America Will Yield To AIG’s Demands Or Else…

ter⋅ror⋅ist  [ter-er-ist]

–noun
1. a person, usually a member of a group, who uses or advocates terrorism.
2. a person who terrorizes or frightens others.
3. (formerly) a member of a political group in Russia aiming at the demoralization of the government by terror.
4. an agent or partisan of the revolutionary tribunal during the Reign of Terror in France.
5. American International Group

Forget al-Qaida – the world’s most successful terrorist organization, by a margin of roughly $170 billion dollars, exists right here in the U.S… in fact we will make it easy for the FBI – its terrorist boot camp is located at 70 Pine Street, New York, NY 10270, and they even answer the phone at 212-770-7000. The organization in question, is of course, known as American International Group. And while the U.S. has claimed it will not negotiate with any ad hoc or designated terrorist organization ever, it has time after time succumbed to every single whim and demand that AIG has raised, from shelving out hard-earned taxpayer money to make sure the company does not disappear in the gravitational vortex of its derivatives Frankenstein, to protecting its cabal of crony amateur terrorists in waiting (read CDS counterparties who benefited from every bailout, for a complete list see here), to its employees who mindnumbingly keep receiving bonus after bonus payment. And if America was any country in Europe, with a touchy-feely sense of ethical proprietery, this article in the New York Times would have resulted in mass looting.

As the MSM disclosed a few days ago, Geithner, in a horrendous attempt to play Robin Hood for the masses pressured AIG to cut the $9.6 million its top 50 executives were going to receive. While that bit of information was purposefully circulated, the salvo that came from the NY Times was a bit of a fly in Geithner’s ointment. Turns out AIG is paying out $165 million in "retention" bonuses over the next few days, with a range of as little as $1,000 to as much as $6.5 million for some lucky terrorist, and seven additional executives receiving bonuses more than $3 million. Now the logic for why these bonuses can not be reversed is that they were promised at some point last year, and AIG (aka US taxpayers) is contractually and legally bound to satisfy them.

This development has made some new and even more toothless Robin Hoods appear on stage center, among them Obama’s chief economic advisor Larry Summers, claiming the bonus situation at AIG "is outrageous. The whole situation at AIG is outrageous. What taxpayers are being forced to do is outrageous" however "We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system." Other politicians taking the populist flag for a spin include Republican Mitch McConnell who said:
 

“If you’re going to take the government as a partner, the message here, I’m afraid, to any business out there that’s thinking about taking government money, is “Let’s enter into a bunch of contracts real quick, and we’ll have the taxpayers pay bonuses to our employees." For them to simply sit there and blame it on the previous administration or claim contract — we all know that contracts are valid in this country, but they need to be looked at. Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place. I think it’s an outrage."

Of course, none of this would have been necessary had the government done the right thing and put this bankrupt company where it belongs: into a controlled, pre-packaged or otherwise bankruptcy. Under bankruptcy law, not only would existing bonus contracts be renegotiable, but even historical bonuses would be subject to 3 year clawbacks under the terms of fraudulent conveyance. But of course, this would never happen as that would mean someone in the administration would have to make the right decision.

Which leads us to another question. As everyone now knows, the reason AIG is in its current state is due almost exclusively to the hubris of one Joseph Cassano, who would have spared the world a lot of pain if he had only read one or two of Nassim Taleb’s books over the past decade realizing what 6 sigma events are and how it is in fact possible to lose up to $500 billion dollars in derivative trades.

A cursory google search reveals that Cassano is a big Obama-Dodd fan (the later of DPA 2009 fame). Maybe while we are on the while topic of fraudulent conveyance, it would be prudent for the President and the Chairman of the Senate Banking Committee to refund the over $8,900 that the individual at the core of AIG’s CDS black hole had so generously provided to them in 2008… as otherwise it just might seem that he, along with his former organization, are getting some sort of preferential treatment… I am not suggesting that is the case at all, merely referring to the optics and the fact that many people are looking for pitchforks in their toolsheds. And while they are refunding Cassano’s highly suspect generosity, they may also want to consider refunding the campaign contributions of Cassano’s wife, Ellen Hooker as well, which came to $4,400 in 2008, and was targeted at the same two recipients. After all, we are talking about fraudulent conveyance here.

Now Cassano seems like a prudent man: his does not live in Madoff-type grandeur: his house, at 32 Minute Man Hill in Westport, CT was only evaluated at $1.2 million in 2007 (granted I have no idea of his environs in his London town house located behind luxury store Harrod’s). Indeed, not only prudent, but generous: Cassano and wife apparently have a penchant for donating taxpayer money to worthy causes (his penchant for all things Brooklyn is likely explained by the fact that the man who ran and subsequently destroyed the world of finance is a graduate of Brooklyn College). What confuses me, is how Cassano had a job in the first place.

Taking a look at his Finra brokercheck report reveals that way before the hoopla of 2007-2008, Cassano already was in deep water with the regulators. 2004 allegations filed against Cassano, which were subsequently swept under the rug via an $80 million settlement between AIG and the SEC/DOJ, contained some serious charges:

The complaint alleged that AIG-FP PAGIC [Cassano’s group] violated federal securities laws by aiding and abetting securities law violations by a public company, PNC Financial Services Group Inc. ("PNC"), in connection with a transaction entered into in 2001 with PNC that was intended to enable PNC to remove certain assets from its balance sheet. The complaint alleged that AIG-FP PAGIC knew, or was deliberately ignorant in not knowing, that the PNC transaction did not satisfy the requirements of GAAP for non-consolidation of special purpose entities.

cassano
 

After the $80 million settlement, the complaint was dismissed "with prejudice after the DOJ and SEC agreed not to prosecute AIG or AIG-FP in connection with the PNC transactions." Hillariously, again like in the Madoff debacle, the ultimate guilty party may again end up being the SEC. And while the Madoff fallout impacted a bunch of high net worth individuals, the SEC’s light treatment of Cassano’s infraction resulted in the collapse of the financial system. Yet somehow, none of the individuals who are responsible for Madoff’s and Cassano’s $600 billion in combined losses (and the financial system’s utter collapse) are behind bars…

Maybe the American public, with its infinite patience, deserves such terrorists as AIG demanding and getting whatever they want whenever they want. One thing is certain: the SEC, while going after $20 million ponzis in Arkansas and Montana, is likely currently slapping the next Joseph Cassano on the wrist with some harsh language and a token fine, as the latter prepares to once and for all wipe out whatever is left of capitalism.