Obama/Cuomo vs. AIG

Before I proceed let me re-state that I am an employee of an AIG subsidiary. Consequently, I have refrained from making any comment concerning AIG's current financial situation with one exception at the outset of the federal intervention nearly six months ago.

The following are my observations based on publicly available information and do not necessarily reflect the views of AIG, its subsidiaries or its employees. As such please feel free to accept, reject or ignore as you see fit.

Today, President Obama called AIG's payment of $165 million in bonuses an "outrage." President Obama is perfectly entitled to feel outraged under the circumstances. But Obama's "feelings" do not give him the authority to direct his Secretary of the Treasury to arbitarily rescind these monies. As AIG CEO & Chairman Edward Liddy stated in a letter to Treasury Secretary Timothy Geithner over the weekend:

In the first quarter of 2008, prior management took significant retention steps at AIG Financial Products. These arrangements were designed at a time when AIG Financial Products was expected to have a significant, ongoing role at AIG, and guaranteed minimum level of pay for both 2008 and 2009....Some of these payments are coming due on March 15, and quite frankly, AIG's hands are tied. Outside counsel has advised that these are legal, binding obligations of AIG, and there are serious legal, as well as business consequences for not paying.

In plain English, if the Obama Administration blocks these bonuses then they can expect a lawsuit from the affected employees. Quite frankly, the Obama Administration doesn't have a legal leg on which to stand. Why is the Obama Administration getting into a fight it knows it can't win? Sure public opinion would be on Obama's side. But at least in this situation public opinion is no substitute for the law.

The only way this compensation could be blocked if it could be proven it was obtained fraudulently. New York Attorney General Andrew Cuomo today stated he is going to investigate AIG for fraud in this matter. However, there must be a suspicion that Cuomo is going after AIG to secure his way to Albany. Going after AIG got Cuomo's predecessor Eliot Spitzer to the Governor's Mansion (although he didn't stay there long.) It is worth noting that for all of Spitzer's bluster he never did take any legal action against AIG. So Cuomo might simply be taking a page from his predecessor's book. A lot of sound and fury signifying nothing.

Assuming there is no fraud on the part of AIG in this matter the only other remedy I can see is if Congress passes legislation that tightens the rules concerning executive and managerial compensation to prevent such a situation from arising in the futre. But even if Congress could pass such legislation it could not be applied retroactively.