putting the racketeering back in the insurance racket

So, late Saturday/early Sunday, we learn that AIG, already recipient of some $170 billion of US government coin, is set to pay out $165 million in something called “retention bonuses” to the people in the financial products unit, the very division that brought the insurance giant to its knees. Cue the righteous indignation.

Righteous, but also rightful—this dispersal is outrageous. But while most behind the microphones, on the opinion pages, and in the halls of Congress will declare this the height of hubris, or a simple “screw you” to the American people, they will be missing a slightly more nefarious conclusion:

These are not retention bonuses--this is protection money.

I had a drink with a friend last week--she works for the NYSE in Europe--and she commented that in her 15 years in the market, the march of "progress" has been about who can come up with the next gimmick, the next algorithm that is slightly more nuanced, complicated, and arcane than the previous. Anything that can give you an edge over your competitors. She said you can see similar growth curves repeated in each of the derivatives as they came along: a slow growth start, then a rapid, steep climb, and then a rapid leveling off, followed by everyone rearranging the deck chairs while they scramble for the next hot gimmick. CDOs, CDSs fall into this pattern.

Do not assume that Edward Liddy, the government appointed chairman of AIG, fully understands what went on within the financial products unit, do not assume he understands their "gimmick," but assume that he knows that something is up and that these bonus babies know what it is.

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there's trying, and then there's doing

New York Attorney General Andrew Cuomo has issued a subpoena to American International Group Inc. seeking a list with the names of executives receiving bonuses.

"We had given AGI up to 4 o'clock today to provide the information on the latest round of bonuses that they paid out," Cuomo said. "Four o'clock has come and gone."

. . . .

In the letter to AIG's CEO Edward Liddy, Cuomo said he was disturbed to learn over the weekend of AIG’s plans to pay millions of dollars to members of the Financial Products subsidiary through it’s Financial Products Retention Plan.

President Obama has said he wants every legal angle pursued in stopping these bonuses from going out—do you think he had this in mind?

And, as noted by Jane, Treasury Secretary Tim Geithner was involved in negotiating the size and scope of the FP bonus package—might Cuomo want to talk with him, as well?

(cross-posted on Firedoglake)