The Case for Paying Out Bonuses at A.I.G.
By ANDREW ROSS SORKIN
Published: March 16, 2009
Do we really have to foot the bill for those bonuses at the American International Group?
It sure does sting. A staggering $165 million — for employees of a company that nearly took down the financial system. And heck, we, the taxpayers, own nearly 80 percent of A.I.G.
It doesn’t seem fair.
So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.
Everyone from President Obama down seems outraged by this. The president suggested on Monday that we just tear up those bonus contracts. He told the Treasury secretary, Timothy F. Geithner, to use every legal means to recoup taxpayers’ money. Hard to argue there.
“This isn’t just a matter of dollars and cents,” he said. “It’s about our fundamental values.”
On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.
That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.
As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.
If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)
But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.
A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.
So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.
Not that any of this takes the bite out of paying these bonuses. For better or worse — in this case, worse — someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear.
Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.
That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)
“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.
There’s some truth to what Mr. Liddy is saying. Would you want to work at A.I.G.? Sure, maybe for $3 million. But not if you could go somewhere else for even more — or even much less.
“The jobs are terrible,” said Robert M. Sedgwick, an executive compensation lawyer at Morrison Cohen who represents a number of employees of banks that have taken government money. “You have to read about yourself in the paper every day. These people are leaving as soon as they can.”
Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work — against taxpayers’ interests.
“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.
Of course, if taxpayers had not bailed out A.I.G., these contracts would not be worth anything. Andrew M. Cuomo, the attorney general of New York, made the point on Monday, when he subpoenaed A.I.G. for the names of the people who received the bonuses. If A.I.G. had spiraled into bankruptcy, its employees would have had to get in line with other unsecured creditors.
Mr. Cuomo wants to know who A.I.G.’s lucky employees are, and how they have been doing at their jobs. So here is a suggestion for him. Get the list, and give those big earners at A.I.G. a not-so-subtle nudge: Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers. But in the meantime, despite how offensive and painful it might be, let’s honor the contracts.
1. Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers. But in the meantime, despite how offensive and painful it might be, let’s honor the contracts.
“Vivid in the memory of the newly independent Americans,” for example, “were those general warrants known as writs of assistance under which officers of the Crown had so bedeviled the colonists.” Stanford v. Texas, 379 U.S. 476, 481 (1965). Those general warrants were viewed “as the worst instrument of arbitrary power, the most destructive of English liberty, and the fundamental principles of law, that ever was found in an English law book, because they placed the liberty of every man in the hands of every petty officer.” Id. (quotation marks omitted). As a result, in December 1791, the Bill of Rights became “the supreme Law of the Land.” U.S. Const. art. VI cl. 2.
The Fourth Amendment states: The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. U.S. Const. amend. IV.
“These words are precise and clear. They reflect the determination of those who wrote the Bill of Rights that the people of this new Nation should forever ‘be secure in their persons, houses, papers, and effects’ from intrusion and seizure by officers acting under the unbridled authority of a general warrant.” Stanford, 379 U.S. at 481 (emphasis added).
Under English law, a criminal condemned for a serious crime … could be declared “attainted”, meaning that his civil rights were nullified: he could no longer own property or pass property to his family by will or testament. His property could consequently revert to the Crown…. Bills of attainder were sometimes criticized as a convenient way for the King to convict subjects of crimes and confiscate their property without the bother of a trial—and without the need for a conviction or indeed any evidence at all. Wikipedia.
We command you that the body of Charles L. Craig, in your custody detained, as it is said, together with the day and cause of his caption and detention, you safely have before Honorable Martin T. Manton, United States Circuit Judge for the Second Judicial Circuit, within the circuit and district aforesaid, to do and receive all and singular those things which the said judge shall then and there consider of him in this behalf; and have you then and there this writ.
“No court, justice, or judge shall have jurisdiction to hear or consider an application for a writ of habeas corpus filed by or on behalf of an alien detained by the Department of Defense at Guantánamo Bay, Cuba.
“No court, justice, or judge shall have jurisdiction to hear or consider an application for a writ of habeas corpus filed by or on behalf of an alien detained by the United States who has been determined by the United States to have been properly detained as an enemy combatant or is awaiting such determination.”
It has indeed lately come to Our ears, not without afflicting Us with bitter sorrow, that in some parts of Northern Germany, as well as in the provinces, townships, territories, districts, and dioceses of Mainz, Cologne, Tréves, Salzburg, and Bremen, many persons of both sexes, unmindful of their own salvation and straying from the Catholic Faith, have abandoned themselves to devils, incubi and succubi, and by their incantations, spells, conjurations, and other accursed charms and crafts, enormities and horrid offences, have slain infants yet in the mother's womb, as also the offspring of cattle, have blasted the produce of the earth, the grapes of the vine, the fruits of the trees, nay, men and women, beasts of burthen, herd-beasts, as well as animals of other kinds, vineyards, orchards, meadows, pasture-land, corn, wheat, and all other cereals; these wretches furthermore afflict and torment men and women, beasts of burthen, herd-beasts, as well as animals of other kinds, with terrible and piteous pains and sore diseases, both internal and external; they hinder men from performing the sexual act and women from conceiving, whence husbands cannot know their wives nor wives receive their husbands; over and above this, they blasphemously renounce that Faith which is theirs by the Sacrament of Baptism, and at the instigation of the Enemy of Mankind they do not shrink from committing and perpetrating the foulest abominations and filthiest excesses to the deadly peril of their own souls, whereby they outrage the Divine Majesty and are a cause of scandal and danger to very many.
TITLE 18 > PART I > CHAPTER 110 > § 2252B
§ 2252B. Misleading domain names on the Internet
How Current is This? (a) Whoever knowingly uses a misleading domain name on the Internet with the intent to deceive a person into viewing material constituting obscenity shall be fined under this title or imprisoned not more than 2 years, or both.
(b) Whoever knowingly uses a misleading domain name on the Internet with the intent to deceive a minor into viewing material that is harmful to minors on the Internet shall be fined under this title or imprisoned not more than 10 years, or both.
(c) For the purposes of this section, a domain name that includes a word or words to indicate the sexual content of the site, such as “sex” or “porn”, is not misleading.
(d) For the purposes of this section, the term “material that is harmful to minors” means any communication, consisting of nudity, sex, or excretion, that, taken as a whole and with reference to its context—
(1) predominantly appeals to a prurient interest of minors;
(2) is patently offensive to prevailing standards in the adult community as a whole with respect to what is suitable material for minors; and
(3) lacks serious literary, artistic, political, or scientific value for minors.
(e) For the purposes of subsection (d), the term “sex” means acts of masturbation, sexual intercourse, or physcial  contact with a person’s genitals, or the condition of human male or female genitals when in a state of sexual stimulation or arousal.
 So in original. Probably should be “physical”.
DEPARTMENT OF JUSTICE, NATIONAL CENTER FOR MISSING & EXPLOITED CHILDREN LAUNCH EFFORT AIMED AT MISLEADING DOMAIN NAMES
WASHINGTON, DC - April 20, 2004 - As part of an ongoing effort to crack down on websites that deceive minors into viewing pornographic and obscene materials, the U.S. Department of Justice and the National Center for Missing & Exploited Children (NCMEC) announced today that the National Center's CyberTipline, a reporting mechanism for child sexual exploitation, will now feature the ability to receive reports from the public on misleading Internet domain names.
The new reporting feature was added today to the National Center's CyberTipline, accessible at http://www.cybertipline.com, or by calling 1-800-THE LOST (1-800-843-5678). The addition was prompted by a DOJ initiative, led by the Child Exploitation and Obscenity Section of the Criminal Division, to crack down on misleading domain names following enactment of the Prosecutorial Remedies and Tools Against the Exploitation of Children Today Act (the "PROTECT Act") on April 30, 2003.
Among other things, the PROTECT Act created a new federal law, codified at Title 18, Section 2252B of the United States Code, that makes it a crime to knowingly use a misleading domain name on the Internet with the intent to deceive a minor into viewing material that is harmful to minors on the Internet. This crime carries a penalty of up to four years in prison and/or a fine. An offender might commit this crime, for example, by using a domain name that features the name of a popular children's cartoon character, purposefully misspelled, and leads to a website featuring materials harmful to minors. The new law also makes it a crime to use a misleading domain name on the Internet with the intent to deceive any person into viewing obscenity, which carries a penalty of up to two years imprisonment and/or a fine.
"The Department of Justice and the National Center for Missing and Exploited Children are taking this step today to protect children from dangerous and inappropriate experiences on the Internet," said Attorney General John Ashcroft. "Now, alert and concerned parents can help law enforcement identify and dismantle these misleading Internet sites that are set up to lure their children into viewing obscene materials."
"This new feature will allow the public to take an even more active role in helping law enforcement clean up the Internet and protect our children," said Assistant Attorney General Christopher A. Wray of the Criminal Division.
"Though the Internet is full of educational and fun experiences for kids, there are individuals who misuse the Web to prey upon children's vulnerabilities," stated NCMEC President Ernie Allen. "We now have the means to combat this threat to kids, and with the public's help the CyberTipline will be even more effective as a bridge between law enforcement and concerned citizens."
The Department of Justice continues to prosecute violators of the Truth In Domain Names provisions of the PROTECT Act. In February 2004, John Zuccarini was sentenced by a federal judge in Manhattan to 30 months in prison on charges that he created and used misleading domain names on the Internet to deceive minors into logging on to pornographic websites. Those domain names included close misspelling of domains names that are popular with children, such as "www.dinseyland.com," (a variation on Disney Land's website) and "www.bobthebiulder.com," and "www.teltubbies.com" (variations on the websites for "Bob the Builder" and "Teletubbies").
The new feature has been added to the CyberTipline, which already provides members of the public a means to report child exploitation crimes, including the trafficking of child pornography, online enticement of children, child prostitution, child sex tourism, non-family child sexual molestation, and obscenity sent to children. Since its inception in March 1998 through April 2004, the CyberTipline has processed more than 230,000 reports of child exploitation crimes, a large number of which have been sufficient to refer to law enforcement for investigation.
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