Quite a set

At a reception shortly after he became chief executive officer of American International Group Inc., Robert Benmosche told a group of AIG executives that a part of his anatomy was bigger than the government's. His five-month tenure at the insurer is putting his swagger to the test.

That's the Benmosche I remember meeting at Metlife when he first joined: arrogant, as in having or showing feelings of unwarranted importance out of overbearing pride.

Overbearing fits, too.

Mr. Benmosche, more than any other leader of a bailed-out American company, has styled himself as a bulwark against government intrusion into the corner office. Although he sees his main mission as repaying roughly $87 billion in taxpayer money pumped into AIG, he doesn't want the government to tell him how to do his job.

He didn't want anyone telling him anything.

"Look, if you want me to come in here and just blow up the company, which is what you're doing, I'm not taking the job," Mr. Benmosche recalls telling government officials in New York and Washington when he was being screened.

Mr. Benmosche told government officials that he thought plans to quickly sell off assets to repay U.S. money were misguided. If you sell from weakness, you won't get good prices, he told them.

Good point. Selling from weakness is not good.

On his first day on the job, Mr. Benmosche met with senior managers at AIG's lower Manhattan headquarters. He exhorted them to come together to solve the company's problems, and said he didn't want to hear "whining and a lot of crying" about AIG's woes.

Also a good point.

He used the F-word liberally, prompting some executives to quietly tally up the number of times he used it, according to a person familiar with the situation. "I was aggressive in my language, but I was trying to set a tone that life will be different and some things are not negotiable," Mr. Benmosche says.

Who is this person who is always familiar with the situation? At any rate, he obviously used it for effect. And it isn't as if the executives had not heard, or used, it before.

In the ensuing weeks, Mr. Benmosche traveled around the nation meeting hundreds of AIG employees. In August, at a reception prior to a dinner with 20 or so executives at an AIG life-insurance unit in Houston, Mr. Benmosche said "my b -- are bigger than the government's," apparently to make the point that he wasn't easily intimidated, say two people familiar with the matter.

Sounds like him.

Mr. Benmosche says he doesn't recall saying such a thing. "If I said it, I would apologize, as it was not appropriate," he says, adding that sometimes "you have to be a little bit provocative if you're going to get people to believe in you and know you're not afraid."

There are different ways to express resolve and be provocative, and not all involve comparing the size of one's balls to the government's, or anyone else's. That sort of crude measure is a macho gesture that says more than the measurer realizes.

No one who is around Benmosche for a short while would presume him to be afraid of much anything, without his genitals being served up for assessment.

In late August, Mr. Benmosche made a previously scheduled trip to his vacation home and vineyard in Croatia. He showed off the sprawling property to several journalists, complaining at the same time about the demonization of AIG employees on Capitol Hill.

Around that time the name of AIG kept popping up as the financial crisis threatened to spiral out of control.

Around that time, some of the comments he made at employee meetings trickled out. Bloomberg News reported that he had said regulators were to blame for AIG's problems and that New York Attorney General Andrew Cuomo, who had demanded the names of AIG employees who received retention bonuses, should not be in office.

Blame the regulators; an old shill game. But Benmosche's political analysis was a brand new one.

James Millstein, the Treasury's point person on the AIG bailout, worried that the comments would undermine the company by reigniting populist anger. He called Mr. Benmosche in Croatia. "Bob, what are you doing?" Mr. Millstein asked.

"I got a bit into it and said a bunch of stupid things," Mr. Benmosche replied, saying he didn't realize the comments would become public. AIG issued a statement saying Mr. Benmosche regretted his remarks about Mr. Cuomo, who didn't end up releasing the names.

Ah, yes, the old Washington excuse, which Alex Rodriguez used so effectively: I was young, I was stupid, and I apologize. C'mon. An executive who got to Benmosche levels is not naive enough to believe pointed comments of one kind or another would not be leaked.

Dana Milbank wrote a book about the proliferation of apologies, Homo Politicus: the strange and barbaric tribes of the Beltway that simply fits perfectly. I took note of reading it, and of how it fit, beginning i March of 2008, and then through the political campaign.

Show Me the Money

Who decides what a trader is worth: His bosses? The government? The public? Inside the tug-of-war over pay at AIG, where compensation has become a proxy for a whole lot more.


AIG was saved by the federal government. Of course, it was saved for the benefit of the at-large economy and not for its own sake, but the fact remains that the government saved it. Despite that fact, executives and board members chafe at the pay restrictions imposed by Kenneth Feinberg, federal pay czar. Robert Benmosche, whom I met when he joined Metlife, is now CEO of AIG. He is chafing at Feinberg's rules, and perhaps his very presence.

Feinberg is familiar with emotionally charged disputes about money. As the special master of the 9/11 victim fund, Feinberg ruled on the dispensation of $7 billion to victims’ families. “The 9/11 fund was much more emotional and tragic,” he said. “There you’re dealing with dead bodies and burn victims and families that had their husbands and wives and sons incinerated. No, there’s no comparison.”

But in other ways, there are parallels. His true power as pay czar is not only to set specific compensation guidelines for the seven largest firms still using TARP money but also to inform Masters of the Universe what the taxpayers ultimately think they’re worth. It is a painful ego check many of them can’t stomach. “This is about money, but don’t pooh-pooh money,” he says. “In our society, money is a surrogate for worth, integrity, self-respect, power, and so there’s a lot of emotion associated with this. That’s a very important point. Contrary to what many people think, it’s not just about compensation and how much will be earned. It’s not just dollars and cents.”


Benmosche demanded $10.5 million as his compensation. Money matters greatly to him, in pretty much the way Feinberg defines it above.

On his first official day on the job in August he told the FP traders, “I think you are all worth every dime that you’re owed in these plans,” he said, according to a person present. “If it had been my son or daughter and they had come home and told me the story of what was going on here, I would have been outraged.”

He does not understand the populist revulsion against his ilk.

Next he took on Attorney General Andrew Cuomo, who’d threatened to release names of FP employees who received retention payments. “What [Cuomo] did is so unbelievably wrong,” Benmosche told a group of insurance workers, according to Bloomberg News. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the State of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

Arrogance drips off his words and attitude. Arrogance was obvious when I met him, and that goes back a dozen years.

The AIG board was not happy that Benmosche was potentially inciting a political fight with Washington. A week after his Cuomo remarks, Benmosche apologized to the directors at a board dinner in New York, telling them he had no idea his comments were being recorded. Since then, AIG has muzzled Benmosche and declined to make him available for this piece.

He apologized for being recorded, not for saying what he said.

If anything, the political stakes in the current struggle are even greater than financial ones. In the year since the government committed more than a trillion dollars of taxpayer money to rescue the financial system, AIG remains the proxy for everything the public hates about the bailout and Wall Street’s culture of entitlement and greed. Benmosche’s insistence that FP’s traders receive retention contracts strikes many as outrageous given the billions spent to fix a mess created by traders at the same desks. And AIG suffers from the Goldman Sachs backlash, because Goldman, at the peak of the crisis, when Hank Paulson was Treasury secretary and Geithner was head of the New York Fed, was paid 100 cents on the dollar for its credit-default swap contracts, $13 billion, money it would have lost had the government allowed the firm to go under. A year later, Goldman is set to pay as much as $22 billion in bonuses. For Geithner, everything goes back to Goldman, the original sin. “Everyone is watching Goldman,” one person close to Geithner says. “The pay problem is really a Goldman problem.”

Speaking of arrogance. Blankfein apologized and Goldman donated chunks of money purportedly to help small businesses and others, but filled with empty promises and large tax deductions.

Senior AIG executives contend that an exodus of traders over punitively reduced contracts risks blowing up the $1.1 trillion derivatives portfolio still left to be unwound, destroying the taxpayers’ $180 billion investment in the company and potentially dragging the fragile economic recovery back into the abyss.

That would be bad.

Feinberg, along with everyone in the Obama White House, recognizes the risks. “I’m concerned about that. I don’t want to see that happen.” But privately, Feinberg has indicated to Treasury officials that he’s not sure the FP employees are as crucial as they say. When the crisis erupted last fall, AIG hired McKinsey and Blackstone to study the portfolio and devise a strategy to wind down the trades. If a mass of FP traders leave, advisers might be able to stabilize the positions in time to bring in new traders. “You could triage it,” a former senior FP trader told me. Essentially, as long as someone managed risks to interest-rate and foreign- exchange moves, traders could be hired to continue the unwind.

Is anyone indispensable?

Inside AIG, senior executives came to believe that Treasury was manipulating the debate to deflect populist rage from blowing back on the government’s participation in the bailout.

Congress is good at grandstanding and pomposity, and the amount of demagoguery has been reaching very high levels. And surely Treasury is trying to cover its ass. For AIGers to charge bad faith is incredibly pompous and hypocritical.

Of course, there has been a lot of posturing by Andrew Cuomo and populist groups, fanning the ire of people outraged by remaining pockets of affluence seeming immune to the wretchedness of the recession and the financial crisis.

Inside FP, conspiracy theories have taken hold. Depending on who you talk to, there’s a feeling that Feinberg is a political puppet for the socialist politics of the Obama White House. “Who is truly controlling Feinberg? Our understanding is that it’s Rahm Emanuel,” one FP executive says. Another, more bizarre idea has it that Michelle Obama and Valerie Jarrett have convinced the president to redistribute wealth and make an example out of AIG. “Does Michelle Obama have a social agenda?” one FP employee asked.

Anyone mention the grassy knoll?

It’s the moral-hazard problem writ on a truly gigantic scale: Goldman, Morgan, Merrill, et al., took risks—for what was dealing with AIG but a risk—and didn’t ultimately have to pay any of the costs. AIG should not be a place to get rich, after all that’s happened. But the AIG FP traders are right that, in some sense, they’re stand-ins for the sins of an entire class.

Feinberg told me he doesn’t see binary choices. His job is to weigh competing interests and “come up with a fair number.” The problem is that fairness from a Wall Street point of view is very different from how most Americans think of the word. Part of Feinberg’s job is to bring them into harmony. “The companies will stay in business, they’ll thrive, and the taxpayer will get all, or some, of their loan back,” he says.

And for AIG, that question is a $180 billion gamble. The FP traders are well aware of their leverage in letting everyone know the stakes. “As a trader,” one senior FP executive says, “you’re only as good as the hand you have.”

President Campaigns for Budget

President Obama, escaping the mounting uproar in Washington over executive bonuses at the American International Group, came here Wednesday for a raucous town-hall-style meeting where he promised that his $3.6 trillion budget and recovery plan would put the country’s economy back on track.

He's salesman-in-chief. In full campaign mode.

“Washington is all in a tizzy over who’s at fault,” Mr. Obama said. “Some say it’s the Democrats’ fault, the Republicans’ fault. Listen, I’ll take responsibility. I’m the president.”

Dodd said the Treasury struck a clause from the bill, resulting in the AIG bonuses. Finger-pointing is a national sport in Washington, indeed in politics. At least the President is assuming responsibility. It doesn't solve anything, but it is helpful.

Obama’s Real Test

Thomas Friedman weighs in on AIG and Obama.

When you hear a sitting U.S. senator call for bankers to commit suicide, you know that the anger level in the country is reaching a “Bonfire of the Vanities,” get-out-the-pitchforks danger level. It is dangerous for so many reasons, but most of all because this real anger about A.I.G. could overwhelm the still really difficult but critically important things we must do in the next few weeks to defuse this financial crisis.

That's a very good, important point: This is by no means over; there is a lot more heavy lifting to be done yet.

Let me be specific: If you didn’t like reading about A.I.G. brokers getting millions in bonuses after their company — 80 percent of which is owned by U.S. taxpayers — racked up the biggest quarterly loss in the history of the Milky Way Galaxy, you’re really not going to like the bank bailout plan to be rolled out soon by the Obama team. That plan will begin by using up the $250 billion or so left in TARP funds to start removing the toxic assets from the banks. But ultimately, to get the scale of bank repair we need, it will likely require some $750 billion more.

I can hear the Republicans howling already.

I live in Montgomery County, Md. The schoolteachers here, who make on average $67,000 a year, recently voted to voluntarily give up their 5 percent pay raise that was contractually agreed to for next year, saving our school system $89 million — so programs and teachers would not have to be terminated. If public schoolteachers can take one for schoolchildren and fellow teachers, A.I.G. brokers can take one for the country.

Don't hold your breath, Tom.

Unfortunately, all the money we have already spent on A.I.G. and the banks was just to prevent total system failure. It was just to keep the body alive. That’s why healing the system will likely require the rest of the TARP funds, plus the $750 billion the administration warned Congress in the new budget that it could need.

Another one trillion. That'll go down well on Main Street, huh?

The only person with the clout to sell something this big is President Obama. The bankers and Congress will have to help; every citizen will have to swallow hard. But ultimately, Mr. Obama will have to persuade people that this is the least unfair and most effective solution. It will be his first big leadership test. It is coming soon, and it is coming to a theater — and a bank — near you.

It will be some hell of a fight.

No Boiled Carrots

Dowd hits it again.

Barack Obama even needs a teleprompter to get mad.

I sure would like to see some ire. Larry Summers said the bonuses were "outrageous," but that contracts "can not be abrogated." What bullshit.

On St. Patrick’s Day, the president spoke a bit of Gaelic, dyed the White House fountains green and talked about his distant relatives in the tiny Irish town of Moneygall, aptly named since money and gall are the two topics now consuming him.

But Mr. Obama is still having trouble summoning a suitable flash of Irish temper at the gall of the corrupt money magicians who continue to make our greenbacks disappear into their bottomless well. He’s got to lop off some heads.

Exactly. Someone has to be pushed off the ledge.

As he watches the fury of ordinary Americans bubble up at those who continue to plunder our economy, he should keep in mind one of my dad’s favorite Gaelic sayings: “Never bolt the door with a boiled carrot.”

How apt.

His lofty team of economic rivals is looking more like a team of small forwards and shooting guards. At the White House on Monday, the president read reporters some tough talk from the teleprompter about the chuckleheads at A.I.G., accusing them of “recklessness and greed.”

Small forwards, indeed. How about yelling at someone?

But it was his own boiled carrots who acted shocked at bonuses that they should have known were coming, and should have dismantled before handing A.I.G. another $30 billion two weeks ago.

Exactly, which is why they are trying to control the discussion. They should have known, and, if they didn't, they're putzes.

What President Obama should have said to the blood-sucking bums at A.I.G., many of them foreigners who were working at the louche London unit, was quite simple: “We stopped the checks. They’re immoral. If you want Americans’ hard-earned cash as a reward for burning up their jobs, homes and savings, sue me.”

Exactly! We have a lot of lawyers.

"Their mythology starts with the false premise that these are irreplaceable geniuses,” says Cuomo.

Amen.

Senators Ask Who Got Money From A.I.G.

Eric Dinallo, second from right, New York State insurance chief, with an aide before the Senate panel. From left, Donald Kohn, Federal Reserve, and Scott Polakoff, Office of Thrift Supervision.

Help Me! I'll sue you

U.S. Extends AIG Bailout by up to $30 Billion is the headline of the story; the sub-head is: New Terms Give Treasury 77.9% Equity Interest; Insurer Posts $61.66 Billion Loss

On the same page 12 that the story ends in today's ediutions of the Journal, is this nugget.

March 2, 2009, 12:02 a.m. ET

In Twist, AIG Sues Its Benefactor Over Taxes

by Jesse Drucker and Liam Pleven

In the midst of its negotiation with the federal government over revised terms of its bailout, American International Group Inc. sued the U.S. on Friday over a disputed $306 million in taxes, interest and penalties.

The federal government is giving the company over $150 billion to save it, and the company is suing the government. Hello?

The suit steps up a battle with the Internal Revenue Service largely over AIG's use of a controversial type of "tax arbitrage" transaction that authorities are challenging across the world.

With the company essentially suing its owner, the suit highlights the awkwardness of national control of AIG, which the government rescued from potential bankruptcy in September. If through litigation "you're moving money from one pocket to another, why should we be paying lawyers to do that?" says David Weisbach, a tax law professor at the University of Chicago.

Awkwardness of national control? How about awkwardness of corporate types not getting the message: the old days of ciutting corners are done. You messed up, you lost.

"AIG is taking this action to ensure that it is not required to pay more than its fair share of taxes," said a company spokeswoman. An IRS spokesman declined to comment. In its lawsuit, filed in U.S. District Court in Manhattan, AIG for the first time laid out significant details about its role in the so-called "foreign tax generators" in dispute with the IRS. The general nature of the disagreement was previously disclosed in company securities filings and reported by The Wall Street Journal in May.

The foreign tax credit transactions detailed in the lawsuit took place in 1997, but AIG said in a securities filing that it also expects the IRS to challenge similar deals from more-recent years. The company paid the amounts in dispute and is now suing for a refund.

In a typical transaction, an AIG subsidiary would borrow money at favorable interest rates from an overseas bank and also earn investment income. It would pay foreign taxes and earn a foreign tax credit in the U.S. for those foreign taxes. Simultaneously, the subsidiary would pay dividends to the foreign bank that lent it the money. The foreign tax laws generally exempted those dividends from taxation to the foreign bank.

Tax authorities are concerned that the arbitrage of the two sets of tax laws allows companies to essentially double-dip, taking two tax benefits in two different countries simultaneously.