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.And now politicians like Andrew Cuomo and Connecticut Attorney General Richard Blumenthal along with our solons on Capitol Hill have launched a witch hunt against anyone who worked for AIG or any of these big banks receiving bailouts.
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.
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.Alas, attorneys general are politicians first and foremost.
In this environment, some of those very financiers being so demonized today are the very ones who will have to step up to join in Tim Geithner's plan for the toxic assets. As Vincent Reinhart points out in the WSJ today, the Geithner plan depends on those same financiers deciding to go into business with the federal government in order to make outsized profits.
Public officials want this problem to go away without being stuck with the smoldering wreckage of large and complicated financial institutions. That requires buying assets quickly from problematic firms at the highest prices possible.I'm sure that there are a lot of financiers out there who will be willing to take the risk that they can make profits by going into partnership with the federal government with the government absorbing the major portions of the risk. But we can all picture the wails of anger and furious oversight hearings that will erupt when, years from now politicians find out that these guys actually made a profit on this plan.
Private investors want to make a profit. That can best be achieved by delaying purchases, thereby lowering prices and sticking the government with as much of the loss as possible.
The possibility of outsized profit, made possible by government guarantees and matching capital contributions, is the carrot government can offer to those with private capital willing to commit to the enterprise. The problem is that Congress has been demonizing the financial sector and considering ex post expropriation of bonuses.
For the PPIP to work, the government will have to use the expertise of much-vilified financial professionals, create massive expected profit opportunities to entice capital, and tap places where there are deep pools of money -- including sovereign wealth funds. If the PPIP [Public-Private Investment Program]is successful, is there any chance that Congress would not be holding hearings complaining about the massive rewards to those who took on the risk? Unless members of Congress cool the heat of their rhetoric, the potential profits Mr. Geithner is putting on the table will simply be left there.
15 comments:
Thanks to the demagoguery, it's pretty much going to be up to foreigners. As long as they can take their profits out of the US.
As far as I'm concerned, Washington DC is radioactive.
I am afraid that Jake DeSantis is protesting too much. When you work for an organization, you cannot claim immunity for yourself against the faults of one division or another even if you were not associated with those divisions and you were not directly responsible for any mishaps that happened. You stood together or fell together, especially if you were occupying some senior -level executive position in the organizational hierarchy.
Executives who were responsible for the CDS debacle and left the organization in the lurch were deserving of as much condemnation as the senior officers on a ship on fire jumping into the first lifeboat lowered from the deck.
Let us remember in this context that thousands of innocent employees of Enron who had nothing to do with the shenanigans orchestrated by Ken Lay, Jeff Skilling and their co-conspirators lost their jobs and all their savings for no fault of theirs.
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...
...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...
...On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes
let me tell you about myself. my early life was no bed of roses, either. i washed a lot of dishes and worked at other blue collar jobs while going to college. i make a good living now, but i have also worked a lot of 10, 12, and 14 hour days without extra compensation, since i am on a salary.
yet, although i am in the top 10% of income earners in the united states, i have never "received a payment...amounting to $742,006.40, after taxes".
please accept my sympathies for being "let down", and share in admiration for your working 10, 12, 14 hours a day for only a million and a half a year. the unique sacrifice you have made, and the stoicism with which you endure it are an inspiration to whiny rich commodity traders everywhere, i'm sure
Tacitus Voltaire,
I'll be waiting to hear your reaction when it's your turn to justify your salary before the almighty Congressional committees. Private citizens being vilified by culpable government officials is unjust, not to mention hypocritical.
AIG has become a piñata for people that are unwilling to remove the blindfold or all too eager to scrounge on the floor for the sweet candy they think they'll soon receive.
"When you work for an organization, you cannot claim immunity for yourself against the faults of one division or another even if you were not associated with those divisions and you were not directly responsible for any mishaps that happened"...if you have a contract that specifies a certain payment, then the organization cannot decide to skip paying you because it is having problems somewhere else--UNLESS it files for bankruptch, which is the legal way in which contracts are abrogated in this country.
For example, GE is having problems in financial services. Suppose they used this as an excuse to refuse to pay money which was contractually owed under existing compensation plans to other people: a locomotive sales manager in Erie, a medical device shift supervisor in Milwaukee, etc.
Would this be fair?
Would this be wise?
Would this be legal?
I think the answer is pretty clearly "no."
Tacitus Voltaire reminds me of the kind of guy who drives around looking for day labor, promise them an agreed payment then whine and not pay it because "they" don't deserve it. Plus I doubt if TV ever worked for anyone for $1 a year under any circumstances like Mr. DeSantis.
The Enron example is specious as those employees lost their jobs and bonuses in a bankruptcy. They didn't have Congress come after them to get the change out of their pockets as well. But it is nice to see a major Democratic fund raiser criticized by TV as I didn't think that was ever going to happen.
Let us remember in this context that thousands of innocent employees of Enron who had nothing to do with the shenanigans orchestrated by Ken Lay, Jeff Skilling and their co-conspirators lost their jobs and all their savings for no fault of theirs.
I remember when this happened. Congress took those Enron employees, raked them over the coals for trying to do a good job, save the company, and receive the pay they were promised.
Pat Patterson (3:58 PM):
You say that"The Enron example is specious as those employees lost their jobs and bonuses in a bankruptcy."
There is nothing specious in quoting the Enron fiasco in this context. AIG was and is bankrupt technically and for all practical purposes if the federal government had not stepped in with its largesse from taxpayer dollars to bail it out. Otherwise, it would have gone the way Lehman Bros. went and would have been dead as dodo by now. The federal government decided to save AIG from certain bankruptcy because it had been advised that "AIG If one was too big to be allowed to become extinct." The Enron employees also would not have been thrown to the wolves if the federal government had intervened in a similar fashion.
No body would have grudged paying DeSantis and other executives like him who stayed behind to clean up the mess (created by whosoever it might have been from within AIG) their regular salaries. What provoked the outrage among the public is the so-called "retention bonus" that they had claimed and were paid. If one looks into this a little more closely, this retention bonus is nothing less than a ransom money. This was worse and more reprehensible than even ransom paid to a kidnapper in order to free the kidnapped victim because there was an element of blackmail - "Pay me or I quit" - behind its offer and acceptance.
After having greatly benefited (by his own admission) monetarily from employment with AIG during the better times, at least out of sheer gratitude, if not out of sportsmanship, DeSantis and his ilk were beholden not to scurry away like rats at the first sign of any trouble but to stay together and assist the new captain in salvaging the sinking ship.
It is also pertinent to note that DeSantis generously accepted an annual salary of one dollar because he was sure that a million more was in the pipeline as "retention bonus". Also, it is pertinent to note that he didn't care to reveal what his basic annual salary sans the bonuses was.
Finally, it was a totally unbecoming act bordering on breach of confidence for a senior executive to make public his letter of resignation in this cavalier fashion. Only politicians indulge in such attention seeking stunts. A letter of resignation, on par with the letter of appointment, is as confidential and private as one's underwear. Would Mr. DeSantis have sent a copy of his letter of appointment from AIG (detailing all the bonuses and fringe benefits)to the Editor of the New york Times with the same alacrity, I wonder?
One entered bankruptcy and one didn't! That alone should differentiate between the two cases plus the little matter of Enron was proven to be cooking the books while no such charge has been ever been brought concerning AIG. The top executives of Enron faced a host of legal problems brought up by their criminal activities while the top executives of AIG, who were asked to stay on both by Greenberg and Liddy and most importantly AG Spitzer, have never been indicted much less convicted of any crime. Except being the whipping boy for a panic stricken Congress. Demanding another group of executives is akin to hiring ditch diggers to replace all the engineers who designed a bridge that collapsed during a storm.
Other than that of course the circumstances are exactly the same. What difference does his final bonus in lieu of salary make when the risk was in no compensation by severance package when the NY AG had repeatedly taken executives to court for accepting these packages? But we keep coming back to the idea prevelant among Democrats is that they are the final arbiters of what is a good contract or not? Supplanting well-established common law for red-faced rants on the Capitol steps.
Pat Patterson:
I would totally agree with you that the two cases, AIG and Enron are different, if AIG had escaped getting into bankruptcy on its own steam and without the succor provided by the helping hand from the taxpayer. But, as you are aware,that was not the case.
What difference did it make to the thousands of Enron employees many among whom were rendered destitute whether their masters were angels or crooks? The end result was the same whether the calamity was due to negligence or depravity on the part of some in the top management.
I would also like to highlight another salient point in this tawdry episode. Mr DeSantis continued to be an employee of AIG even after he handed in his resignation until it was accepted and he was escorted with his personal belongings in a cardboard box to his car on the company's parking lot (to the reserved space, of course.) Until that moment, it was a criminal breach of code of conduct, especially for a senior executive, to rush out and go public on the activities of his employer. Whatever he had to say he should have said it only after he had completely severed all his professional association with the company and even then he might be contravening any confidentiality agreement he might have signed when he was employed. You cannot have it both ways - expect the company to honor its side of the contract but claim the right to abrogate your own! I am surprised that there has been no comment on such unethical and unprofessional conduct of Mr DeSantis.
Where did the story about him being escorted out of the building come from because I can only find a few ranters demanding that should be his fate but no actual description of such an event? Plus what exactly does a "criminal breach of the code of conduct" mean? If he had violated an agreed confidentiality codicil then AIG could sue but its doubtful there was since his was a resignation and not part of any negotiated separation.
Would you also argue, since AIG is not bankrupt nor in bankruptcy court, that it should ignore all its contracts simply because you don't like the people being paid or paying? Plus, as it turns out, many of those "innocent" employees of Enron seemed to have known for years that the value of the company existed on paper alone and did nothing about it which meant then that the corruption was widespread and guaranteed the failure of the company would affect the innocent as well.
Besides I might be a little more sympathetic to your point of view if you had mentioned Arthur Andersen and its benighted employees.
Pat Patterson:
On the one hand, you say that "many of those "innocent" employees of Enron seemed to have known for years that the value of the company existed on paper alone and did nothing about it". Possibly, these not so "innocent" Enron employees who knew all along about the shenanigans orchestrated by Ken Lay and his gang included janitors, mail-room boys and the waitresses in the company cafeteria.
In the same breath, you also aver that poor, pitiable Mr Jake DeSantis, an Executive Vice-President eligible to receive a million dollars as "retention bonus" if he condescended to stay on to clean up the mess, could not have had any inkling as to what his colleagues in the same Financial Products Division were up to when they were gambling in Las Vegas style with Credit Default Swaps in another hall, probably on the same floor, in the AIG casino.
I wish you would take a consistent stand at least on this issue!
Ok, I noticed that you didn't provide a link to the fantasy of perpwalking De Santis from the building or give any hint that the so-called "criminal breach of the code of conduct" was anything other than a fabrication without existence in contract or common law. In case you hadn't noticed I put innocents in quotation marks because obviously we don't know how many at Enron or AIG knew about repectively the criminal activity or the dire financial straits either company was in.
And as I have explained AIG and other NY based companies were essentially forced to drop severance packages due to the ongoing investigations and trumped up court cases of the aggrandizing AG, Spitzer. Most of the problems AIG faced at that time were the result of executives not trusting either the state government or AIG to pay them not just their salary but any contracted bonuses. Spitzer and Liddy both approved this restructuring of bonuses to get around the severance packages that Spitzer was basically tearing up in his desire to be governor. Or better prostitutes.
De Santis is no different than a carpenter in that their contracts were arrived at without government interference and must be honored as such. This brave new world you seem content to live in won't survive if contracts are only for those favored by the government or the mob.
Pat Patterson:
It appears that you had not read Mr DeSantis's letter of resignation in its entirety. In the penultimate paragraph of his letter, he had said that he would continue to serve the company over the short term "to help ensure that no balls are dropped" (to borrow his exact words).
Therefore, he is probably still at the AIG toiling day and night trying to catch the balls dropped by others.
Hence, my quip about his being escorted to his car on the parking lot on his final departure from the company was in the future tense and was purely based on my expectation of what should be done to him. It is a universally accepted code of conduct (and no law needs to be written to enforce it) that a senior executive of an organization, whatever be his grievances against the management, does not go public and bad-mouth his employer while he is still in service. There are other forums where he can get his charges against the company addressed and restitution sought. What are the courts and employment tribunals for?
In my view, the present CEO of AIG should not have accepted Mr DeSantis's resignation but should have sacked him instead, whatever might be the pecuniary consequences to the company, as a punishment and as a warning to others for such gross violation of discipline and conduct expected from a senior executive of a company.
Still waiting for an explanation of what is a criminal breach of the code of conduct. Plus claiming now that you were describing some future even is nonsense. You wrote(11:13), "Mr. DeSantis continued to be an employee of AIG even after he handed in his resignation until it was accepted and he was escorted..." No future tense there!
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