November 3, 2008

The most critical election in our lifetime is tomorrow, and I just saw a headline that gave me a flashback.

"AIG's Fed Bailout Reaches $143.8 Billion"

The headline reminded me of an editorial published about a week ago that criticized Tom McClintock for his adamant opposition to the $700 billion bailout, and praised Charlie Brown for supporting it. The editorial included a line intended to validate Charlie's support of the bailout, that just struck me as funny: "...the final package assured taxpayers get any profits, required congressional oversight, banned golden parachutes."

I kept reading, expecting to find a punch line, but no, that was it. They were serious. The Sacramento Bee thinks Americans should sleep fine at night, with $700 billion of our money "out there," in part because the bailout plan "required congressional oversight." This is the same Democratic-majority Congress that has an approval rating that fluctuates between 9% and 16%, right?

A separate article will explore in detail the debacle of the bailout, but for now, let's start with a party. It's too bad you weren't invited, because it was quite a party, including $10,000 worth of fine wine and liquor. And you paid for it. 4th District residents, when you vote tomorrow, please keep in mind that Charlie Brown supported giving these AIG executives YOUR money... (Oh, and the $85 billion mentioned below has now turned into $143.8 billion.)

Washington Post

After Bailout, AIG Executives Head to Resort

October 8, 2008

-- Peter Whoriskey

Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, California, running up a tab of $440,000, Rep. Henry Waxman (D-Calif.) said today at the opening of a House committee hearing about the near-failure of the insurance giant. Showing a photograph of the resort, Waxman said the executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa. "Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation," Waxman said. "We will ask whether any of this makes sense. "

The committee will ask the company's executives about their multimillion-dollar pay packages -- some of which they continue to receive -- as well as who bears responsibility for the company's high-risk investment portfolio, which led to its near collapse just weeks ago.

"They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills," thundered Rep. Elijah E. Cummings (D-Md.), of the executive retreat at the Monarch Resort.

The House committee, which took on executive compensation at bankrupt Wall Street firm Lehman Brothers yesterday, has received "tens of thousands" of pages of documents from AIG, Waxman said. Those documents show that as the company's risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses.

AIG lost over $5 billion in the last quarter of 2007 due its risky financial products division, Waxman said. Yet in March 2008, when the company's compensation committee met to award bonuses, Chief Executive Martin Sullivan urged the committee to ignore those losses, which should have slashed bonuses. But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million, Waxman said.

Joseph Cassano, the executive in charge of the company's troubled financial products division, received more than $280 million over the last eight years, Waxman said. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month, Waxman said. Waxman also looked skeptically at the executives' defense that the troubles in the business had to do with larger economic forces and not their own bad decisions.

When a former AIG auditor, Joseph St. Denis, expressed concerns, Cassano told him "I have deliberately excluded you from the valuation ... because I was concerned that you would pollute the process," according to Waxman.

St. Denis resigned in protest.

PricewaterhouseCoopers, AIG's auditor, told the company in March 2008 that the "root cause" of AIG's problems was that people assessing risk did not have enough access to the financial products division, where the risky investments originated. Waxman further suggested that Sullivan had deliberately misled investors. On Dec. 5, 2007, Sullivan expressed confidence to investors. But a week before, PricewaterhouseCoopers warned Sullivan that the company "could have a material weakness relating to these area," committee members said.