FINANCIAL TOILET PAPER

BLOOMBERG COMMENTARY--It’s now public knowledge that AIG was arguing to the government’s special master for executive pay last summer and fall that its common shares were worth less than toilet paper, and that its top managers therefore should receive their salaries all in cash rather than partly in stock. This revelation came thanks to Steven Brill’s article in last weekend’s New York Times magazine. Brill’s primary source was impeccable: Kenneth Feinberg, the pay czar himself.

There’s an important angle to this story not addressed in Brill’s article. If top AIG executives believed the common stock was worthless, why did the company keep issuing financial statements that still showed billions of dollars of common shareholder equity? If the Securities and Exchange Commission isn’t digging into this question already, it should be. So should AIG’s outside auditor, PricewaterhouseCoopers LLP.

“Worthless” is the word Anastasia Kelly, AIG’s general counsel and vice chairman at the time, used during the company’s compensation negotiations, according to Feinberg. We also learned from Brill’s article that Federal Reserve Bank of New York officials agreed with AIG’s position, after the Treasury Department told Feinberg to consult with them."

"The latest twist in the AIG saga provides a reminder of one of the fundamental flaws in the government’s bailout efforts. Rather than insisting that failing banks and insurance companies come clean about the rot on their balance sheets as a condition of accepting taxpayer money, the government plied them with cash first and let them keep their true financial condition hidden." 


See the rest here: Link

WB7: Anastasia Kelly, recently resigned over government-imposed pay limits. She will reportedly collect $3.8 million in severance.

Kelly resigned for “good reason” after her salary was cut, AIG said in a statement.

Good reason indeed.