I don’t think that I really need to comment much on this.  The letter speaks for itself.

From the NYTimes today:

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Sincerely,

Jake DeSantis

I love my country, please do not destroy it.

The U.S. House of Representatives today passed a retroactive 90% tax on bonus payments for A.I.G. employees.  This is not yet law, and it must not become law.

Before I get into the article, let me clarify that I am not a lawyer.  Given that, lets just start with this, it is a little document called the Constitution of the United States. I’m fairly certain this is an important part of our framework of law.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Article. I.

Section. 9. The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.

No Bill of Attainder or ex post facto Law shall be passed.

I’ve highlighted the relevant portion… If I’ve read that correctly, that means you cannot pass a retroactive law – period.  Okay, now, lets get onto today’s action by the House of Representatives

Here are a few parts of the story from Yahoo! (AP):

WASHINGTON (AP) — Denouncing a “squandering of the people’s money,” lawmakers voted decisively Thursday to impose a 90 percent tax on millions of dollars in employee bonuses paid by troubled insurance giant AIG and other bailed-out companies.

The House vote was 328-93. Similar legislation has been introduced in the Senate and President Barack Obama quickly signaled general support for the concept.

Look, I don’t like it that the employees are getting bonuses with my tax dollars, in fact I don’t like that my tax dollars are being used to prop up the firm.  But this must be unconstitutional. The House of Representatives is circumventing contract law with this tax.  What ever happened to no taxation without representation? The last time the King and his minions decided to over tax the citizens we had a revolutionary war…

“I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated,” the president said in a statement.

I’m sorry Mr. President, but you and the Congress are on the verge of overstepping your boundaries.  This is reprehensible behavior.  If you do not like the bonus payments, then make it a condition of any future monies that no bonuses are paid out.  You must not circumvent the law like this.  While not abrogating the contracts, you have effectively abrogated the contracts.  If business cannot be assured that a contract is valid based upon the law in force at that time, they will not do business with us.

House Speaker Nancy Pelosi, D-Calif, told colleagues, “We want our money back now for the taxpayers. It isn’t that complicated.”

The outcome may not have been complicated. But the lopsided vote failed to reflect the contentious political battle that preceded it.

Republicans took Democrats to task for rushing to tax AIG bonuses worth an estimated $165 million after the majority party stripped from last month’s economic stimulus bill a provision that could have banned such payouts.

For the love of God, you had the provision in the Bill!  You made the mistake of taking it out, now put it in any future bill and put the issue to rest.  Do not pass this legislation.

“This political circus that’s going on here today with this bill is not getting to the bottom of the questions of who knew what and when did they know it,” said House Republican Leader John Boehner of Ohio.

He voted “no,” but 85 fellow Republicans joined 243 Democrats in voting “yes.” It was opposed by six Democrats and 87 Republicans.

Every one of the members who voted “yes” should be removed from office.  From Wikipedia: Oran’s Dictionary of the Law (1983) defines treason as: “…[a]…citizen’s actions to help a foreign government overthrow, make war against, or seriously injure the [parent nation].” In many nations, it is also often considered treason to attempt or conspire to overthrow the government, even if no foreign country is aided or involved by such an endeavour. The rule of law and contract law is one of the things that makes this country great.  By circumventing contract law, these representatives are threatening the very fabric of our nation.

The bill would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses issued since Dec. 31.

The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the political will is there.

It was only this past weekend that the bailed-out insurance giant paid bonuses totaling $165 million to employees, including traders in the Financial Products unit that nearly brought about AIG’s collapse.

AIG has received $182.5 billion in federal bailout money and is now 80 percent government-owned.

Disclosure of the bonuses touched off a national firestorm that both the Obama administration and Congress have scurried to contain.

In a statement issued by the White House late Thursday, Obama said the House vote “rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat.”

There is more in the actual article.

Look, I’m just as frustrated as the next guy that a broken firm is paying out huge sums of taxpayer money to its employees.  But the reality is that our government enabled this behavior, and they need to simply suck it up, impose restrictions going forward, and call it a day.  Please, please, please, do not circumvent contracts.  The core of our society is that we know exactly what rules we work under.

One more thing here, President Obama was on Leno tonight.  Here is a quote:

“If we can get back to those values that built America, I think we are going to be okay.”

Indeed Mr. President.  Lets get back to those values.  I implore you to step back, read the Constitution again and consider what the Congress and your administration are doing right now.  Lets get back to those values that built America, please.

From the New York Times

By ANDREW ROSS SORKIN

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.

Finally! A rational argument.

Chris Dodd - From CNN.com

Now this… This is classic. From CNN

WASHINGTON (CNN) — Sen. Christopher Dodd on Monday suggested a tax provision to recoup the bonuses for executives of ailing insurance giant AIG.

Dodd, D-Connecticut, said the notion is in the “earliest of thinking” and has not been settled on as a way to resolve the issue, which has set off outrage in Washington and across the country.

The tax would apply only to those at AIG who have received bonuses. The provision would help the government get back the money in the form of tax revenue.

You have got to be kidding me.  I can’t believe that you’re even thinking about putting a tax on a specific group of people because they were paid a bonus that you don’t like?  What’s next, anyone who gets paid on the 10th of April will get taxed at 75%, but if you get paid on the 14th you pay no tax?  This is getting completely out of hand.

President Obama on Monday expressed dismay and anger over the bonuses to executives at AIG, which has received $173 billion in U.S. government bailouts over the past six months.

Well, you might have thought about putting restrictions on pay as a condition of getting the funding.  Had you thought of that first, this whole business of getting upset about the bonus payouts wouldn’t be so ridiculous. Look, as a taxpayer it pisses me off that my money is being used to fund the operations of this company, but I am more pissed off that the government didn’t properly oversee how the money was being dispersed, or place restrictions on what it could be used for.

Since the government messed up, they want to just make up retro-active laws as they go along. There is absolutely no way that any private investor is going to want to play ball in this environment.  Who knows, next thing you know the government will decide that any returns over 12% are excessive and will be taxed at 100%, and that law will go into effect as of 5 years ago.

Look, the government screwed up.  They bailed out a company that should have been dissolved. Plain and simple.  They didn’t do it properly, and now they can’t just go and modify all of the rules.  Suck it up buttercup.  Don’t do it again.  Dissolve the organization, and call this whole game off.

Last time I checked, the constitution requires that all appropriations go through the Congress, specifically originating in the House and voted on by the Senate.  That means that you guys wrote it, voted for it, and passed it.  Period.  If bailout money was being granted by the Fed and Treasury, it is the responsibility of the Congress to oversee those actions and ensure they are appropriate.  Obviously, the oversight was a little lacking.

“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama told politicians and reporters in the Roosevelt Room of the White House, where he and Treasury Secretary Tim Geithner were unveiling a package to aid the nation’s small businesses.

Obama received support from fellow Democrats, including Dodd, who is the chairman of the Committee on Banking, Housing and Urban Affairs.

“This is another outrageous example of executives — including those whose decisions were responsible for the problems that caused AIG’s collapse — enriching themselves at the expense of taxpayers,” Dodd said.

If you hate these people and this business, then why do you keep throwing our good money at it?  For the love of God, put them through an orderly bankruptcy.

He noted in a written statement that executives at other companies that received bailout funds have volunteered to forgo bonuses. “There’s no reason why those at AIG shouldn’t do the same,” he said.

Bu there is nothing that says they have to.  If they don’t want to, well then you’ll have to deal with it.  If you really, really, really didn’t want them to get bonuses, then you should have put it in the contract to get the money. Period.

Obama said he will attempt to block bonuses for AIG, payments he described as an “outrage.”

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?”

I’ll quit with the broken record on this one… Signing off.

From the NY Times – Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

I don’t have all of the details, but I think a much better question would be.  When the government gave all of this money to A.I.G. time, and time again, did they ever think of putting conditions on it that restrict bonus payouts?  If not, then get over it.  These employees of the firm have a compensation package that includes bonus payout.  In many cases, their base pay is likely lowered to reflect this bonus payment.

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,” said Mr. Obama, who called the issue one of “fundamental values.”

“All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules,” he said.

A.I.G. entered into contracts with its employees.  These contracts entitle the employees to bonus payouts based upon conditions.  The conditions may have been wrong, and they may not be deserving based upon your criteria, but that does not change the contract.  That is the rule we are all playing by – the law.

A.I.G. executives say that they are contractually obligated to pay the bonuses to their executives, including those who are part of the A.I.G. division where the company’s crisis originated.

The government’s rescue of the insurer began last fall with the Federal Reserve’s $85 billion emergency loan. The taxpayer assistance has now grown to $170 billion, and the government owns nearly 80 percent of the company. On Sunday, the company disclosed the names of dozens of financial institutions that benefited from the bailout money injected into A.I.G. that the insurer then paid out to satisfy financial contracts.

This sort of lunacy is the reason moral hazard is continually discussed.  President Obama, get out of A.I.G., Bank of America and Citi.  If these institutions are insolvent, then assist with an orderly bankruptcy , nothing more.  We cannot have shell companies that are forced to operate with political pressure on every move.

Let the markets work.  For the sake of our country.  Quit meddling with these organizations, quit forcing money down their throats and then expecting them to act differently.