Tag: bonus

  • AIG–My Very Own Rick Santelli Moment

    Posted by

    Adam Levitin

    The AIG bonus episode pisses me off.  But not for the reason it ticks off most other people.  Yes, it's outrageous that the shmoes who drove AIG off a cliff are getting a bundle of cash.  But what really bothers me is that this silly episode is what gets Congress (and other people) all worked up.  For goodness sakes–it's just $165 million.  That's chump change for the federal government and especially in the scope of the bailout.  Put another way, it's about 55 cents per citizen, whereas TARP is about $2,333.33 per citizen.  

    I understand the Congress is responding in part to a perceived public anger.  But there's an utter lack of perspective in the reaction to AIG.  Simply put, AIG doesn't matter.  It really doesn't.  The bonuses are disgusting, but irrelevant.  Get over it.  Lynching a bunch of Wall Street shmucks might feel good, but it doesn't help anyone.  It doesn't help people keep their homes and it doesn't restore the value of our 401(k)s and 403(b)s.  

    The real question is why aren't we this outraged over things that really do matter?  Why is Congress about to leap into action (well, we'll see about that) over this piddly $165 million that has no effect on the world, when it hasn't done much of anything to help struggling homeowners?  Where is a sense of priorities?  Why wasn't Congress so energized to take serious action to help homeowners a year and half ago?  Why is legislation permitting homeowners to restructure their mortgage in bankruptcy still trying to get the Constitutionally mandated 60 votes to pass through the Senate?  

    Bailouts are about economics, not moral justice.  We should be focused on what will help fix the economy.  The place to express our anger at Wall Street's excesses is not in clawing back some bonuses, but in creating a regulatory system that will prevent against future excesses. AIG is just beside the point, and if we continue to have national attention focused on things like the AIG bonus story, it only distracts from what matters.  

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  • Lehman 2007 Bonuses?

    Posted by

    Adam Levitin

    Lehman paid out around $5.7 billion in bonuses in 2007. Are those bonuses safe? Maybe not.

    The bonuses might be recoverable as fraudulent transfers—transfers made while insolvent without receiving reasonably equivalent value. (UFTA 5(a)).

    Thus, the key question is whether Lehman was solvent when it paid out the bonuses? (The statute of limitations goes back past 2007, fwiw.) On an equity basis, almost assuredly yes, but on a balance sheet basis, that might be a closer call, depending on how things like MBS and CDOs are valued.

    If Lehman was not solvent when it paid the bonuses, then I think there’s a fraudulent transfer. It’s hard to see how a bonus could ever be paid in exchange for reasonably equivalent value, when an employee has already been paid a salary for their efforts. There are various defenses to FTs, but none would seem to apply here at first blush.

    Of course, it takes a challenge by a creditor whose claim arose before the bonuses were paid, but per the rule of Moore v. Bay (which I am teaching tomorrow), it only takes one of them, owed a single cent, in order to challenge all the bonuses. The lack of a creditor might protect the bonuses, but as creditors look to carve up what’s left of Lehman, the thought of recovering a decent chunk of $5.7 billion is going to look very appealing.