuses at all?

The companies say that they need to pay their best workers well in order to keep them, even as the job market becomes flooded, says the Times.

In case you were wondering, the average Wall Street bonus is currently $112,000.

What Red Ink? [NYT]
(Photo:Breslow)

Shareholders Score at WaMu [Business Week]
PREVIOUSLY: WaMu Rewrites Executive Bonus Plan To Avoid Subprime Meltdown Responsibility

(Thanks to Doug!)

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The bonus structure is much stricter now.