AIG executive's open resign letter

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G. DEAR Mr. Liddy, It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context: I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage. After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself. I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down. You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream. I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer. The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers. I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it. But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut. My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees. That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.” That may also be why you authorized the balance of the payments on March 13. At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress. I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds. You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust. As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house. Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you. The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press. So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree. That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need. On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients. This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear. Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.” Sincerely, Jake DeSantis

He signed up with a turd of a company that EVERYBODY knew was a black box. He knew the risk so even he saved money on the side. Even now, he realizes he doesn’t deserve the bonus but, to the last moment, HE wants to have control on how the bonus is given back. He’s a whiner. From a hardworking family my ass.

Victory has a thousand fathers, defeat is an orphan. Boo hoo, guy - nobody cares. Presumably, with the way you were compensated, this will be a quite comfortable escape for a while.

Give him a break, he might just give back some of his 750k bonus. Maybe. On second thoughts nah, he’ll resign and keep it won’t he. And he probably wont send a letter about it.

This aig thing still makes me wonder… here is this company that is friggin’ HUGE. Everybody and their dog knows about it(and probably is connected to it in someway)… It’s a poster child for large cap blue chip, blah blah blah. YET, it has completely evaporated in less than 2 years. They tell me that investing in unheard of nano cap stocks is risky? I think not.

You guys wouldn’t be saying the same things if you were in his shoes.

i feel bad for this guy. he had nothing to do with a division of AIG that blew up. you think he monitored the performance of the other divisions of his firm everyday? when was the last time you went outside of your department and checked on the work of other people? he did his job and got screwed. it can happen to any one of you. some ppl are innocent in this whole thing.

His perspective is entirely wrong. Someone needs to slap him so he’ll realize a couple of things that he has admitted to in his letter: (1) He put aside PLENTY of cash for himself, (2) He was working for a company that he didn’t understand. The liabilities are shared throughout that company (3) In past years, when that branch was minting money, HE WAS PROFITING from it. The guy is a whiner! Don’t let him pull your emotional strings.

ShouldBeWorking Wrote: ------------------------------------------------------- > You guys wouldn’t be saying the same things if you > were in his shoes. And he wouldn’t be saying the same thing if he was in my shoes, so what’s you point? The email irriatated me because the NYT printed this as if it’s some kind of idealistic wake up call that we should all rally behind. With all of the unmerited bailout money being thrown around I’m supposed to get fired up about this guy’s $750,000 bonus?! Give me a break.

can someone explain to me, why these bonus contracts cant be cancelled due to breach of fiduciary duty???

so if you were working for $1 + a bonus under contract for effectively eliminating your own job, you wouldn’t mind if management let the media lynch you for something you had no direct involvement with? i hope you never end up in a similar situation.

ShouldBeWorking Wrote: ------------------------------------------------------- > so if you were working for $1 + a bonus under > contract for effectively eliminating your own job, > you wouldn’t mind if management let the media > lynch you for something you had no direct > involvement with? i hope you never end up in a > similar situation. I think the guy could do himself a favour and accept a more regular figure that he could subsist on for this year until it all blows over e.g. 150k. Sort of give a little to take a little. He’s getting upset about not getting 750k. He must have earned a similar figure in previous years. He’s a bit lame for not compromising, especially given the mood of the country right now. Show some street smarts and tough it out.

He should be outraged. The CEO should renegotiate these contracts the moment he knew about it. Not reassure stability then backstab them. So Liddy’s the one at fault.

I think everyone is missing the point. This guy doesn’t give two shits about the money. His letter is about Congress and the media portraying him as a evil criminal that brought down the financial markets, and Liddy not having his back.

I agree 100% with the guy who wrote that letter. The people at fault for AIGs problems are not working at AIG anymore. Those who are there are trying to make the best of a bad situation. Yet this fact escapes Congress, the media, the President…everyone. The political grandstanding over this meaningless issue is doing irreparable damage to our economic system and way of life.

Maybe so… but his perspective is still all wrong. He profited from being affiliated with a company that sucks. Now he pays the price. Our taxmoney is making good on AIG’s promises to other companies but not to the company employees. Why is that so hard to understand? If the taxpayer didn’t step in they’d all lose. We, the taxpayers and our elected officials, chose to save the counterparty. We didn’t have to even save them. He’s another self-entitled whiner who thinks he’s hot shyt cuz he went to MIT. Guys like him make me sick.

I personally do feel bad for the guy, but that doesn’t mean I’m going to rally behind the call demanding that these bonuses should be allowed. He is simply another person who got screwed by the small percentage of people who are hugely corrupt.

His letter isn’t about the money…it’s about the environment. Here’s another letter that illustrates the stupidity of our political leadership. This one is by Jonathan Clements, the guy who used to write about personal finance in the WSJ. Apparently he left last year to help start up a consumer finance outfit at Citigroup. His letter IS about the money, but it exposes the stupidity being pursued in Washington: The Bonus Tax Is Just Plain Stupid By JONATHAN CLEMENTS Come October I’ll have no incentive to work anymore.   Like Bernie Madoff, I’ve got the government coming after my money. Unlike Madoff, I didn’t do anything wrong. The House of Representatives, alas, thinks otherwise. Last Thursday, 328 members voted for a bill that would slap a 90% surtax on my bonus, with Ways and Means Committee Chairman Charles Rangel dismissing the payout I received in January as “repugnant to everything that decent people believe in.” The Senate is considering a similar bill. All of this might come as a surprise to those of you who recognize my byline. Until a year ago, I was The Wall Street Journal’s personal-finance columnist – and widely considered to be a friend of the ordinary investor. But that was then. In April 2008, I left to join a new Citi venture. (What follows are my views – not those of Citigroup Inc.) For the past year, I thought I was involved in building a wonderful, customer-friendly business that minimizes conflicts of interest, favors index funds, and helps everyday Americans with their entire financial lives. It seems that I was sadly mistaken. If the rebuke from Washington is any guide, I have apparently played an integral part in the collapse of the global economy and the financial markets – and I must be punished. Should the House bill become law, my bonus will be taxed at up to 90% once my adjusted gross income hits $250,000. The tax will apply to employees of those companies, like Citi, that have received more than $5 billion from the government’s financial rescue program. As you might imagine, this is a tad perplexing, given that I’ve never been involved in lending to subprime mortgage borrowers and, as far as I know, nor have any of the folks I now work with. In fact, many of the Wall Street executives responsible for today’s mess have long since moved on – and, unless they receive a bonus in 2009, will escape the 90% surtax. Unfair? Indeed, it is. The House bill is akin to, say, penalizing the earnings of today’s politicians because their predecessors failed to save us from the current economic debacle. I realize readers won’t be shedding tears – $250,000 is a decent chunk of change (though, trust me, it doesn’t buy that great a lifestyle in New York). Still, the bill could cause financial headaches. Some of my colleagues have already spent their bonus or put a big chunk into their 401(k) plan, so finding the money to pay the 90% tax will be a struggle. Some have total incomes that don’t come close to $250,000 – but they breach that level once their spouse’s salary and their investment income are included. The bill could also hurt the economy, encouraging banks to cut back on lending, so they can return their bailout money and protect employees from the surtax. Not buying the hardship angle? Not persuaded that this tax is unfair? Consider this truly searing indictment: A 90% tax is downright stupid, creating bizarre disincentives. Exhibit A? That would be me. Once my total income hits $250,000 for the current calendar year, I will have no incentive to work a single day more in 2009. After all, for every extra dollar of income I earn above $250,000, I will lose 90 cents of the bonus I received earlier this year. Being somewhat knowledgeable about personal finance, I’m trying to figure out how to finagle this. By minimizing my investment income in 2009 and pushing other income into 2010, I reckon I can delay the day of tax reckoning. But even with that finagling, by mid-October, I will hit $250,000 in total income – and have no incentive to earn any more income in 2009. At that point, I plan to ask Citi for an unpaid sabbatical. Forget earning more income. There’s no point. Instead, you will find me hunkered down at home, desperately trying not to spend money. This will make entire financial sense for the Clements household. What about the struggling economy? Not so much. Mr. Clements is director of financial guidance for myFi, a unit of Citi, and the author of “The Little Book of Main Street Money,” out in May by Wiley.

There was no uber evil person or people at AIG that screwed the whole pooch. I think AIG was given too many blank checks by society and, just as water runs down hill, the easy money flowed into the stupid hands and what’s left is …

I dont really know what hes complaining about. He is not entitled to his bonus. When a company isnt profitable, everyone (in theory) gets screwed by their %share. Likewise, when a company is profitable there are many divisions throughout the company who arent direct revenue, or profit centers, where the employees still get a bonus. Using his thinking, hes in a win-win: when the company is profitable he still gets a bonus (even if another area was more profitable than his), and when the company isnt profitable overall he should still get a bonus because it wasnt his divisions fault that they werent profitable. That just doesn’t make sense.