AIG CEO Takes $10.5 Million Dollar Compensation Package

November 25, 2009

CNN Money

By Ben Rooney

After balking at government imposed pay restrictions, American International Group’s chief executive Robert Benmosche has officially agreed to a non-compete contract that could total $10.5 million, the company announced Tuesday.

Benmosche, who was named CEO in August, had expressed frustration with the constraints placed on AIG by the government after the global insurance company was bailed out last year.

He reportedly threatened to quit his post in board meetings earlier this month, before issuing a statement saying he is “totally committed” to staying on as CEO.

AIG spokesman Mark Herr said Benmosche agreed to a “non-compete” contract and that he is “committed to staying” at AIG.

Benmosche is one of several high-level executives at seven private companies under the purview of the Obama administration’s “pay czar” Kenneth Feinberg.

In October, Feinberg unveiled a series of drastic pay cuts for 136 top executives at seven of the nation’s biggest bailed-out companies, including AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), and Bank of America (BAC, Fortune 500).

AIG received a $182 billion lifeline from the government last year as the credit crisis forced the company to the brink of collapse. In exchange, the government took an 80% ownership stake in the company.

Despite ongoing criticism of the company’s compensation practices, Benmosche successfully negotiated the largest award of any CEO under the government’s new curbs on executive pay.

In a press release, AIG said it will implement Benmosche’s previously announced compensation agreement, which includes a $3 million base salary and $4 million in AIG common stock.

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Government Misled Public on Bailouts

October 5, 2009

The Washington Times

By Sean Lengell

Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry M. Paulson Jr. misled the public about the financial weakness of Bank of America and other early recipients of the government’s $700 billion Wall Street bailout, creating “unrealistic expectations” about the companies and damaging the program’s credibility, according to a report by the program’s independent watchdog.

The federal government last October loaned Bank of America and eight other “healthy” financial institutions a total of $125 billion – the initial payout from the Troubled Asset Relief Program, or TARP – in an attempt to avoid a series of major bank collapses that would push the sputtering economy into a free fall or depression.

The rationale for giving money to stable banks and not failing ones, regulators said, was that such institutions would be better able to lend money and thus unfreeze tight credit markets – a major factor in last year’s Wall Street losses.

But an audit released Monday by TARP Special Inspector General Neil Barofsky says senior government officials and Wall Street regulators, including Mr. Bernanke and Mr. Paulson, had “affirmative concerns” that several of the nine institutions were financially shaky.

“By stating expressly that the ‘healthy’ institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending,” the audit says.

“Treasury and the TARP program lost credibility when lending at those institutions did not in fact increase and when subsequent events – the further assistance needed by Citigroup and Bank of America being the most significant examples – demonstrated that at least some of those institutions were not in fact healthy.”

The report makes no recommendations but argues that Treasury, the Federal Reserve and other federal agencies “should take more care in publicly characterizing the nature and objectives of their initiatives.”

Mr. Paulson, in an Oct. 14, 2008, statement announcing the original nine TARP recipients, described them as “healthy institutions” that “have taken this step for the good of the U.S. economy.”

The Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) similarly described the companies in news releases issued the same day.

Yet government officials and federal regulators privately were concerned that some of the institutions were financially stressed, the report says. Two of the nine institutions – Bank of America and Citigroup – would receive billions of dollars more in separate bailouts later. Another institution, Merrill Lynch, was hemorrhaging money for months before the enactment of TARP and was bought by Bank of America in January.

Regulators told auditors that the firms’ health was less important than their interconnectedness and their overall importance to Wall Street. They were chosen based on their size, the types of services they provided, and their collective importance to the overall economy, they said.

Executives at several of the nine institutions said they were reluctant to accept TARP funds – and the strings attached to them – but told auditors that federal officials forced them to take the money.

Officials at Treasury and the Federal Reserve and other federal regulators said it was important that all nine firms accept the money in order to instill investor confidence in Wall Street and to show that the nation’s banking system “can withstand any near-term credit loss.”

Mr. Paulson stepped down as head of the Treasury Department in January. He was succeed by Timothy F. Geithner, who, as head of the Federal Reserve Bank of New York during TARP’s creation, also played a key role in crafting the scope of the program.

The Treasury Department, which at times has clashed with the TARP special inspector’s office, took some issue with the audit’s accusation that the agency lacks sufficient transparency.

“While people may differ today on how the contemporaneous announcements about the reasons for selecting the initial nine recipients should have been phrased, any review of such announcements must be considered in light of the unprecedented circumstances in which they were made,” Assistant Treasury Secretary Herb M. Allison Jr., who oversees TARP, said in a written response to Mr. Barofsky.

However…

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The Economy Is Even Worse Than You Think

July 14, 2009

Wall Street Journal

by Mortimer Zuckerman

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- June’s total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don’t count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn’t searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That’s 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs — 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won’t lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn’t. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy’s main driver, we are going to have a weak consumer sector and many businesses simply won’t have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won’t be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It’s a shame Washington didn’t get it right the first time.

Click here for the full editorial from the Wall Street Journal.