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March 15, 2009
A.I.G. Planning Huge Bonuses After $170 Billion Bailout

By EDMUND L. ANDREWS and PETER BAKER
WASHINGTON — The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.

Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday “a difficult one for me” and noting that he receives no bonus himself. “Needless to say, in the current circumstances,” Mr. Liddy wrote, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

An A.I.G. spokeswoman said Saturday that the company had no comment beyond the letter. The bonuses were first reported by The Washington Post.

The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.

Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than A.I.G. and none has infuriated lawmakers more with practices that policy makers have called reckless.

The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.

The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.

Mr. Liddy, whom Federal Reserve and Treasury officials recruited after A.I.G. faltered last September and received its first round of bailout money, said the bonuses and “retention pay” had been agreed to in early 2008 and were for the most part legally required.

The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Mr. Geithner had told A.I.G. to revise them to protect taxpayer dollars and tie future payments to performance.

The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.

But the official said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured.

A.I.G. did cut other bonuses, Mr. Liddy explained, but those were part of the compensation for people who dealt in other parts of the company and had no direct involvement with the derivatives.

Mr. Liddy wrote that A.I.G. hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the financial products division had also agreed to reduce their salary for the rest of 2009 to $1.

Ever since it was bailed out by the government last fall, A.I.G. has been defending itself against accusations that it was richly compensating people who caused one of the biggest financial crises in American history.

A.I.G.’s main business is insurance, but the financial products unit sold hundreds of billions of dollars’ worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall.

A.I.G. had set up a special bonus pool for the financial products unit early in 2008, before the company’s near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit and prepared to pay it in a series of installments, to encourage people to stay.

Only part of the payments had been made by last fall, when A.I.G. nearly collapsed. In documents provided to the Treasury, A.I.G. said it was required to pay about $165 million in bonuses on or before Sunday. That is in addition to $55 million in December.

Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.

The financial products unit is now being painstakingly wound down.

Mary Williams Walsh contributed reporting.

March 15, 2009
OP-ED COLUMNIST
The Culture Warriors Get Laid Off

By FRANK RICH
SOMEDAY we’ll learn the whole story of why George W. Bush brushed off that intelligence briefing of Aug. 6, 2001, “Bin Laden Determined to Strike in U.S.” But surely a big distraction was the major speech he was readying for delivery on Aug. 9, his first prime-time address to the nation. The subject — which Bush hyped as “one of the most profound of our time” — was stem cells. For a presidency in thrall to a thriving religious right (and a presidency incapable of multi-tasking), nothing, not even terrorism, could be more urgent.

When Barack Obama ended the Bush stem-cell policy last week, there were no such overheated theatrics. No oversold prime-time address. No hysteria from politicians, the news media or the public. The family-values dinosaurs that once stalked the earth — Falwell, Robertson, Dobson and Reed — are now either dead, retired or disgraced. Their less-famous successors pumped out their pro forma e-mail blasts, but to little avail. The Republican National Committee said nothing whatsoever about Obama’s reversal of Bush stem-cell policy. That’s quite a contrast to 2006, when the party’s wild and crazy (and perhaps transitory) new chairman, Michael Steele, likened embryonic stem-cell research to Nazi medical experiments during his failed Senate campaign.

What has happened between 2001 and 2009 to so radically change the cultural climate? Here, at last, is one piece of good news in our global economic meltdown: Americans have less and less patience for the intrusive and divisive moral scolds who thrived in the bubbles of the Clinton and Bush years. Culture wars are a luxury the country — the G.O.P. included — can no longer afford.

Not only was Obama’s stem-cell decree an anticlimactic blip in the news, but so was his earlier reversal of Bush restrictions on the use of federal money by organizations offering abortions overseas. When the administration tardily ends “don’t ask, don’t tell,” you can bet that this action, too, will be greeted by more yawns than howls.

Once again, both the president and the country are following New Deal-era precedent. In the 1920s boom, the reigning moral crusade was Prohibition, and it packed so much political muscle that F.D.R. didn’t oppose it. The Anti-Saloon League was the Moral Majority of its day, the vanguard of a powerful fundamentalist movement that pushed anti-evolution legislation as vehemently as it did its war on booze. (The Scopes “monkey trial” was in 1925.) But the political standing of this crowd crashed along with the stock market. Roosevelt shrewdly came down on the side of “the wets” in his presidential campaign, leaving Hoover to drown with “the dries.”

Much as Obama repealed the Bush restrictions on abortion and stem-cell research shortly after pushing through his stimulus package, so F.D.R. jump-started the repeal of Prohibition by asking Congress to legalize beer and wine just days after his March 1933 inauguration and declaration of a bank holiday. As Michael A. Lerner writes in his fascinating 2007 book “Dry Manhattan,” Roosevelt’s stance reassured many Americans that they would have a president “who not only cared about their economic well-being” but who also understood their desire to be liberated from “the intrusion of the state into their private lives.” Having lost plenty in the Depression, the public did not want to surrender any more freedoms to the noisy minority that had shut down the nation’s saloons.

In our own hard times, the former moral “majority” has been downsized to more of a minority than ever. Polling shows that nearly 60 percent of Americans agree with ending Bush restrictions on stem-cell research (a Washington Post/ABC News survey in January); that 55 percent endorse either gay civil unions or same-sex marriage (Newsweek, December 2008); and that 75 percent believe openly gay Americans should serve in the military (Post/ABC, July 2008). Even the old indecency wars have subsided. When a federal court last year struck down the F.C.C. fine against CBS for Janet Jackson’s “wardrobe malfunction” at the 2004 Super Bowl, few Americans either noticed or cared about the latest twist in what had once been a national cause célèbre.

It’s not hard to see why Eric Cantor, the conservative House firebrand who is vehemently opposed to stem-cell research, was disinclined to linger on the subject when asked about it on CNN last Sunday. He instead accused the White House of acting on stem cells as a ploy to distract from the economy. “Let’s take care of business first,” he said. “People are out of jobs.” (On this, he’s joining us late, but better late than never.)

Even were the public still in the mood for fiery invective about family values, the G.O.P. has long since lost any authority to lead the charge. The current Democratic president and his family are exemplars of precisely the Eisenhower-era squareness — albeit refurbished by feminism — that the Republicans often preached but rarely practiced. Obama actually walks the walk. As the former Bush speechwriter David Frum recently wrote, the new president is an “apparently devoted husband and father” whose worst vice is “an occasional cigarette.”

Frum was contrasting Obama to his own party’s star attraction, Rush Limbaugh, whose “history of drug dependency” and “tangled marital history” make him “a walking stereotype of self-indulgence.” Indeed, the two top candidates for leader of the post-Bush G.O.P, Rush and Newt, have six marriages between them. The party that once declared war on unmarried welfare moms, homosexual “recruiters” and Bill Clinton’s private life has been rebranded by Mark Foley, Larry Craig, David Vitter and the irrepressible Palins. Even before the economy tanked, Americans had more faith in medical researchers using discarded embryos to battle Parkinson’s and Alzheimer’s than in Washington politicians making ad hoc medical decisions for Terri Schiavo.

What’s been revealing about watching conservatives debate their fate since their Election Day Waterloo is how, the occasional Frum excepted, so many of them don’t want to confront the obsolescence of culture wars as a political crutch. They’d rather, like Cantor, just change the subject — much as they avoid talking about Bush and avoid reckoning with the doomed demographics of the G.O.P.’s old white male base. To recognize all these failings would be to confront why a once-national party can now be tucked into the Bible Belt.

The religious right is even more in denial than the Republicans. When Obama nominated Kathleen Sebelius, the Roman Catholic Kansas governor who supports abortion rights, as his secretary of health and human services, Tony Perkins, the leader of the Family Research Council, became nearly as apoplectic as the other Tony Perkins playing Norman Bates. “If Republicans won’t take a stand now, when will they?” the godly Perkins thundered online. But Congressional Republicans ignored him, sending out (at most) tepid press releases of complaint, much as they did in response to Obama’s stem-cell order. The two antiabortion Kansas Republicans in the Senate, Sam Brownback and Pat Roberts, both endorsed Sebelius.

Perkins is now praying that economic failure will be a stimulus for his family-values business. “As the economy goes downward,” he has theorized, “I think people are going to be driven to religion.” Wrong again. The latest American Religious Identification Survey, published last week, found that most faiths have lost ground since 1990 and that the fastest-growing religious choice is “None,” up from 8 percent to 15 percent (which makes it larger than all denominations except Roman Catholics and Baptists). Another highly regarded poll, the General Social Survey, had an even more startling finding in its preliminary 2008 data released this month: Twice as many Americans have a “great deal” of confidence in the scientific community as do in organized religion. How the almighty has fallen: organized religion is in a dead heat with banks and financial institutions on the confidence scale.

This, too, is a replay of the Great Depression. “One might have expected that in such a crisis great numbers of these people would have turned to the consolations of and inspirations of religion,” wrote Frederick Lewis Allen in “Since Yesterday,” his history of the 1930s published in 1940. But that did not happen: “The long slow retreat of the churches into less and less significance in the life of the country, and even in the lives of the majority of their members, continued almost unabated.”

The new American faith, Allen wrote, was the “secular religion of social consciousness.” It took the form of campaigns for economic and social justice — as exemplified by the New Deal and those movements that challenged it from both the left and the right. It’s too early in our crisis and too early in the new administration to know whether this decade will so closely replicate the 1930s, but so far Obama has far more moral authority than any religious leader in America with the possible exception of his sometime ally, the Rev. Rick Warren.

History is cyclical, and it would be foolhardy to assume that the culture wars will never return. But after the humiliations of the Scopes trial and the repeal of Prohibition, it did take a good four decades for the religious right to begin its comeback in the 1970s. In our tough times, when any happy news can be counted as a miracle, a 40-year exodus for these ayatollahs can pass for an answer to America’s prayers.