Wednesday, March 25, 2009

The AIG resignation letter - a glimpse into two worlds

Worth a look: A fascinating interplay of perspectives in today's New York Times.

First, a resignation letter (full text below) from Jake DeSantis, an executive vice president of American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

Then, almost 1,000 comments from NYT readers, most of them unsympathetic to Mr. DeSantis.

DeSantis, who says he is not responsible for the type of trading that led to AIG's collapse, is returning most of his $700,000-plus bonus, but in protest of what he feels is betrayal by Liddy and the politicians who have demanded that bonus return.

Readers note that the bonus was paid post-bailout (and therefore with taxpayer dollars), and that DeSantis profited greatly from the actions that led to his company's downfall.

Tell us what you think.

The letter:

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.”


Jake DeSantis


Palm Trees said...

Give this man a shoulder to cry on. Wake up sir, the rest of the world believes giving back the money is the right thing to do. Your boss misled you as he and the organization misled the government and the people of this nation. In addition, separating yourself from this unethical organization can only do you well. Best wishes.

Anonymous said...

Palm Trees, it would be useful if you had at least some idea of the reality of what you are discussing. AIG did not mislead the government regarding the retention payments. They knew of them and approved them in Sept of last year. The record is quite clear on that, Treasury Secretary Geitner's denials notwithstanding.

Nor did Liddy mislead the nation. Mr. Liddy was hired AFTER the credit swap losses BY the government to unravel AIG's problems.

And if in fact people REALLY believe that a man who was not involved AIG's financial difficulties and has a valid contract for compensation should be strong-armed by the government into giving back his compensation for the year, those people are dolts who neither understand simple fairness, nor the nature of commerce nor of contracts.

Anonymous said...

While it appears to be the politically correct and moral action for AIG to return the bonus money to the federal government, I now fear that the feds will be knocking on another set of doors next week. That too will be fine with most Americans. What will you think when they knock on your door to get back your family inheritance, your tax refund, the settlement from a car accident. If we give them the tools the government will just grab from us all.

chris said...

I agree with the man. He did absolutely nothing wrong. He earned his pay! Just because it's more than what you earn doesn't mean he didn't deserve it.

This is classism at it's finest.

Dave Potts said...

The fact that DeSantis probably didn't do anything wrong doesn't mean that he deserves to be paid with my money.

And I'm not sure who's being fooled by the idea that these contracts are forcing AIG to pay the bonuses. Am I really supposed to believe a giant corporation wrote contracts stipulating they'd pay millions of dollars in performance bonuses, but didn't include any form of escape clause?

MarkH said...

This is another example why the Fed should not have directly invested in private businesses. It would have been non-news if AIG was forced into bankruptcy like any other insolvent business so these employment contracts could have been voided and rewritten under court supervision.

Anonymous said...

In a word, yes. I doubt very highly the protracted public discussion would be taking place if there was any sort of toehold to cancel these contracts. Everyone wants to blame the financial institutions and they certainly deserve a great deal of blame. But don't forget Barry and Timmy okayed these bonuses.

Anonymous said...

His department crated AIG and brought the world to their needs. He wants to defend his greed and wrongdoing then so be it.

If he was so noble he would then sign the check to the American Taxpayer and not to a charity that he can enable a $292,500 tax shelter against his other income.

This guy is a joke and anyone defending him doesn't understand the moral and ethical pit that was created over the past decade.
This is America's redemption. With redemption comes accountability. The people that are afraid of the government are the ones that cheat it.

Everyone needs to pay their fair share but most of all be honest and decent. Something America lacks right now.

Anonymous said...

Frankly, I was disappointed in DeSantis' letter. He's just another whiner in the the financial sector who doesn't "get it." I hope he does follow through and make that donation to charitable causes.

jpt said...

Dave Potts,

They were NOT performance bonuses. They were RETENTION bonuses.

Hence they were money paid to RETAIN these folks that could help out AIG while it goes down in flames.

Have you ever worked at a company that was going down? It's not a very easy thing to do, especially when others are offering you money to work elsewhere.

If they were offered retention bonuses and they met their end of the bargain, I think that they should be able to keep the money. If they had any other form of bonus, give it back.

Jim said...

The general public has a right to be angry about what is going on but we elect politicians to use sound judgement and rational thought when conducting inquiry into such complex issues. Especially ones that will have a lasting impact on our nation and how we are viewed around the world (if our government shows they will void legal contracts why should any country buy our treasury bills). To simply play to populism politics is both short-sighted and utterly ridiculous. We elect these people not to grand stand but to make the tough calls, if honoring legal contracts is the right thing to do (and in this case I believe it is) then that is what politicians should do. The amount of the bonuses at AIG are less than .1% (yes that is POINT ONE PERCENT) of the money they received... get a grip people. It will take talented, dedicated people (I think a person working for $1 salary is dedicated) for AIG and the rest of these institutions to get out of this mess. I hope we are not cutting our nose off to spite our face.

Anonymous said...

Hey, Anonymous @ 7:49

If he gives the payment to charity then he has $742,000 in income and $742,000 in deductions for taxable income of zero. No tax writeoff to other income.

It would be nice if people actually know something about what they are talking about.

The demonization of someone who happened to work for someone you don't like is just amazing.

Good luck, Mr. DeSantis, I hope you survive the hysteria.

Anonymous said...

interesting that we are allowing anonymous comments on this story. Too bad the american dream is dead. Tell me what my job and pay will be,and show me the line to get my bread and milk because I guess it is time I accept the place many of you are letting us go.

Paul said...

His analogy of the plummer is faulty... The electrician and plummer work for the SAME company and as such, they share responsibility. I empathize with him, as he was personally not responsible, but he must understand the frustration the rest of us feel about large taxpayer funded bonuses, to a company that almost singlehandedly dismantled our economy with these credit default swaps.

Anonymous said...

Anon, they were NOT performance bonuses. They were contractual agreements to pay a specific compensation in exchange for a specific period of work. they were paid at the END of that period as an incentive to remain and complete the work.

Potts: yes it is extremely likely that they contracts had no escape clause, since the employees likely would not have worked for a year if the company had the option of not ultimately paying them. And it doesn't matter WHO owns the company, a contract entered into on behalf of the company by persons authorized at the time of signing to so so is binding.

As to his department tanking the company, none =read this again slowly- NONE of the retention payments went to persons who were responsible for the credit swap losses.

Anonymous said...

This man did nothing wrong and was paid according to a contract that is legally valid. Obama and Congress are going rapidly down a path of insanity in this country and the country will suffer for years as a consequence. We are placing tremendous power in the hands of government. Last time I checked, they aren't known for either their intelligence or their efficiency. What does it say about our country when 60% think the country is going in the wrong direction, but 60% still support this neophyte president who never built or led anything except a political party? Welcome Back worked so well the first time.

Vincent said...

IF the mans words are true, and unlike some of you I was not there, behind the closed doors to verify one way or the other, he deserves his bonus.

Either way I am pretty sure Niagara Falls would not stop flowing water had we left AIG to its own fate. Is that not the core of capitalism?

Truth is once government starts to meddle and muddy the waters to this large of a degree all the finger pointing, McCarthyism, blame and "outrage" in the world can never recover the truth, or our tax dollars.

I doubt, without substantiation mind you, these front line folks had anything to do with how, and if the Government spent your money on their "contracts" with their employer.

Hindsight can be a B*tch, especially when the only observation that can be made is on speculation, and not factual basis.

Anonymous said...

Who wants to work for a buck a year ! Take this job and shove it....

Anonymous said...

"The free market punishes irresponsibility. Government rewards it" Harry Browne

J said...

The 90% tax on bonuses is a slippery slope towards the government taking money from anyone they choose, regardless of how much they make.

Anonymous said...

That which is done in the dark will be seen in the light. From the president to congress they all share the shame. Trying to get the bonuses back is a bad idea. It’s just another example that all these old folks in Washington don’t know what the heck they are doing. They allowed it to happen and now they are using anger to create law. The executive is right; in America we deserve due process!

Anonymous said...

I'm sorry, a workman deserves his wages. Also, this country used to protect the rights of the minority against a populust majority, regardless of how unpopular the minority was. I guess that principle no longer applies. Further, the constitution itself prohibits congress from passing laws that cause contracts to be broken Art I, Section 10. And everyone complained the previous republican administration didn't know the constituion. Just remember, it could be you next time.

Anonymous said...

Let's see if the government is as aggressive at collecting the bonuses that are about to be paid to Freddie Mac and Fannie Mae. These idiots are the primary cause of the meltdown.

Anonymous said...

So how much tax payer money did this team save?

My guess is that AIG would have cost the tax payers even more... if they did not keep this group together.

So how hard will you work to save the company Billions when you know that you will not get paid?

Anonymous said...

I completely agree with the posters saying he shouldn't have to give up the money. When a company is going down, or being sold, or whatever, they always offer retention bonuses to certain employees, to entice them to stay as long as they are needed. Otherwise, they will start looking for other jobs and will leave while there is still work to do. This is nothing out of the ordinary. So now they have kept their end of the bargain, and possibly passed up other lucrative jobs, and they are getting strong-armed by the government to lose it all. These weren't useless, frivolous bonuses doled out at the end of a money-losing year.

Anonymous said...

I commend him for being upright and stating he will donate his final benefit. In all reality, he should take the money and run. If they force a return, take them to court for breach of contract and take loss plus damages. we still live based on laws and just becuase we have populist, ignorant persons in the congress and white house does not change the basis of how our country runs. just a take from someone who is looking for a job along him.

Anonymous said...

This letter should be required reading for the clueless masses who have no understanding of the financial crisis and no idea what a retention bonus is. Anger is no substitute for knowledge.

Obama, to his credit, seems to have come around to a sensible (or at least non-hysterical) view of this issue. Perhaps it has occurred to him that it's unwise to destroy the very institutions we're supposedly trying to bail out.

If everyone like this guy bails out of AIG (and why wouldn't they?) then AIG goes down, and we'll sacrifice hundreds of billions of dollars - maybe a trillion in the end - because a bunch of ignorant children are pissed that innocent people were paid the money they rightfully earned.

If this happens in America, America deserves what it gets.

Anonymous said...

anony 11:24 you are on the right track.

Everyone who is quick to judge read the following very carefully.

The AIG-FP Group is in charge of dealing with 1.6 TRILLION dollars. The $200 million in bonuses is chump change compared to the responsibility these people were in charge of. I bet he won't be the first one to leave and then then who in their right mind would be qualified or willing to pick up the pieces.

Kiss $1.6 Trillion bye bye over a bonus .01% of that amount. Good thinking America.

MomsHugs said...

Anon @11:58 is correct about throwing the baby out with the bath water. However, the average person gets his/her misinformation from cableTV, talk radio, email or blogs & reacts to unsubstantiated rhetoric in sound bites. The press failed to do its duty by not investigating & accurately reporting facts. The media can easily stir up anger with little or no effort. Listeners overreact by contacting their representatives in DC who overreact blustering in front of cameras. Need I say more?

I watched that hearing & there were more than a few idiots who would thank Mr. Liddy for his service then take him behind the shed for a whipping. I really wanted to give most of them the back of my hand! Who in their right mind will ever step forward again to put up with such abuse for their country? We citizens are at fault for choosing representatives as if they are on American Idol. They behave like junk yard dogs!

Could the contracts been renegotiated when Liddy was brought in 7 mo. later? When the barn is on fire, you do triage to save the animals & as much equipment as you can. You don't wait or you lose it all. Liddy after all was asked to function as a bankruptcy master & has done so.

Liddy did take a lot of heat in the hearing & Mr. DeSantis could be more empathetic with him & how he conducted himself under intense anger & pressure. He knew it would be over shortly & kept his cool.

Nary a peep about Merrill's bonuses paid in Dec. before closing with BoA. No one bellyached about those humongous bonuses, far exceeding those at AIG that, like the straw, broke the camels back.

As for taxing the retention bonuses, 50% of anything over a salary of $500,000 seems a fair compromise for everyone. Since DeSantis did not receive a salary, his tax would be 50% of what he received. Still fair compensation under those circumstances. It should satisfy everyone.

The country is reeling like it did when Joe McCarthy abused his power, splitting the nation & ruining lives. We need better statespeople in Congress, but right now I would settle for another Edward R. Murrow.

Anonymous said...

It is obvious in some of the posts that the poster does not work. The checks were not bonuses and should never have been called such. The scary thing is that it COULD HAPPEN TO YOU! We have the Chicago mob running our government and they think they can do whatever they please. If you are not already afraid, you should be. Every day we see another disaster.

Anonymous said...

If his salary was $1 per year, why should he have to give back his bonus, retention or otherwise? The public should be more outraged about the $100+ BILLION we have given to prop up AIG. The bonuses represent about 1/10 of 1% of what taxpayers have funded. We should be more upset about the other 99.9% !!!

I wonder if this will be this guy's "Jerry Maguire" letter.

Anonymous said...

Paul, your spelling of "plumber" is "faulty"! ha ha

This thread allows anonymous posts because the observer had to lay off the moderator! :)

Mike said...

Dave Potts:
Believe it or not, companies do sign these contracts obliging them to pay bonuses, whether they be retention, performance, or signing bonuses. Even at Merrill, many of the large bonuses paid were signing bonuses that were contractually due. The only thing that would allow the bank not to pay was the voluntary departure of the employee.

Re the AIG case, the writer signed a contract that provided him a retention bonus. I'm not sure how much any of you know about business in general - judging by comments in the last few months most Americans are experts in business law - but the contracts signed by many AIG employees paid them at the end of the period of employment only. They were put in place to ensure that AIG had the proper people to wind down the failed operations. If you stay you get paid for your work, if not then you don't.

What many of you fail to realize is that the majority of financial professionals have absolutely nothing to do with the economic collapse. They did not originate mortgages, they did not structure toxic mortgage backed securities, they did not sell these securities to investors. And above all, they were not the ones that took out loans they could not afford.

However, it seems that financial professionals are being singled out and blamed for this whole mess. In fact, many bankers have lost jobs, 401K value, bonuses, etc. Yet they were not at all to blame for this mess.

Our new administration talks about accountability. When are we going to stand up and be accountable for borrowig moneyh we couldn't afford?

Anonymous said...

A company is a team. You can't distance yourself from members of your own team. When the credit default swappers were making bank for the company, I'm sure this guy wasn't distancing himself from them.

In the automotive industry, just because the engineers may develop the next car-of-the-year doesn't mean they'll get big bonuses. If the company doesn't do well, neither will they.

Working for and accepting payment from a company that is benefiting from credit default swaps is defacto approval of the pracitce.

Anonymous said...

For 30 years we have increasingly put power of the hands of plutocrats and this is where that arrogantly piggish behavior has brought us. I'm hoping for a total make-over of how we run our financial services businesses. Suddenly it's 1933 and the wealthy wail, oh they piteously wail. I kinda like it. Bring back the 90% marginal rate, please!

Anonymous said...

Of course, the real scandal is the $170 billion paid out to the plutocracy at GS, who apparently may have even made that money plus the hedges they claim to have put in place against AIG's failure. In other words, they not only lost no money but the government made them more than whole. There's very litle discussion of that, why not?

Anonymous said...

I am also amused by the aura of sacredness some would attribute to this contract. All day long, in and out, contracts are honored until they are not. That's why we have attorneys and courts to resolve these and other disputes. In my view, a failed company has no business making these kinds of promises. The assertion that Jake deSantis and only Jake deSantis could save the day is silly. Just more Wall Street got yer back posturing. Has no one ever heard of forensic accounting? Let's bring those people in and I suspect we'll uncover a lot more bad news at AIG, maybe even criminal activity. And I ask again: why did GS receive payouts when they apparently weren't going to lose money anyway?

Anonymous said...

Quote - from Jim Wright, Phoenix, AZ, USA, Inc.

"Dear Mr. President,

Patriotic retirement:

There's about 40 million people over 50 in the work force - pay them $1 million apiece severance with the following stipulations:

  1) They leave their jobs.  Forty million job openings -Unemployment fixed.

  2) They buy NEW American cars.  Forty million cars ordered - Auto Industry fixed.

  3) They either buy a house/pay off their mortgage -  Housing Crisis fixed.

Can't get any easier than that! And as an added bonus...It would a lot cheaper than the fix currently being applied.

Anonymous said...

To the 9:46 AM posting -

Your proposed fix would cost $40 TRILLION dollars. That's quite a bit more than the current fixes.