seperis | random drive by AIG moment

A couple of days ago I was talking about how the market, as far as I can tell, is schizophrenic.

Example:

American International Group (AIG) is currently being raked fore and aft over that entire messy bonus issue. Late last week, it traded at less than fifty cents a share. I know this because I have a spreadsheet, and you know, I'm anal. You would think--you know, in a world where the market had something to do with what was going on in the actual business end of a company--this would be bad for the price of shares. Yeah, I would too. You know. Until this morning.

However, I cannot login to my account right now, as suddenly and inexplicably, there is too much trading right now. This was new, and I went to pull my spreadsheet and realized things looked wrong, as there was money there that really shouldn't be, since come on, it's not like I'm using logic here in my buying sprees.

This is because AIG tripled in price*.

Let me point this out again. AIG is being investigated for bonus stuff and is going to get ass-raped by the government with government subsidized lube which is also known as sandpaper and this morning the shares reached two dollars each. Bank of America is also still trading above seven (as of the last fifteen seconds), and see, this is why when people look grim over the state of the economy because the DOW looks unhappy, I kind of laugh. The DOW is not unhappy. A whole bunch of hedge fund managers and assorted brokers just bought new BMWs and are making a down payment. Check car sales in the area. Or you know, whose child was arrested recently. I mean, seriously.

*taps fingers on desk*

So far, two hours of high trading and counting. This is hysterical. And I cannot participate in this historical moment. Not that I would. But I do like to boggle at it in real-time.

I know right? It's like when Alan Greenspan finally admitted there was a "flaw in his worldview" because he expected the people running public companies to behave rationally. The stock market has NEVER been a wholly rational venture; the Tulip Mania of the 1600s wasn't a bug, it's an endemic feature of the system.

It just blows the mind, doesn't it? *facepalm* Welcome to human psychology, Greenspan.

Because it doesn't really have anything to do with AIG, persay. You've got two things going on here. The first is that national numbers are starting to look better: less layoffs planned, a smidge more hiring, the housing numbers are good. The market is seeing a floor, and the market likes floors. Personally, I think 'floor' is the wrong term here, but so says the economist I live with, so thus do I call it. Anyway. Everything is edging up slightly, and staying consistently up if you can call 'a week' consistent, because of that. It's got nothing to do with specific companies.

The second issue is specific to AIG: what the AIG CEO said to Congress yesterday. He played mea culpa. Granted, it was a smarmy form of mea culpa, but it removed the war of chicken AIG and the government were involved in, and it put both parties back on their respective sides of the street. Frankly, Congress' new measure to tax AIG's benefits may have long term repercussions, in that it might kill the way the industry has come to rely on bonuses (I am so wanting that to happen) but when it comes to AIG and how the financial business operates, the short term is negligable to irrelevant. This is an outpouring of anger: it's not a genuine solution or even a real punishment. The only people genuinely punished are the ones who got the bonuses and who haven't done anything wrong.

Also, they live in England and may or may not pay US taxes. Which makes Congress' new act equally as irrelevant.

But basically, in a serious way, AIG won. They are not going bankrupt (today; we'll see about tomorrow). The government is not coming in and taking over, as an 80% shareholder could actually do. Right now, the response from the government is angry but not particularly effective. They won.

So AIG stock prices rise with everyone else's. Although it probably won't go very high, all told.

The only people genuinely punished are the ones who got the bonuses and who haven't done anything wrong.

I would disagree flatly with that.

~~How so?~~

Sorry, didn't mean to sound so argumentative about it.

Can you explain, though? Because everything I've read so far (and there are conflicting reports, totally) says that the employees who received the bonuses weren't the same employees who played fast and loose with the market. It's a separate division.

edited at: Date: 2009-03-19 04:06 pm (UTC)

I don't see losing a bonus for total incompetence in a company that is taking money from the government a kind of punishment.

Ah okay, I had pov issues in my sentence! Wasn't sure which was the part you didn't agree with :)

I think they, the employees who received the money, may see it that way, which was the pov I used when I phrased it. Because, again, as far as I can tell, AIG sent it without them asking for it, or requiring it for continued work. It was a preventative measure from the higher ups, based on idiotic thinking. That isn't their, the employees, fault, necessarily.

That said, I don't disagree. AIG has shown consistently stupid practices in how to handle the government TARP money, and frankly, I kind of want Obama to call a share holder's meeting and fire them all as 80% stock holder. That would be incredibly sweet. But for all I blame group incompetence on the company, I blame most of the real issues on upper level negligence. Sorry I wasn't clear when I said that.

I think, in the case of AIG specifically, you are 100% right - but I don't like how the media has been painting *everyone* in the financial industry with the same brush. I have friends, first and second year analysts, who work 80 to 100 hours a week *every week* on a salary of 50K a year in NYC (where, even after splitting, they pay over $1000 a month in rent). Without their (much *much* less than $1,000,000) bonuses they'd be taking home minimum wage.

Er. I mean, not to put down the analysts, and certainly not to tar them with the same brush of incompetence for our current fiscal crisis, but as a caseworker I worked sixty to eighty, and the supervisors eighty to one hundred twenty a week, and our base salary was like, 25K to 30K per year in Austin, and supers, at least, didn't have the option of overtime pay. When I was a clerk, it was like, 17,000 per year, 60-80 a week, with occaional 100s. Child protective services don't even qualify for overtime and I know most average 100 a week including travel to and from homes, court, etc.

I don't think the same level of corruption is in the first and second year analysts, but massive overwork is pretty much across the board no matter the salary or job description.

Ok, so what I'm about to say is going to get me smacked if I say it wrong so a) please understand that I don't mean to give offense and that b) I occasionally word things really badly b/c I have terminal foot in mouth syndrome but:

1. I don't know what the cost of living is in Austin, so I'm not sure how to compare the numbers you just gave me to Manhattan and

2. I don't know about at other firms but my friends don't get bonuses unless they personally (meaning their clients and the accounts they manage) have profitable fiscal years.

I do understand your point and I don't disagree with it on principle but... in practice, idk. I guess I'm a little emotional and it's hard for me to separate personal friends of mine from the rest of the industry. Like you said, a good number of people (including I myself) work damned hard for way less than 50k a year (hell, I worked 100 hrs/week on a presidential campaign last year for way less than minimum wage) but like... God, there's just no good way to say this: When I work for a non-profit or on a government job, my motivations are rarely monetary. When my friends knowingly took on jobs where the *minimal expectation* is (openly) 80 hours a week of staring at spreadsheets and being yelled at like your someone's bitch on a string, it's in the hope that they can (quickly) pay off the six figures in debt they amassed paying for the finance degree from the top tier school they had to attend to even get their resumes into an inbox. By which I mean that these are people whose qualifications are pretty damned high and could, if they wanted to, go get a job with a 50K annual salary that worked them a great *great* deal less than these Wall Street firms do - when it comes to picking these jobs over other jobs however, that aforementioned bonus has a lot to do with why. Does that make them any less greedy than anyone else? No of course not, but those are what the incentives are and that’s the value the market assigns their work.

3. That said, I *do* understand your point. Hell, if you ask me, our soldiers in Iraq deserve those Wall Street salaries a lot more than a lot of Wall Street managers do - but that doesn't mean that *every person* in an industry deserves to be tarred, feathered, and lynched for the mistakes of others who work in their field – and if they make a 10k bonus (that’s taxed at a higher rate than their salary), well, if they worked hard for it – why shouldn’t they get it?

I don't think most of them do either, to be honest. But a lot of the anger isn't at the rank and file, even though right now, it doesn't feel like that much of a difference.

I don't know about at other firms but my friends don't get bonuses unless they personally (meaning their clients and the accounts they manage) have profitable fiscal years.

The objections here are about bonuses to employees of companies that failed dramatically. While I am boggling at the idea of million dollar bonuses to anyone, that's a company's call if they write that in. The government bailout though, makes that a lot different in those companies.

Also, I apologize for getting all defensive and tangled up in an issue that's actually tangential to your original post - a lot of what you said (even here in the comments) rings true with me, it's just that I've spent a lot of the last six months listening to people say that everyone on Wall Street is lazy/greedy/evil etc. and that all bankers deserve to be shot etc. and I get over-sensitive about it.

People got laid off who weren't responsible as well. People lost everything and also weren't responsible. These people really aren't so special they need a million dollar bonus.

I don't disagree, at all*. And if it comes out that they specifically asked for their bonuses, then they get lumped in the same group as the others. But so far, the story is that this was a decision made above their heads with no input. I'm not going to necessarily blame that on them, specifically.

* These people really aren't so special they need a million dollar bonus. You and I don't think so. The higher ups at AIG, clearly, do. That doesn't actually recommend me the philosophy, though, as most everything else AIG higher ups have done has been insane.

Well, they did have input. It was part of their contract.

If you could put in your contract that you would get a multi-million dollar bonus at certain intervals, wouldn't you? I won't blame them for being greedy. I'm greedy. If I could get more out of my bosses, I would.

I blame the higher ups, hell, even payroll for deciding that not only would they honor that part of the contract, and to use money from the government fund to do it.

Sure. And I wouldn't be surprised if my company's incompetence and my own in the jobs required I lose it.

Yeah, I mean if a company doesn't have any money (or not any that legitimately belongs to it anyway) and didn't make any profit but ginormous loses, you'd think the best employees can hope for is still getting paid the regular amount at all, rather than going under with it or negotiating pay or work hour cuts to salvage it. It's just really bizarre that their contracts apparently give them "bonuses" (which by their very name you'd think would be something extra that a company pays only when they do well) no matter their or the companies performance.

But then I remember a bit back here bank managers who lost over 2.5 billion euro and got their bank ruined (so that it had to be taken over by another bank with government help too iirc) still insisted on getting over 400 million euro in bonuses, and actually intend to go to court to get that money. It's unbelievable. But apparently whatever contracts investment bankers have don't work based on Earth Logic no matter where they are. Like, I think I remember the headlines about how The Royal Bank of Scotland had losses in the double digit billion range and their the managers still got over a billion in bonuses...

God, I know. The entire system of pay in corporate life is ridiculous.

Actually, many of the people getting bonuses supposed belong to the division (the financial products division, which is basically a hedge fund in all but name) that was at least partially responsible for AIG's problems - or so various news agencies would have me believe. I can't vouch for that being truth.
Link: http://dealbook.blogs.nytimes.com/2009/03/18/dissecting-the-aig-bonus-contract/?ref=business

The part I find hysterical is that something like 70 of the bonuses were retention bonuses - ie to remain with the company - and 11 of those people have left the company. Presumably they fulfilled their contract to get the bonuses, but it's just emblematic of poorly designed contracts for people in the higher echelons of these companies.

I think Obama's administration was going to let it ride given that breaking these perfectly legal contracts would have cost more than the bonuses themselves, but once the media became involved and started shouting down the roof they had to do something otherwise it would have been political suicide and he actually wants to get other things done with his current political capital before it runs out.

The part I find hysterical is that something like 70 of the bonuses were retention bonuses - ie to remain with the company - and 11 of those people have left the company. Presumably they fulfilled their contract to get the bonuses, but it's just emblematic of poorly designed contracts for people in the higher echelons of these companies.

That, particularly, is why I can't blame the employees who got the money in particular. AIG made the decision to pay money that, in some cases, it didn't even need to. That's not their fault.

It's AIG's, obviously, and I want them broken up into teeny, tiny pieces with their current board fucking fired. But I wanted that for a while :)

I know they belonged to finance, but it was the specific part within finance that (I thought; like you, I've seen a lot of contradiction as to where they specifically worked) was separate from the hedge-funds and the bond-trading. I can't really find out definitively one way or the other, though. But even if they were, it wasn't them who contacted payroll and said "gimme" (supposedly; if it comes out they did, I want them all in jail. Every. God damned. One.)

I think Obama's administration was going to let it ride given that breaking these perfectly legal contracts would have cost more than the bonuses themselves

That's my theory, as well. I even agree with it, frankly. This is an explosion of anger that, however rightful, is ultimately more about something specific and personal we can point at go "bad boy!". It's harder when it's an entire industry that needs to be changed.

LMAO!

AHAHAHAHAHA

*PURRS*

Commentators think it's because of a few well-timed comments by administration insiders suggesting that, speculation to the contrary, no one is interested in shutting the valve and letting AIG finally implode. A bunch of people suddenly thought, "well, if it actually is going to survive, it's never going to be cheaper than it is right now . . ."

Exactly. This is what the billions handed over to AIG are a proof of: we cannot allow AIG to go under, regardless of what it takes.

Moreover, speaking as a non-specialist -still, with a finance degree and a finance career of 20 years behind me, so an educated amateur if you will- the stock market is GAMBLING, no different from Las Vegas and anybody who says different wants your money or is under-briefed.

I am not saying it's immoral to invest in any stock out there: feel free. But you are gambling this money and if you lose it... well. I don't mean you personally by the way, I mean a general you for people who invest in the stock exchange. Unfortunately, that's everybody because banks do. Retirement pensions do. 401K plans do. We all do it directly or indirectly.

So short of keeping your cash under the mattress -which I do not need to explain is not a solution- there's no way to escape this and we will all be paying for a handful of rich guys who have so much money and influence it ensures that they never will pay for their part in the current situation (remember Enron? The bad guy died before he was supposed to end up in jail as his money delayed matters until he died of old age. He was pretty decrepit to start with, granted).

The wonders of capitalism at work.

Oh man, it is gambling. I think that's why I enjoy watching and very low-priced playing with it. So it's pretty much always an eternal mystery how anyone who doesn't do this professionally can make money except by accident (literally, the only time I've made money was with Bank of America buying and selling bumps, and I was doing it for very low returns, mostly just to see if I could) or on purpose. And not have some kind of nervous breakdown. Unless, you know, they have weight in how it goes, which is kind of obvious they do.

Oh yes, this is the other part of gambling: the odds are subtly stacked against the players and the bank always wins over the long term, that's the whole point of running a gambling joint. It's random... except that the house makes money while the gamblers tend to lose money over the long term.

And the final piece of this? Is that the gambling industry is so profitable that it is generally controlled by crooks, if not organized crime.

Note: I am not going to examine this last too closely though, because I am unclear on what goes on in Las Vegas casinos owned by indian tribes. They could be an exception to this last, for all I know... but I doubt it, human nature being what it is.

... which is why Certain People were so hot to try to shove Social Security funds into the market: if there are more suckers at the table the house pulls in more profit.

*is REALLY CYNICAL about this, if you hadn't noticed*

Not sure I read your comment correctly. By Social Security funds do you mean 401k like Social security private accounts or the Regean era trust fund? Assuming you meant the former:

- Social Security Wealth is currently an approximately 11 trillion dollar liability for the United States government.
- As it stands the pay-as-you-go system will fail to be sustainable by 2017 when the number of those drawing social security will outstrip those contributing. The trust-fund set up during the Regan administration will be empty by 2041, and future retirees will receive as little as seventy five percent of their defined benefits.
- Social Security reform is thus a matter of necessity.
- Private retirement accounts (PRAs) are actually economically sound PROVIDED they are implemented correctly.
- Pay as you go as it now works: http://gothamgazette.com/graphics/ss_chart.jpg This was great when the ratio of workers was 2:1 not so great when it's headed towards 1:2.
- PRAs are immediately channeled to beneficiaries so you're funding yourself. Not counting on a dwindling ratio to maybe one day sort of fund you in the future.
- Social Security Taxes come with an estimated 2.6% annual return rate, in contrast to the estimated 9.3% return in nonfinancial corporate capital and leading to a loss of real income of 6.7%.

There's more but the details get boring and you can more or less goggle it.

Which isn't to say that you don't have a point and there's nothing *wrong* with PRAs (because you do and there are) - but like... there's sound economics behind the social and financial benefits of PRAs. And yes, stocks are inherently risky but, technically, so are banks and bonds. This is why you diversify your investments.

I am not qualified to address the technical details of this reply, but regarding: This was great when the ratio of workers was 2:1 not so great when it's headed towards 1:2.

Let me hijack your reply to point out that this is partly the result of United States forgetting that its economic wealth has always been based on a robust influx of immigrant workers.

So it turns out that indulging in random xenophobic feelings, of the 'foreigners stealing our jobs' type as it relates to legal immigration, for over twenty years, is all well and good but also impacts the ratio of workers, as a direct result of such short-sighted policies. Ooops.

To clarify, this goes as far back as the Clinton administration, long before Bush: I myself was among the victims of the anti-immigration policies of both administrations, so I know whereof I speak.

Needless to say this rant is not directed at thearchpoet, but more of a kneejerk reaction on my part.

Ok. I swear I'm going to stop posting now.

*Will go away*

I'm so sorry about spamming this thread.

*snorts* It's not spamming, it's discussion. Feel free.

I can't think of another reason. It was just bizarre to watch though.

I swear I will stop spamming you but: http://www.nytimes.com/2009/03/20/business/20bailout.html?_r=1&hp

90% TAX AIG. HAHA.

MY LOVE IS PURE. *GLEE*

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