Wednesday, March 18, 2009

AIG Almost in Grave!

President Barack Obama was angry. He issued a blistering attack on American International Group and pledged to stop the insurance giant from paying out millions in executive bonuses. After taking $170 billion in federal bailout funds, the company announced that it was bound contractually to pay out $165 million in executive bonuses, prompting a storm of criticism from Mr President to every Damn Yankee.

"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat? All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."

This move to pay bonuses amounted to "rewarding incompetence and failure.” A lot of these people should be fired, not awarded bonuses. It is outrageous.

AIG reported that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

It also was revealed that AIG used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts. Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks - France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.

The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.

I am not surprise if similar ‘concept’ is being practiced in Malaysia. However I can bet there is one glaring difference. The public will make lots of noises but the authorities will suddenly turn deaf at that particular moment (selective deafness?) and proceed to "rewarding incompetence and failure”. After all, they have a lot in common!

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