Make AIG Shareholders Pay for the Bonuses
Okay, that is a fallback position. The AIG bastards should be paying us not to be in jail, but if the Obama administration is not prepared to push the legal envelope to take back the bonuses, it can simply tell the private shareholders that the bonuses are coming out of their pocket.
This one is pretty simple. Private shareholders still own 20 percent of the company. The market capitalization is $2.6 billion. The 20 percent stake ($520 million) can easily cover the $165 million in bonuses.
So, the deal is the company issues enough new shares to cover the cost of the bonuses with the government being issued enough shares to hold its stake constant. That puts the burden of paying these suckers on the private shareholders.
Then we go after Citi, Goldman, Bank of America and the rest and tell these bankrupt banking giants that they are going to bring their pay down to earth immediately, as we make plans for their conservatorship.
Mr. Baker, I consider your suggestion better than most but still far too kind. It makes no sense to coddle sociopathic criminals.
I had hoped for change. Now I have lost that hope. Obama and his team are wimps and weasels without a shred of common sense.
March 18, 2009 7:37 AM | Reply | Permalink
OK, I don't get this works, Mr. Baker. Could you explain it in layman's language?
March 18, 2009 7:40 AM | Reply | Permalink
Dan K,
The government tells AIG to sell enough new shares to cover the $165 million cost of the bonus. Since the money is supposed to come from the private shareholders 20 percent stake, for every share that AIG sells to the public, 4 shares will be awarded to the government. This keeps the government stake at 80 percent.
The current share price is about 95 cents. Let's say that it falls to 50 cents under this deal. The company would have to sell 330 million shares to the public and issue another 1,320,000 million shares to the government. This leaves the government's stake unaffected, while cutting the value of the private shareholder's stake roughly in half.
March 18, 2009 7:56 AM | Reply | Permalink
OK, now I get it. I was confused about the term "issue." The additional government shares are simply given to the government, while the others are sold to private investors.
Can the government force AIG to issue new shares of stock?
March 18, 2009 8:16 AM | Reply | Permalink
We own them with an 80% share, which is definitely controlling interest,and can, if we so choose, pretty much force them to do whatever we want.
March 18, 2009 8:40 AM | Reply | Permalink
Yeah, we're within our rights, as the majority shareholder to dilute the Hell out of the minority. It's called "shareholder democracy!"
Nice idea, Dean!
March 18, 2009 9:01 AM | Reply | Permalink
The government tells AIG to . . . . Dean Baker
Granted the government has influence -- it's all a you-scratch-my-back-I'll-scratch-yours Wall Street cabal, anyway -- but does the government have any legal right to tell AIG to do anything?
The government doesn't own voting shares and doesn't vote for the board of directors and in fact, is desperate not to get itself in the position of becoming an owner of AIG and thereupon, on the legal hook for all AIG's obligations.
That's why the government took warrants and not common shares, yes?
March 18, 2009 11:04 AM | Reply | Permalink
That's right. The US Government is not, in fact, the majority shareholder in AIG. Warrants are not shares, they are an option to buy shares in the future (if I understand correctly).
So We the People essentially [or insert your own adjective here] own AIG, but we don't actually own it.
We have all the downside of ownership -- having to endlessly pump enormous sums of money in to keep it alive -- without any of the upside, eg. control. I guess we have upside in the longer run, if the company becomes profitable again someday. Yeah, right.
A while back there was talk of a "bad bank" solution to the financial crisis. Maybe this is it. AIG is the "bad bank".
-- ARG
March 18, 2009 2:28 PM | Reply | Permalink
This assumes you could bring in $165mm of new money from the public.
Any government sufficiently organized and motivated to cram down a rights offering would surely be a credible threat to go ahead and push AIG into Chapter 11. After all, the government is the only possible source of DIP financing, so if we didn't mind scaring the pants off Goldman Sachs, we could easily announce on Friday that the company was (a) going to file; (b) the taxpayer would directly take over the domestic insurance operations. By Monday retail customers would realize that their security had improved and there would be no rush to redeem.
The only reason there is any market value today for the minority shares of AIG is that for six months the government has given every indication of prioritizing financial shareholders. Once this changes, the value will disappear.
March 18, 2009 5:49 PM | Reply | Permalink
This makes more sense than going after the bonus takers via their income taxes. The shareholders are going to be mighty upset about losing money and will put pressure on the companies to be more responsible about handing out bonuses in the future. AIG might get away with paying out the bonuses this time, but not the next.
March 18, 2009 8:30 AM | Reply | Permalink
I was going to come in here and remind you that money is fungible, but it seems you've got that covered with the 4 to 1 plan.
Nice touch.
A nice side benefit it is depreciates stock bonuses paid to clowns throughout the corporation. Stockholders have no real grudge, the stock would be worthless without the bailouts.
Full steam ahead.
March 18, 2009 8:40 AM | Reply | Permalink
Why don't we talk about the fact that much of this money went to the division in London? Why are US taxpayers paying for an office in London?
March 18, 2009 10:10 AM | Reply | Permalink
There has undoubtedly been fraud here and our government should have investigated and then closed AIG down the moment it had a grasp of what had occurred. This was and is a criminal enterprise and needs to be treated as such. The same holds true for much of our system of finance where, at the very least, they acted negligently if not criminally. Trillions of dollars don't just go away by accident. Large portions of peoples life savings have just disappeared because of this and even though accountability seems not to be something Washington has an interest in of late it's about time they started.
March 18, 2009 11:06 AM | Reply | Permalink
I'm sorry I have no special insight to add to the discussion (other than RAAAAAGE). But thanks for putting another idea out there. I'm guessing we're not going to get our money back, and that's the end of that, BUT, the Obama administration and legislators who were swayed by Geitner need to learn from this experience and write sound deals that protect the taxpayers' stake.
March 18, 2009 2:25 PM | Reply | Permalink
I'm not going to be happy unless something like this can be implemented. The bottom line has to be that the private shareholders are paying all bonuses. If they're happy with the performance of their top executives, fine.
Time to call my congress people.
March 19, 2009 8:34 AM | Reply | Permalink