Wednesday, March 25, 2009

Everything's Jake

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.”


Jake DeSantis

This letter was published in the March 25, 2009 New York Times


Karen Anne said...

Boo, hoo. Poor Jake. I wonder how much he raked in a year before this for doing absolutely nothing of value to anyone.

Thomas Paine said...

Wow. Karen Anne, you display a juvenile, conclusory ignorance that I find breathtaking.

Doing absolutely nothing of value to anyone


Did you ever buy corn? Fuel oil? Coffee? Aluminum? Salt?

Did you ever benefit from the price coming down? From easier and better distribution? DO you like the idea that some communities can get commodities that they couldn't always get?

It's guys like Jake that help make that happen. The worthless commodities traders and lawyers, the investment bankers, are not actually masked men slipping into bedrooms at night, but are usually industrious people working really hard in ways that benefit people -- and they're rewarded for the benefit.

If you want to argue that we compensate some outlandishly at the expense of others, we'll find some common ground. But somebody who worked his ass off and is trying to do right by his family -- and may give lots of charitable contributions to green the earth and feed the poor and clothe the destitute -- who foregoes a more stable career and income, deserves more than the simplistic response you give. Especially when he wasn't saying "poor me" at all, but acknowledged his privileged, lucky position.

Karen Anne, you're part of the problem, baby. . . .

Thomas Paine said...

Actually, I can't argue that Jake did anything for anyone. I don't know that. My discussion of traders and lawyers and countless other ancillary jobs that make "the system" work -- a system that is fucked up, but produces more foods and medicines [and iPhone apps and YouTube videos] than imaginable throughout history -- was only intended to say that the bullshit statement that somebody does "absolutely nothing of value to anyone" is pretty suspect.

Mister Parker said...

Actually, the whole AIG bonus disaster reminds me of Nixon's negotiated solution to the Vietnam War. He withdrew all U.S. forces with the promise that the U.S. Air Force would guarantee South Vietnam's continued existence -- that is, if North Vietnam violated the terms of the ceasefire and attacked, the U.S. would bomb Hanoi back to the Stone Age.

The basic problem with the deal though was that it ignored political reality. Congress and the American people had already made quite clear they would countenance no further involvement in Southeast Asia. And when North Vietnam's attack did come, the U.S. air force did not and could not intervene and Saigon soon fell.

Now, Nixon, in books such as "No More Vietnams," could complain all he wanted to after the fact that it was Congress who let South Vietnam go down the tubes. But the fact was, Nixon negotiated a ceasefire promising something he knew (or unless he was delusional, should have known) from day one he could never deliver. This made him and Henry Kissinger liars, North Vietnam opportunists and South Vietnam poor suckers twisting in the wind.

AIG's bosses, their workers, the Bush administration and later the Obama administration were delusional fools if they thought AIG was going to be able to pay out millions of dollars of bonuses (to anybody, wrongdoers or not, hard workers or not) while receiving billions of dollars in unpopular government assistance. The political and popular firestorm that resulted was entirely predictable and, given the public reaction to prior bonuses and corporate boondoggles, entirely predicted.

If the bonuses are as necessary as many argue, then AIG's bosses and our political leaders should have been working overtime to prepare the public long before the bonuses were paid.

That they tried to sneak them into their workers' paychecks makes me think either (1) they really don't understand that the party is over or (2) they were too gutless to lay the necessary groundwork ahead of time. Either way, no one has any call to claim at this point to be shocked, shocked! that the public is in a rage over the bonuses.

Oh, and don't be trashing the green lady. We don't get many green ladies visiting this site ...

Where's your inner Captain Kirk?

Thomas Paine said...

You know, if Karen Anne had written your post, mister parker, I'd have a throbbin' woody for her and think she was Jesu H Christo.

I not only wouldn't have been harsh, I woulda out-Kirked Kirk.

I was critical not because Jake is somehow honourable, nor because the bonuses are easily-digested, nor because I see great overarching value in a Commodities Index-developer making a gazillion dollars.

I got kinda peeved at the simplistic, attacking post.

You know; the kind that's never found on the Mouth O' The Mule . . . .

Oh, yeah. Never mind.

Thomas Paine said...

Karen Anne --I'm sorry.

I love you

Mister Parker said...

I'm telling you, the days of corporate executives making 200 times what their employees make, getting eight-figure compensation packages, buying $6000 shower curtains and taking daily helicopter rides to and from their mansions on Long Island, are drawing to a close. There's nothing that they do that warrants the rest of us paying for such a lavish lifestyle. I mean, at least when Carnegie and Rockefeller and Vanderbilt were piling up that kind of dough, they were producing something -- railroads, steel mills, shipping lines. These guys, the AIG crowd and their ilk, what have they given us -- blizzards of paper and mountains of debt.

The day of reckoning is upon us ...

lupner said...

I do like this blog for many reasons, not the least of which is its fine record of attempting to thoroughly analyze the pressing Issues of the Day in a fair-minded- manner.

Also, I like the pictures.

Jean Siskill said...

can't argue with you that those days are over.

in the new age, we'll get to test the conservative ethos and fear (as condensed by yours truly):

absent the dream of taking that helicopter ride and really lording it over all the other fuckers on the earth, the manic drive to achieve that is "the American ethos" will be lost, and we'll become -- well, not unproductive, just European.

No offense, Panna Mukta Tapti . . . .

Mister Parker said...

The notion that the U.S. economy is founded on a manic desire to pile up meaningless, worthless crap -- a mansion full of Elvis-on-velvet paintings -- is a depressing thought.

Depressing and true ...

Little Johnny Jewel said...

None taken.
Besides I'm from England not Europe; Johnny Foreigner on the wrong side of the Channel are Europeans.

But, anyway, surely the American dream doesn't have to involve helicopter rides to work, vomitoria, or the annexation of the Sudetenland?

Isn't there a middle ground between gross corporate malfeasance, and giving up and becoming European?

lupner said...

Does America know how to do middle ground?

Bill gates said...

I was trying to say that the hidden fear is that"American achievement" is premised upon an unhealthy desire to ride in helicopters and be Bill Gates. The idea that you can be the biggest boor imaginable, if you want. And that limits on that, especially SANCTIONED limits, will be our undoing.

There's a middle ground of behaviour, but Shooting for the middle ground is foreign

Blog Pimp said...

Re-reading your post, I now wonder.

You write:

But, anyway, surely the American dream doesn't have to involve . . .

There's a real nugget here. "The American Dream" is so many things to so many people. And I think that there's an idea somewhere -- and fear -- that the modern American ingenuity and productivity was forged on the dream of being John D. Rockefeller, buying and selling everyone with limitless power. I myself wonder whether the unfettered ability to sock away wealth and damn the consequences -- with its occasionally-awful consequences -- isn't indeed central to what is, by many measures, "over"achievement.

It may not be, of course; it may be our beautiful shoreline and the young-ish mountain range in our western half. It may be the Alskan air.

But since it's unlikely to be geography, and since our DNA is culled from the world's, I have to think its systemic. And so I artificially describe a conservative view of the ethos that may match my secretly-held view that we benefit from the excess.

I then work that into my libertarian view, and sprinkle on some paprika, offering it up wholesale

Mister Parker said...

Speaking of paprika, we had a tasty chicken dish last night for dinner that included this under-appreciated spice ...


Mister Parker said...

By the way, the obscene salaries our CEOs now make is a relatively recent phenomenon. Not too many years ago, a top executive made 10-15 times what the average employee made rather than the 200-250 times they're making now. I think the recent lavishness of the CEO lifestyles was more of an opportunistic grab than an inherent component of the American economic engine ...

Tod Tomorrow said...

It's a lot easier to steal from the fisc when everybody [401Ks, house-buying lawncare workers, govt. attys] is making a shitload of money and stops watching.

The question is who should put on the brakes, and how.

And is there really a CEO who is so much better at CEOing than anyone else that he deserves $ 64 million ?

Mister Parker said...

I had another thought, as I was sitting in the dentist's chair, that when the primary incentive for working hard is making obscene amounts of money, what you end up attracting are people who are interested only in making obscene amounts of money. I mean, what real purpose did sub-prime mortgages and credit-default swaps serve other than to make a lot of money for a very few people at the expense of a lot of other people?

Way back when, when the financial rewards were smaller and the risks greater, business tended to attract people who had a need (sometimes pathological) to make something better than anyone else made it. I would argue that Carnegie and Rockefeller and Vanderbilt were driven not by a need to live in big mansions but a need to prove they could produce more oil, build faster ships, etc. than anybody else. Money, as Humphrey Bogart says in "Sabrina," was a byproduct.

If, as you say Mr. Mule, doing away with the lavish lifestyle of the American CEO would discourage our current crop of CEOs from entering business, I say perhaps we'll get a crop of CEOs who are interested in creating something other than a lavish lifestyle for themselves. And I base this assertion not from a desire to grind any particular ideological axe, but on my (perhaps idiosyncratic) reading of America's economic history.

Tod Tomorrow said...

mister parker, you make some interesting additional points. But I think you misread Jean Siskill's point -- no one here has actually argued that "doing away with the lavish lifestyle etc. would dissuade innovation etc.," but rather that that's likely to be the standard around which opponents of reform rally. [gather 'round the flag]. The unknown nature of that oh-so-special American ingenuity makes it easy to mouth those arguments.

And I don't mean that it's only cynical demagogues who'd argue it -- there may be people who recognize that the pathological pursuit of money is, by itself, pointless and destructive, but aren't willing to divorce it from an accompanying benefit from the innovation that may accompany it.

It's easy and apt to point to countless slickee boys with finance degrees looking to wring every last dollar from dubious financial products with little apparent benefit.* They've been at the heart of the bubble which burst, and were busy sucking the life out of the next sixty years of the country. But in distinguishing them from the Rockefellers and Carnegies and Vanderbilts, people aren't likely to totally discount a desire to accumulate massive wealth as a motivator.

And let's distinguish CEOs from the slickee boys -- the CEOs are charged with maximizing proft YESTERDAY. That's it. And the constantly day-trading, 401-statement-studying [at the ripe old age of 36], CNBC-watching American "bystander" didn't send a message to slow down. A CEO with a reasoned, long-term approach -- what we think of as, oh, good busines, at elast for the country -- was likely to be an ex-CEO. The slickee boys, on the other hand, were not thinking about that -- they were figuring out how to manipulate any product to pervert its purpose to squeeze out any potential profit, provided it could be left at the curb the moment the profit was tapped. Innovation in gamiung the system wasn't forwned upon, it was celebrated. The Paris Hiltons of the business world, in some ways -- turning nothing into something, and then getting more for showing how nothing was really nothing, but led to something.

And you can quote me on that!

* Not all of the abused products were pointless; we just now don't like the risk-reward ratio. With the case of most derivatives, the initial development and potential utility can be distinguished from the abuses. Credit Default Swaps, for example, when used as hedges rather than as risk-taking profit centers, have utility; they may *lower* profit [like some insurance], but protect against more substantial loss. AIG's initial CDS business was developed as a natural outgrowth of their insurance function. Once somebody figured out the "packaging" [ability to do a CDS with nothing backing it up], somebody sold ten gazillion of them. Max Bialystock was the guiding light.

Similarly, subprime lending [as opposed to no-doc, and other ever-riskier loan products] served an obvious utility -- they provided lending vehicles to borrowers who presented increased risk. They put people in houses who couldn't get there with conventional prime loans. But they weren't insane -- many of those borrowers repaid their loans, and continue to do so. Possibly a risk not worth taking, but not wholly without purpose. But why stop when the limited purpose could be perverted? We now see that the relentless stretch of those products to wring out every last dollar, securitize them, and run away was the apparently-inevitable result, fueled totally by just that unbridled greed that we all talk about. But there was some utility and purpose there -- they served a limited purpose.

Mister parker said...

Tod Tomorrow -- interesting and thoughtful points and I agree with everything you wrote. You think more deeply than I do, especially when strapped to the dentist's evil chair. Slickee boys -- I'm going to use that one from now on.

It all sort of brings to mind Bernie Madoff. Once the Ponzi scheme came crashing down, we properly vilified him, but beforehand, everyone was happy to cash the checks and wink-wink at the improbable nature of his success.

Well, I say everyone. Somehow I managed to miss out on all that nutty money that was being made ...

Little Johnny Jewel said...


Little Johnny Jewel said...

maybe this will work better

mister muleboy said...

JewelBoy -- I found your post fascinating, and hilarious.

Since I consider the entire AIG situation a Rorschach Test that reveals much more about the viewers' proclivities and analytical perspectives,

and included "Jake's" letter trolling for responses

I love the idea in the back of my head that "Jake" is a creation trolling for responses, and that "Karen Anne" is in fact the author of the letter, who sat Googling her own creation to find posts like mine, and to troll for [and elicit] such strong reactions.

A week ago Sunday, I thought the government was full of shit for its tolerance of AIG's insanity. A week ago Tuesday, I thought the government was full of shit for its manufactured talking-point outrage and lynch-mob rhetoric. On Monday, I thought the government was full of shit for its "leave The System Intact, But Seek to Alleviate Pressure" approach to "legacy" assets. On Tuesday, I thought the government was full of shit . . . .

I guess my proclivities are clear.

I also thought Karen Anne was full of shit for her reflexive response to Jake.

I then got into a discussion with people I know, so I was less likely to think they're full of shit. But I was skeptical of everyone and everything. And eager to troll for their feelings and responses, rather than dig for my own.

I think I pretty much limit all feelings to the notion that every idea is really, really flawed. And that every easy or reflexive answer is really, really suspect.

It's easy being me.

mister muleboy said...

I think Karen Anne's green skin is hot, though.

mister muleboy said...

And since my own responses are reflexive [antipopulist, "hey, your group-think is wrong" argumentation], I'm pretty


Little Johnny Jewel said...

To the extent that the letter is laying it out as it went down -- and it strikes me that, genuine Jake or not, it has the ring of truth -- Mister Parker hit the nail on the head with his remark that the big error made was not in paying the bonuses, but in not preparing us for the fact that these bonuses would be paid, as contracted.

Naive, delusional, stupid; delete as applicable.

mister muleboy said...

The usual kudos for mister parker revolves around his swarthy good looks, or his move with the feather.

The Bush Administration should have done everything it could to explain what was going on, and the shift from buying assets under TARP to direct capital injections. MOST importantly,it should have done everything in its power to strike the words "Wall Street Bailout" from the public consciousness and the national headlines -- it sounded like they gave fired Wall Streeters jobs to keep them off the dole.

But they didn't, and they didn't appear to care.

And if they'd been caught trying to change the national debate, Jestaplero and Daily Kos woulda kicked 'em in the shins, by Crikey!

And if I'd found Daily Kos or Jestaplero supporting them, I woulda gotten indignant.

you know me . . . .

All administrations have a nasty habit of thinking "I just need to put this behind me so that I can move on to doing some good for people" when this is something that won't be put behind anyone until addressed. . . .

Gaell said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Strawberry Girl said...

I love this post, and the discussion, excellent string of thought.