“We Can’t Break Contracts!” = Total Bullshit
Politicians from both sides of the aisle are claiming that they can’t invalidate AIG’s staggering $165 million in bonuses because This is America And We Honor Contracts. On Sunday, Larry Summers, Obama’s director of National Economic Council, said that while the bonuses were outrageous, they represented contracts that could not be broken. Of course, Glenn Greenwald points out that the government had absolutely no qualms with breaking the United Autoworkers’ contracts with the Big Three during their bailout.
And Summers’ claims are false because This is America and We Break Contracts All The Time. In fact, corporations and the government are super talented at wiggling out of contracts that prove too strenuous to honor. That’s why there are so many lawyers trolling around Washington – they’re there precisely for this occasion when lawmakers need to get out of an unsavory contract.
Lawrence Cunningham, a professor at George Washington University Law School, spells out all the easy ways the government and/or AIG could get out of paying those bonuses:
1. If employees did not meet performance goals, AIG doesn’t have to pay them bonuses. Considering AIG was one of the worst offenders when it came to selling bundled subprime mortgages, it should be fairly easy to prove that AIG employees don’t deserve to be paid $165 million in bonuses.
2. If you were fired (or should have been fired,) AIG doesn’t have to pay you. Again, you breached your contract, so you’re shit out of luck.
3. If an employee was not absolutely candid about their shady practices, their bonuses can be withheld. Everyone at AIG knew their subprime mortgage dealings were shady, but that doesn’t excuse individual players from responsibility.
4. It’s impractical for AIG to shell out cash loaned to them by taxpayers. AIG does have the option to say, “Sorry, we can’t afford to do this right now.”
5. Sweetheart deals are illegal. Cronyism hurts not only shareholders, but in this case, taxpayers.
And there are many more ways for AIG and the government to deny these bonuses. It’s a lack of will preventing that from happening. But the excuse that AIG and the government are somehow “obligated” to pay $165 million to AIG employees is complete and utter bullshit.
Update: Kevin, a reader, makes the excellent point that the We Don’t Break Contracts logic would mean California’s gay marriages should be made legal again. After all, This is America. We Honor Contracts, and what contract is more sacred than the vow of marriage?
The Sanctity of AIG Contracts
Glenn Greenwald has written an excellent piece about the AIG bonuses, and the contracts guaranteeing those bonuses that are apparently too sacred and holy to break. Of course, our government stood idly by and let the Big Three shatter all kinds of contracts with the UAW, and nary a word was uttered about the holiness of those contracts. In America, the only contracts that matter are the ones belonging to billionaire CEOs.
An excerpt from Greenwald’s article:
Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.
As any lawyer knows, there are few things more common – or easier — than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.
Read the rest here.
Damning Bloomberg Article Reveals Geithner As Incompetent
Yalman Onaran and Michael McKee, Bloomberg News
It was 2004 and Tim Geithner, president of the Federal Reserve Bank of New York, had a message for the Federal Open Market Committee in Washington. He told his 18 colleagues gathered around the long mahogany table that a clearinghouse was needed to monitor risks in the burgeoning $5 trillion market for credit-default swaps — the over-the-counter derivatives that would later spin out of control and help take down Wall Street.
In a move that may have foreshadowed his role as President Barack Obama’s Treasury secretary, Geithner over the next two years nudged financial firms to voluntarily clear a backlog of swap trades. They stopped short of creating a clearinghouse to bring more transparency to the market.
“Geithner was making noise on reining in derivatives, but he didn’t push hard enough,” says Jane D’Arista, a former economist at the Congressional Budget Office in Washington and a longtime Fed observer. “Maybe he’ll be more forceful now that he’s in a position with real power. But I’m not so sure.”
From his years as a Dartmouth College student and mid-level Treasury official through his stint at the New York Fed, Geithner, 47, has thrived as a backroom negotiator and conciliator. Now, as he struggles to rescue Wall Street from a crisis that happened on his regulatory watch, investors and economists question whether the 75th Treasury secretary can transform himself into a bold leader equal to the challenges ahead.
Wall Street executives have cheered Geithner’s nomination.
Brief Honeymoon
“Treasury Secretary Geithner possesses the intelligence and experience needed to partner with President Obama and his economic team to lead us to a recovery,” says Robert Wolf, head of UBS AG’s Americas unit based in Stamford, Connecticut.
The rookie secretary has already learned that the honeymoon won’t last long. After Geithner presented a $2.5 trillion financial rescue plan on Feb. 10, the Dow Jones Industrials tumbled 4.6 percent because investors found it bereft of details. Geithner also gave no indication that he would act quickly to dismantle the weakest of the banks, a move that Joseph Mason, a former bank regulator who teaches finance at Louisiana State University, says he should take now.
Japan prolonged its credit crunch and recession for almost a decade before it finally nationalized two of its biggest banks, the Long-Term Credit Bank of Japan and Nippon Credit Bank, in 1998.
“The key to all our problems is the zombie banks,” Mason says. “We’re giving them money, which is not going to solve anything. We’re repeating the mistakes of Japan, which wasted a decade by not moving decisively against its zombie banks.”
Henry Morgenthau
No Treasury secretary since Henry Morgenthau, who served from 1934 to ‘45 under President Franklin D. Roosevelt, has faced so many crises at once. After receiving $800 billion in loans, guarantees and capital injections since October, the financial industry is still hunkered down, unwilling or unable to put the wind back into the sails of capitalism. Geithner played a role in shaping the $787 billion stimulus plan, and now he and Lawrence Summers, head of the National Economic Council, must recommend to President Obama whether to give General Motors Corp. and Chrysler LLC an additional $14 billion in loans on top of the $17.4 billion Bush administration bailout or force them into bankruptcy. At the White House, the new Treasury secretary may have to compete for the president’s attention with Summers, his former mentor, and Paul Volcker, who has been clamoring for more power as chairman of the Economic Recovery Advisory Board.
Methodical Style
Geithner’s strengths — his methodical style and bureaucratic savvy — were honed over 21 years in government, as he dealt with crises from Asia to New York.
“He really understands process and decision making and how to advance an agenda,” says Michael Froman, who was former Treasury Secretary Robert Rubin’s chief of staff. “Some people are just better at it than others, not just having the big idea but breaking it down into the several dozen steps that need to make it work. That’s Tim.”
The Treasury secretary’s experience at the New York Fed from 2003 to ‘08 gave him an inside view of Wall Street that will help him choose the best remedies for today’s crisis, says Alex Pollock, resident fellow at the American Enterprise Institute in Washington and a former president of the Chicago Federal Home Loan Bank. “He’s very well qualified,” Pollock says.
‘He’s Not Change’
Kucinich Hands Kashkari His Own Ass
Background on Kashkari, the most irronically named man in Washington and the evilest-looking Treasury employee since, well…Henry Paulson:
The government’s $700 billion bailout plan is in the hands of this man. Neel Kashkari, a relatively green assistant secretary in the Treasury department, will be responsible for the government’s purchasing of billions of dollars of bad assets from banks and other financial agencies. His career has been a short one.
Personal Life
• Kashkari grew up in Stow, Ohio, an Akron suburb. As a high school student, he was a fan of heavy metal bands like AC/DC, whose lyrics dot his high school yearbook. He is 35 years old.
• He comes from a family of scientists. Father Chaman has a doctorate in engineering, and won a Presidential award for his work in getting water to African villages. Kashkari’s mother, Sheila, is a retired pathologist, and his sister Meera, specializes in infectious diseases.
• Accordingly, Kashkari also studied science, getting his masters in engineering from the University of Illinois, Urbana-Champaign
• He and his wife Minal live in Silver Spring, Maryland, with their dog Winslow.
Career
• Neel’s first job was as an aerospace engineer at TRW, where he worked on technology for NASA projects such as the Webb Space Telescope, which is due to replace the Hubble.
• He decided to change careers and go to Wharton Business School at the University of Pennsylvania. After getting his MBA, Kashkari joined Goldman Sachs in San Francisco, specializing in IT security.
• He followed former Goldman Sachs CEO Henry Paulson to the Treasury Department, where he was hired as a senior adviser in 2006. In short order, he was assigned to work on the department’s response to the housing crisis, during which time he grew close to Paulson.
Notable Quotes
“Neel Kashkari is not going to be in Washington much longer if there’s a change in administrations. And that’ll cause some kind of turbulence.”—Madeline Brand, of National Public Radio, on the fact that Kashkari might have to leave after only a few months on the job, Oct. 6, 2008
“When he does anything, if you ask him to make an electric car or ask him to plan an outing to Niagara Falls, he is so meticulous.”—Chaman Kashkari, father, USA Today, October 6, 2008
“I’m a free-market Republican.”—Kashkari, at an American Enterprise Institute conference, Sept. 19, 2008
Oh really? And yet he couldn’t wait for big daddy government to swoop in and stuff his pockets with taxpayer cash when the free market failed. In a rare display of testicles, Congress absolutely tore into Kashkari, but Dennis Kucinich positively MVPed it. Now, if only they would back-up the tough talk with some serious oversight.
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