Andrew Cuomo is a Rat!

In Finance, New York, Politics on March 22, 2009 at 8:18 pm

You Dirty Rat

Does the timing of AIG bonus debate make sense to you?  It doesn’t make sense to me. The bonus issue first came up last November and the government dealt with it as a condition of funding for the original bailout.  In case you forgot, here is a summary of the compromises made last fall:

  • the incoming CEO, Edward Liddy, agreed to a $1 salary.
  • the outgoing 5 month CEO, Robert Willumstad, was forced to reject an unwarranted $22 million severance package.
  • the top seven executives agreed to pay freezes and no bonuses.
  • the next 50 highest-ranked executives agreed to forgo pay raises through 2009.
  • Paula Rosput Reynolds, the former CEO of Safeco Corp., was hired in October to lead AIG’s restructuring.  She agreed to no compensation in 2008 and further agreed her 2009 compensation would be directly tied to performance (i.e. sale of assets to repay the government bailout loan).
  • Liddy had already agreed to freeze $19 million that was contractually due to Willumstad’s predecessor, Martin Sullivan, who was forced out in June 2008.
  • Liddy also froze $600 million in discretionary bonuses for other executives.

At the time, Andrew Cuomo, the New York State Attorney General praised the insurer for having taken a “positive step” and deemed the moves by Liddy as “appropriate” given the $150 billion in aid AIG was receiving. So why then, did Cuomo send a letter to Barney Frank on March 17th reopening this can of worms? Hmmm.

In the March 17 letter, Cuomo discussed his ongoing investigation of AIG and reiterated his “positive step” comment regarding curtailment of discretionary bonuses. But he later claimed “dismay” at the fact that AIG made payments on its retention bonus plan.  Hmmm. If Cuomo’s office was conducting an “ongoing investigation” of AIG, why was he surprised to learn about a contractual obligation that had been put in place in December 2007 and was available for his review at the time of the original bailout?

Later on in the letter, he struck a tone of righteous indignation when he said, “Something is deeply wrong with this…”  I suspect, instead, that something is deeply wrong with Andrew Cuomo.  Let’s first go over a few facts.

  • The Retention Bonus Plan was put in place in December 2007.
  • The New York State Attorney General’s investigation into AIG dates back to 2005 when Spitzer ran the office.  They should be intimately familiar with the company.
  • Edward Liddy  & Paula Reynolds are new to AIG, but in less than six months, they have taken full control of the company.
  • Liddy & Reynolds have no incentive to hide information from Cuomo, Secretary Geithner, Congressman Dodd or their new owners, the American taxpayer.
  • AIG’s Financial Products Group was a highly specialized unit. They were an unregulated hybrid of an investment bank and an insurance company.
  • Key members held intricate knowledge of the complexities of its transactions and they could not easily be replaced.
  • The retention plan was put in place to keep key employees from abandoning ship or jumping ship to a competitor (like Chase, Barclays, Lehman or BofA).
  • At the time the agreement was signed, AIG employees had many job opportunities if it looked like AIG was going to go under.
  • The retention plan covered analysts, associates, vps and directors, effectively the worker bees, grunts and support personnel of the organization. Not senior executives.

and finally,

  • Andrew Cuomo wants to be Governor.

This AIG bonus debacle seems like a “staged” opportunity for Andrew Cuomo to generate headlines in advance of the 2010 gubernatorial race.  No other explanation makes sense.  Sure, the bonuses are outrageous, but so are the bonuses at Chase, Bank of America, Goldman Sachs & Morgan Stanley.  They all received government protection in some form or another; but Cuomo hasn’t rubbed salt in their wounds.  Why did he single out AIG? I think Cuomo borrowed a page from the Bill Clinton playbook. When asked by Dan Rather why he engaged in inappropriate relations with Monica Lewinsky, Clinton replied “I did it … because I could.” Oy vey!

The smoking gun resides on the Office of Attorney General website.  On March 16th, Andrew Cuomo wrote a letter to AIG’s CEO reiterating a prior request for the names of the employees who had received retention bonuses. I haven’t found that prior request but the statement alone confirms that Cuomo knew about the retention plan.  In the letter, he further requested  detailed contact information about bonus recipients and demanded it by 4:00pm that evening.  The notice period seems a tad unreasonable for even the most nimble of CEOs, but that is just an opinion.  Later that night, Cuomo issued a press release indicating that Liddy was unable to comply. But then, one day later, Cuomo wrote a letter to Barney Frank in which he detailed with exacting specificity who at AIG received a bonus, how much was received and the current employment status of each recipient.  Perhaps Liddy was able to comply, but did so after the 4pm deadline.  But that wouldn’t explain the March 17th letter.  Another alternative is that Cuomo had always planned to write the March 17th letter to expose the retention bonus issue for his own political gain.

Cuomo’s behavior was at best underhanded, at worst disingenuous and rogue. Neither the Treasury Secretary nor Congressman Chris Dodd, both of whom are intimately involved in the supervision of AIG, were informed of Cuomo’s actions. Nor were either men a party to the March 16th and March 17th letters. This is clearly a case of a local official not working in partnership with the Federal government.  To paraphrase President Obama’s stump speech “the challenges of our financial system exceed the capacity of a broken system to fix them.”  The President and his staff are under a great deal of pressure and the last thing they need is a rogue politician calling in audible.  New Yorkers deserve better as do AIG, government official and American taxpayers. This stunt smells of investigative misconduct on the part of an ambitious politician.  I could not be more clear: the Office of the Attorney General knew about the retention bonuses; Andrew Cuomo, nevertheless, sought to exploit public outrage with a “gotcha PR campaign” of his own.

Some might assume that because the Attorney General is related to a former Governor and because he is also a member, however peripheral, of the Kennedy clan, he stands on solid political footing. But that is not the case.  In 2002, then candidate Cuomo was put in the Democratic doghouse, especially by black voters, when he kept raising money after having lost the Democratic primary for Governor against H. Carl McCall. McCall lost the race to Pataki and Cuomo earned the moniker of “bad-Democrat.”His persona took another hit one year later after public allegations of his wife’s infidelity proved to be true.

Things, however, started to turn around. In 2006, Cuomo resuscitated his self-pitying victim image long enough to squeak a victory in the primary for his current job against an equally, though intellectually, impotent Mark Green. His come-back was furthered when he won the general election against a controversy-laden Jeanine Pirro. But recently, current Governor David Paterson twice passed him over as a candidate to replace Hilary Clinton as New York’s junior Senator. Given the quest to follow in his “deddy’s” footsteps, Andrew Cuomo’s motives for leading an ineffectual but populist movement against AIG should become extremely clear.

While Cuomo may be New York’s rising star, AIG’s value has moved in the opposite direction.  In late February, MetLife made an $11.2 billion offer to acquire an AIG life insurance unit.  Apparently Met doesn’t pay because they later hinted the price could be lowered to $8 billion due to concerns about the brand. Thanks Andrew! Maybe they had advance warning of an upcoming PR stunt. Perhaps, they sensed a change in the public view of AIG and felt it would affect clients whose policies come up for renewal. Thanks again Andrew.  A competing bid had been sought from AXA but it appears AIG has been unsuccessful in getting a fair price. Once more, thanks Andrew! AIG has since suspended negotiations on the sale of the unit, forcing Tim Geithner, the United States Treasury and American taxpayers to have to wait for a partial repayment of the bailout loan.

In summary, Cuomo’s public relations stunt may very well have cost the American taxpayers at least $3 billion in lost value, not including the time value attributable to a delay in the sale of AIG assets.

Again, thanks Andrew! Good luck in 2010.


I Agree | I Disagree | I’m Not Sure

  1. As a former community journalist who’s dealt with people like Andy Dork, I’ve learned that New York City politicians are full of hot air and cow dung. Lets take Karl Kruger for example. Many, many moons ago he and Mike Nelson teamed up for a protest against a battered womens shelter on Emmons avenue in Sheepshead Bay. If you know Brooklyn merchant geography, thanks to the B 4 bus, Emmons Avenue is connected to 3rd and 4th Avenues in Bay Ridge. Both areas are huge (and expenisve) restaurant districts. On the weekends, both areas score really big financially. Tweedle Dee and Dumb were worried more about the money that was being raked in and less about battered women and their kids. By the way, former Mayor Rudy G. wanted it there. He told them to shut up. Actually, more like threatened.

    While I agree that the bonuses should be given back, pretty boy Drew is just being a jerk and a hypocrite about it. Unfortunately, we are in a situation in which city and state officials are making stupid judgement calls all across the board. Soda Tax snafu, anyone? In their case, it’s more like the Twinkie defense.

  2. Interesting stuff, I’ll be back.

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