Bailed-out insurer AIG again found itself in the crosshairs of bonus rage on Friday over its plans to pay $2.4 million in executive bonuses next week.
But the larger issue is how AIG will deal with its obligation to pay roughly $235 million still owed to employees of its crippled financial products division.
The contentious issue of the bonuses resurfaced late Thursday after The Washington Post reported that AIG was seeking the government’s consent to make a scheduled performance bonus payment of $2.4 million to 43 of its top-ranking executives.
But there’s still the $235 million in retention bonuses owed to about 400 employees of AIG’s Financial Products (FP) division that the company has to deal with. Public furor erupted in March when it was revealed that AIG had paid out $165 million of retention bonuses to those employees.
AIG put the issue before Kenneth Feinberg, the Obama administration’s pay czar. Feinberg is tasked with reviewing bonuses and retirement packages for the 100 highest-paid executives at AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, GMAC, Chrysler and the now defunct Chrysler Financial.
A source close to the matter said Feinberg will be reviewing both the $2.4 million, as well as the much more controversial $235 million that is scheduled to be paid out to AIG-FP employees next year.
AIG-FP is the division that wrote insurance contracts on shaky derivatives that were at the root of the company’s near-collapse. In September, the government bailed out AIG with funds now worth up to $182 billion.
The $165 million of bonus payments in March was the second installment of a larger, $454 million retention plan for the FP employees. The first — $50 million — was made in 2008, before the company was bailed out by the government.
After the uproar in March, FP employees returned about a third of their bonuses, and a dozen workers resigned. The reaction from the public and Congress consumed AIG, Treasury and Federal Reserve officials, and called into question what to do with the last payment that is scheduled to go out in 2010.
Feinberg only has to review payments that were contracted beginning in 2009, so the $235 million in FP payments — contracted in 2008 — do not officially fall under his purview. Still, a source close to the matter said that AIG wants Feinberg to take a look at those bonuses to make sure the government is completely comfortable with the company’s compensation plan.
Feinberg was also asked to review the $2 cashadvance.4 million in performance bonuses set to be paid out to 43 of AIG’s top executives. That is part of a larger bonus pool of $121 million, the vast majority of which was paid out in March to the company’s most senior executives.
But with pressure mounting from Congress and the Obama administration, AIG restructured its bonus payments for the top 50 executives. The top seven AIG executives opted to forgo their bonuses. The other 43, set to receive $9.6 million in March, took home only half — $4.8 million — in March, and are set to receive $2.4 million July 15 and another $2.4 million Sept. 15.
Experts say asking Feinberg to review the bonuses takes the pressure off of AIG and turns Feinberg into a punching bag for criticism. Outgoing AIG Chief Executive Edward Liddy has said on many occasions that the public outrage about the bonuses has limited the company’s ability to move forward with its plan to repay the government.
"If you have the government OK the plan, it makes AIG look less like they’re flushing taxpayer money down the toilet," said Julie Grandstaff, managing director of insurance consultant StanCorp Investment Advisers. "There’s no way the poor guy who is reviewing all of this can win."
A Treasury spokesman would not comment directly on AIG’s bonuses, but suggested Feinberg can review those payments and the FP bonuses if he chooses, even though they were contracted in 2008, saying, "Mr. Feinberg has broad authority to make sure that compensation at those [seven] firms strikes an appropriate balance."
"Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives," the spokesman added.
AIG declined to comment for this article.
Prof. Elizabeth Warren, chair of the Congressional Oversight Panel created to oversee the bailout, told CNNMoney.com that AIG’s lack of comment spoke to a larger disconnect between the insurer and the American public.
"If they’re not commenting, that makes me very nervous, because what I would like to hear is ‘no, that report is a mistake,’" Warren said. "Taxpayers are under enormous stress. There’s going to be trouble over this."
– CNNMoney.com senior writer Jennifer Liberto and anchor Poppy Harlow contributed to this report.
Californians have fewer places to redeem IOUs issued by the cash-strapped state.
At least three major banks, Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500), stopped accepting the IOUs after Friday.
More than 60 credit unions, however, continue to accept the paper.
State Controller John Chiang started issuing the IOUs on July 2 to conserve cash, while lawmakers and Gov. Arnold Schwarzenegger tussle over closing a $26 billion budget gap. Friday also marked the start of a mandatory third furlough day for most state employees.
The state, the world’s eighth largest economy, has issued more than 90,000 IOUs worth nearly $355 million. Also called registered warrants, the IOUs pay an interest rate of 3.75% and can be redeemed on Oct. 2 or earlier if divided state officials reach a budget deal.
Recipients will include state contractors, social service agencies and those owed income tax refunds.
Banks will work with customers on an individual basis to assist them, perhaps offering them home equity lines or short-term loans, said Beth Mills, spokeswoman for the California Bankers Association. But the institutions are also hoping to send a message to Sacramento.
"What’s ultimately in the best interest of everyone will be for the state to act quickly and resolve the budget impasse," she said.
Bank of America’s decision stems from its experience in 1992, the last time the state issued IOUs amid a financial crisis. The bank, along with Wells Fargo, were among the first to stop accepting the IOUs. A budget was signed about a month later.
"The longer the registered warrants were accepted, the longer it took the legislature to resolve the matter," said Britney Sheehan, a Bank of America spokeswoman. "We do not want our acceptance of registered warrants to deter the state from reaching a budget agreement as soon as possible."
Customers at participating credit unions can continue to redeem the IOUs. The institutions are bracing for a crush of people looking to turn the warrants into cash.
"There are options," said Daniel Penrod, senior industry analyst at the California Credit Union League. "If people look for those options, they’ll realize they are not stuck past the July 10 deadline."
IOUs to be regulated
Some people actually want to get their hands on the registered warrants, posting ads on online marketplaces such as Craigslist payday loans. Several postings offer to buy the paper for 85 cents on the dollar, while another listing is looking to sell the IOUs for 95 cents.
This practice, however, has heightened fears that desperate IOU holders might be taken advantage of and that counterfeiters might make copies of the warrants.
State Treasurer Bill Lockyer last week said that warrant buyers must obtain a notarized bill of sale from the recipient when purchasing the IOUs. This will help ensure that the person redeeming the IOUs is the legitimate owner, said Bill Dresslar, Lockyer’s spokesman.
The Securities and Exchange Commission on Thursday said that the IOUs are securities and are subject to federal anti-fraud provisions. The agency also issued an investor alert warning both buyers and sellers to be careful when trading the warrants.
"If you hold an IOU and wish to sell it prior to maturity you should consider whether you think you are getting a fair price," the alert said. Investors who wish to buy IOUs should also understand who the seller is. If you are buying from a third party, ask if the person is registered to do this business.
The SEC’s action has both positive and negative impacts on IOU recipients, experts said.
It should cut down on scams because the warrants would have to be traded through registered brokers, said Joseph Fichera, who heads Saber Partners, a financial consulting firm for governments and corporations. Sellers would have to provide disclosure and make sure they are marketing the products properly.
This, however, would also make it harder to offload the IOUs, which could frustrate recipients in need of cash.
"The SEC is trying to provide some sort of framework for investor protection in the middle of uncharted territory," Fichera said.
How have California’s IOUs affected your life? Have you received one? Are you trying to get your hands on one? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
Federal Reserve Vice Chairman Donald Kohn on Thursday launched a robust defense of the U.S. central bank’s independence and warned that efforts to put monetary policy under political sway would hurt the economy.
Curbing the Fed’s independence could both result in higher long-term interest rates and hurt the United States’ credit rating, Kohn said.
"Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation," Kohn said in remarks prepared for delivery before a congressional committee.
Kohn is due to testify later Thursday. A copy of his remarks was released before the hearing.
Kohn’s testimony comes as Congress debates President Barack Obama’s plan for regulatory reform, which envisions the Fed taking on the role of systemic risk regulator, in a bid to fix a system that failed to prevent a financial crisis last year.
The proposal to expand the Fed’s powers has increased calls for accountability at the central bank, and a bill put forward by Republican Congressman Ron Paul to expose it to a full audit by a government watchdog has won support from a majority in the House of Representatives color business cards.
Kohn said such a move could be highly detrimental.
"The bond rating agencies view operational independence of a country’s central bank as an important factor in determining sovereign credit ratings, suggesting that a threat to the Federal Reserve’s independence could lower the Treasury’s debt rating and thus raise its cost of borrowing," he said.
Kohn said allowing that the Government Accountability Office to audit Fed monetary policy would be a bad mistake.
"The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy," he said.
Unhappy at work? You’re not alone.
The recession has left a lot of people out of a job, but many of those still employed aren’t very happy at the office. That’s because layoff survivors are often stuck with increased workloads, fewer benefits and even less pay. But they’re staying put — at least for now.
Fifty-four percent of employed Americans plan to look for a new job once the economy rebounds, according to a survey from Adecco Group North America.
The sentiment is even stronger among younger workers. Of those ages 18-29, 71% say they are likely to look for new jobs once the economy turns around, the survey said.
"In times of uncertainly people tend to hunker down and protect their turf, as a result of that they are staying in their current positions," explained Gautam Godhwani, CEO of job search site Simply Hired.
Waiting on a rebound
Lois DiTommaso, 28, is frustrated with her current situation, even though she has remained fully employed as a trim assistant, responsible for details like buttons and zippers, at a well established fashion label over the last year and a half.
Layoffs at her office have left her with more responsibility, longer hours and no annual salary increase.
Despite growing dissatisfaction at work, "no one is going to quit," she said of herself and her coworkers. "There’s nowhere for me to go, I need my job," she explained.
DiTommaso is eager to start a new job search, once other fashion companies start hiring again.
"I can’t wait for the job market to improve," DiTommaso said in anticipation of finding another position in her industry.
She is also realistic about the competitive pool of applicants she will face, including those with greater skills and experience willing to take a paycut and demotion. "Some of the people that got laid off are higher up and I’m not as competitive," she admitted.
Laura Wheeler Todd, 35, has already started looking for a new job, with no success car loan. She is an accountant at an adolescent rehabilitation center in Alabama, but layoffs at the facility have left her in charge of medical billing and insurance coding as well.
"I’m doing two people’s jobs right now," she said, which means late nights and often taking work home. "If there was more stuff out there I would absolutely quit."
Now, Todd says she is considering jobs outside her field as well — even waiting tables like she did in college — if it means a fresh start.
"I thought I would never have to put ice in a cup again," she said.
Making lemonade
Disgruntled workers shouldn’t necessarily switch jobs the first chance they get, said Joanie Ruge, senior vice president of Adecco Group North America.
Before jumping ship, Ruge recommends that workers approach their employers first. "If you’re feeling a little bit burnt out you should talk to your employer about flexibility or working from home," she said.
As conditions improve, business owners may be willing to offer flexible work hours, telecommuting or other perks to hold on to their top talent.
In the meantime, "try to play chess when the world is handing you checkers," suggests Rusty Rueff, career and workplace expert for Glassdoor.com. Workers struggling with increased workloads can take this opportunity to partner with their coworkers, become a team leader, take on more responsibility at a higher level and expand their skill set.
"This is a tremendous time to experiment in the jobs they are in," Rueff said. "Make the most out of it."
Out of work? Looking for qualified employees? Start networking now. Join Hired! on Facebook.
Legendary bank robber John Dillinger is becoming even more notorious thanks to Johnny Depp, who portrays him in the new movie "Public Enemies." That resurgence in Dillinger’s public profile could mean tidy profits for a pair of gun owners later this month.
Dillinger’s derringer, a miniature pistol that was found in the outlaw’s sock when he was arrested in 1934, is going up for auction on July 25 and is expected to fetch $45,000.
Meanwhile, the gun that felled Dillinger could bring in $12,000 when it goes on the block on July 28 - one day after the 75th anniversary of his death.
Dillinger became famous during the Depression for his brazen bank robberies and his knack for avoiding capture. His life and criminal career are now the subject of "Public Enemies," which stars Depp and Marion Cotillard, and grossed more than $25 million at the box office when it was released last week.
The Remington .41 Rimfire "double derringer" was taken from Dillinger when he and members of his gang were arrested in Tucson, Ariz., in 1934, according to a description posted on the Web site of Heritage Auction Galleries, which is offering the pistol.
After his arrest in Arizona, Dillinger was flown to Indiana to face trial for murder instant payday loans completely online. But he managed to escape by carving a pistol out of wood. It was the second time that Dillinger escaped from prison, but his freedom was short-lived.
Five weeks later, on July 22, 1934, Dillinger was gunned down in Chicago by federal agents, including Capt. Timothy O’Neil of the East Chicago Police Department.
O’Neil’s gun, which fired two of the shots that killed Dillinger, is being auctioned by Leslie Hindman Auctioneers. The .38 Colt Army Special is estimated to garner bids between $8,000 and $12,000.
The sheriff who originally arrested Dillinger later gave the Derringer to Evelyn Jenney, described by Heritage Auction Galleries as "an attractive young widow."
Jenney then gave it to her son, William Jenney, in 1949. A decade later he sold the weapon to an unnamed party, who is now auctioning off the derringer.
One year ago, on July 3, 2008, oil prices settled at a record high — a once-unthinkable $145.29 a barrel
On Thursday, it settled at $66.73, less than half the record price, following a $2.58 decline.
In between, a global demand surge morphed into a global economic slowdown — one that would drive the price of oil as low as $33.87 in December — followed by the partial recovery that has been underway since.
A year ago, oil was driven higher by two factors. One was the emergence of new global economic powers such as China, India and Russia, competing with the United States and the West for the world’s oil. The other was a weak dollar, the currency of crude trading.
"Last year, we had a very weak dollar at the same time that we had very strong demand, insatiable demand," said James Cordier, founder of OptionSellers.com, a commodity brokerage.
But first, the high oil prices led to a curb in that demand. Then, weakness in the housing market and instability in the banking sector following the collapse of Lehman Brothers began to weigh on the world’s economies — particularly in the United States, the world’s biggest oil consumer.
Confidence shriveled, and investors pulled cash out of assets that involved risk — such as oil and stocks — and moved cash into the safe haven of Treasury debt.
Oil and Wall Street: Oil prices and stocks have moved in tandem since last fall, dragging each other lower and then helping each other higher.
From July 3 to Dec. 19, the S&P 500 fell 30%. But in the same period, oil prices sank 77%.
The S&P 500 and the Dow Jones industrial average fell to 12-year lows on March 9. Between then and June 11 — the recent peak for stocks — the S&P 500 gained 43%. The rally in stocks has since stalled.
Oil prices, while they fell harder in the fall, also bounced back stronger than Wall Street. Crude futures doubled, topping $70 a barrel in early June. In recent sessions, oil’s run-up has taken a breather, just as Wall Street has.
The reason that oil price swings are more extreme than the swings in the stock market is due to the heavy participation in the oil market by speculators, according to Cordier instant cash advance.
"We have oil supplies at a 20-year high at a time when demand is falling at the fastest pace on record," said Cordier. Based on supply and demand, oil should likely still be hovering closer to the yearly low around $33 a barrel, he said.
Since taking office in January, the Obama administration has been spending at an unprecedented clip to stimulate the economy. Optimism about a boost in demand pushed oil prices.
"This (recent) rally to $75 was extremely speculative," said Cordier. "It was based on green shoots — it was based on feeling that the economy was going to recover."
Dollar weighs in: Crude is a dollar-denominated commodity. When the dollar weakens against other currencies, the price of crude goes up.
Last year, the rally in crude was supported by a weak dollar. A weak dollar helped oil recovered from its lows in December, too. But oil prices only climbed half as high in the front half of 2009 as in the first six months of 2008.
"This year, we have a weak dollar, but we don’t have any demand," Cordier said.
He expects the recent rally in the price of oil to lose its legs.
"When headlines read in August or September that unemployment hit 10%, that will be a shock to the investors’ system and then oil will start to trade on its fundamentals — and that will be in the $50 to $55 range," Cordier said.
On Friday, the government reported that the unemployment rate increased to 9.5% in June.
Gasoline: Gasoline prices have risen along with oil. But the record for a gallon of $4.114 was set two weeks after the crude mark, on July 17, according to the daily survey conducted for motorist group AAA.
On Friday, the national average fell 0.1 cent to $2.629 a gallon — about a dollar above its recent lows set at the start of the year.
The Big Easy is making a big comeback. New Orleans has steadily won back some of the population it lost in the wake of Hurricane Katrina in 2005, according to a government report released Wednesday.
New Orleans lost more than half its residents during the deluge. Few large U.S. cities have ever had to cope with a disaster on that scale. Since then, it has been one of the country’s fastest growing cities.
Only a couple of instances can compare. Galveston, Texas, was also devastated by a hurricane in 1900, a storm that remains the most lethal natural disaster in U.S. history with a toll of about 6,000 deaths. And San Francisco was almost leveled by the earthquake and fire of 1906.
New Orleans is now growing rapidly. Its population is up 8.2% in the 12 months that ended July 1, 2008, gaining 23,740 people to 311,853, according to the Census Bureau. That still leaves it well below its pre-storm population of 484,674.
For sheer numerical increase, New York City trumped the birthplace of jazz. During the same 12-month period, Gotham added nearly 53,500 residents, more than any other city. That represented a growth rate of only 0.6%.
Following New York City were Phoenix, which added 33,184 residents (2.1%) to a total of 1,567,924, and Houston, up 33,063 to 2,242,193 (1.5%).
The top percentage winners, after New Orleans, were Round Rock, Texas, part of the Austin metropolitan area, which grew by 8.2% to 104,446; Cary, N.C., which gained 6.9% to 129,545; and Gilbert, Ariz., which swelled by 5% to 216,449.
New York retained its position as the largest U.S. city by far. Its nearly 8.4 million folks crammed into 303 square miles is more than twice the number of people who live in sprawling Los Angeles, the nation’s second biggest city with 3,833,995 people.
Chicago, once the nation’s second city, has fallen nearly a million behind Los Angeles with 2,853,114.
Most old Midwestern and Northeastern cities have shrunk in population since World War II as heavy industry waned in importance to the overall economy online payday loans. Much of the growth in these areas occurred in suburban towns and were not counted in central city population figures.
Meanwhile, many Sun Belt towns exploded with growth as job opportunities in new technology industries proliferated. Northerners, including retirees, also moved south and west, lured by the warmer winters and relaxed life styles.
Among old-line cities, New York has been one of the few to buck this trend. In the years since the last census in 2000, it has gained 355,056 residents, a substantial gain and more than the total number of people who live in St. Louis.
The highest rate of growth since 2000 was reported by McKinney, Texas, which more than doubled to 121,211 from 54,369. Gilbert, Ariz., was second with an 88.7% jump to 216,449.
Few losers
Of the 25 largest cities, only a handful experienced population loss.
Detroit, suffering from the turmoil in the auto industry, fell 0.5% to 912,062. The population of Philadelphia dipped slightly to 1,447,395 from 1.446,631. Baltimore dropped 0.5% to 636,919 and Memphis fell at about the same percentage rate to 660,651.
There have been some changes this year to the 25 largest cities.
For one thing, Denver moved into 24th place with 598,707 residents. It replaced Nashville, which dropped out of the top 25.
In addition, Dallas (1,279,910) edged past San Diego (1,279,329) to eighth place from ninth. San Francisco also moved up to 12th place; its population (808,976) surpassed Jacksonville (807,815).
And Austin (757,688) blew past Columbus (754,885) to 15th. Charlotte (687,456) leapfrogged Memphis (669,651) to 18th and El Paso (613,190) passed Boston (609,023) to 21st.
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