I am beginning to see a pattern here - please hear me out.
The AIG bonuses are for past performance and are, therefore, sacrosanct, untouchable. Ok, how was the past performance calculated - that's right, mark-to-market.
But, we all know that the value of CDS positions have tanked - so badly that AIG had to pay $100 BILLION to settle what these "performers" put on the books. So, how could any mark-to-market valuation of performance have a positive value - oh, that's right, the prior administration with the help of Congress called off the mark-to-market dogs.
More below:
In the banking and trading industry, valuing your positions is called "marking the book" - any resembelance to betting terminology is purely intentional. There are three critical "standard industry practices" that banks adopt:
- All marks must reflect external price sources - marking with internal values is a serious process flaw;
- The trader cannot be the one responsible for ntering or creating the marks - see the list below for the impact of failing to follow that policy;
- All trades must be adequately deconstructed into components that can be accurately valued or must be managed with extreme care and marked very conservatively and noted as "we really don't know what these are worth".
If #1 or #2 is examined and found to be not just flawed but incorrect, banks have historically clawed back those monies.
Let's look at the history of "performance bonuses" in the context of mismarked positions.
Here is Wikipedia's All Time Top Hitlist of Trading Blowups
#1 - Jerome Kerviel - junior trader, result, fraud charges and civil charges to recover bonus
#2 - Brian Hunter - head of desk, result, $30 MM FERC fine being persued, now back in industry
#3 - John Meriweather - Fund Principal, result, government bailout, was running another hedge fund in 2008
#4 - Yasou Hamanaka - lead trader, result, eight yars in jail
#5 - Robert Citron - Democrat, Orange County Treasurer, result, pled guilty to six felony counts
Please note, mismarking a book or failing to enter trades correctly has frequently been seen by banks as cause to recover previously paid bonuses as well as to refuse to pay future bonuses. Banks have clawed back deferred compensation - money held in trust for the employee - in these cases.
These contracts were entered into in March, 2008. Unless they were just a "here's money for what you did in the past" (performance?), then the money must have been made in 2008. But the CDS market tanked in 2008 - therefore, either the books were mismarked or the bonuses were for - what??
So, explain to me why these "bonuses" are valid for past performance - their books were mismarked. This really is a very simple case, claw back the bonuses under common industry practice. Unless, maybe, the tradrs might say something about how other senior managers knew the books wre mismarked and so maybe other bonuses should be in jeopardy?