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ERMERGERD!
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It's a long read, I know. But the short of it is, after getting a $180 billion bailout from the government, the insurance company, AIG gives $165 million of that bailout money to its executives as bonuses, the very executives who were responsible for AIG having the highest quarterly loses in the US's history.
WTF?!?!
http://usat.me/?34465936
WTF?!?!
http://usat.me/?34465936
WASHINGTON Congress will try to get back some of the $165 million that insurance giant AIG paid to executives who drove the company into financial ruin before it was rescued by a government bailout, Senate Democratic leader Harry Reid said Tuesday.
Reid said the chairman of the tax-writing Senate Finance Committee will issue a proposal in the next day or so that would require American International Group to return to the government at least a portion of the bonuses paid out last week.
Also Tuesday, the top Republican on the Senate Banking Committee blasted Treasury Secretary Timothy Geithner.
"What I want to ask, where was the secretary of the Treasury?" Alabama Sen. Richard Shelby asked CBS's The Early Show. "Where was Treasury before this money was paid out? Why did not Treasury step in and let the American people know, just try to block it?"
AIG has received about $170 billion in federal bailout money over the last year, prompting populist anger and outrage from President Obama and members of Congress in both parties.
On Monday, Obama ordered Geithner to "pursue every legal avenue" to get the money back.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama demanded of the company that last month posted the largest corporate quarterly loss in history, $61.7 billion.
Obama's scolding of AIG came after his top economic advisers Geithner, White House chief economist Christina Romer and Larry Summers, director of the National Economic Council also blasted AIG over its doling out bonus checks ranging from $1,000 to $6.5 million to executives after accepting up to $180 billion in government bailout money.
The criticism reflected not just the rising anger over the bonuses, but also the question the flap poses for the president and Congress: how to continue with plans to rescue the economy which could include billions more dollars in taxpayer money to shore up banks and other interests in the face of growing public disgust with corporate America.
It will be difficult political terrain for a president already confronted with crippling job losses, a credit crunch, a home foreclosure crisis and a shaky stock market whose decline has been an assault on Americans' savings and investments.
On Monday, AIG was threatened with subpoena by New York Attorney General Andrew Cuomo. He demanded details about which executives would get the bonus money as part of an investigation by his office into whether the payments violated state law. Most of the money is going to executives in the unit that sold risky credit default swaps, the contracts that caused huge losses for the insurance company.
AIG CEO Edward Liddy, who had no comment Monday, will be in Washington on Wednesday to appear before a House subcommittee on capital markets in what is likely to be a contentious hearing. In an explanation of the bonus plan delivered to Geithner on Saturday, AIG said the bonus contracts were struck for 400 workers a year ago when the division they worked for was "expected to have a significant, ongoing role at AIG."
In a recent conversation, "I told him his actions were going to threaten the possibility that we could get additional money that is necessary to save the economy," said Rep. Paul Kanjorski, D-Pa., chairman of the subcommittee. "It's going to be very difficult. The American people don't know what to believe about all of this, and neither do I."
Rep. Gary Peters, D-Mich., introduced legislation to try to stop the payments. He called them "a raid on taxpayer dollars."
David Axelrod, Obama's senior adviser, said the president will "have to move thoughtfully down a couple of tracks" to reassure the public. "The American people need to know why it's important that we maintain a functioning system of credit. But the people in the financial sector need to finally get the message that reckless risk-taking and greed are not values that anyone's going to embrace."
In Washington, New York and beyond Monday, the criticism over the AIG bonuses was swift:
In New York, where AIG is based, Cuomo sent Liddy a letter threatening to issue subpoenas by 4 p.m. Monday if AIG did not provide the names of the executives getting bonuses under what the company called its "retention plan."
Cuomo demanded each person's job description and performance report, contracts obligating AIG to pay the bonuses, and the names of those who developed the retention plan. The amounts of the bonuses and the number of people getting them have not been made public.
"Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system," Cuomo said in the letter.
At 5:01 p.m., AIG spokeswoman Christina Pretto released a statement that said, "We are in ongoing contact with the attorney general and will respond appropriately to the subpoena."
In Congress, leaders from both parties accused AIG of using public money to fatten executives' bank accounts and encouraged the Obama administration to do everything in its power to kill the bonuses.
"It is my hope that the administration gets the message from the taxpayers on this issue," Senate Republican leader Mitch McConnell of Kentucky said. "Going forward, the American people need to have complete certainty that taxpayer money is not wasted in this way again."
House Minority Leader John Boehner, R-Ohio, called on Obama to issue an "exit plan" from the government's "sweeping involvement in private business."
And House Speaker Nancy Pelosi, D-Calif., said AIG executives "whose irresponsible risk-taking brought our financial system to the brink of collapse" should voluntarily forgo their "excessive retention payments."
Outrage dominated the day on blogs, cable news and radio talk shows.
"AIG Hits The Tipping Point," read a huge headline on the left-leaning The Huffington Post.
"Rewarding Failure," the right-leaning Drudge Report said.
"Can capitalism survive the behavior of some capitalists?" conservative strategist Bill Kristol asked in a Washington Post blog.
AIG cites contract for bonuses
In a letter to Geithner sent with the explanation of the bonuses, AIG's Liddy said that he, too, had found the bonuses "distasteful." But he said contracts for them were negotiated long before he was asked by the government to take over the troubled insurer in September.
Since that time, the Treasury Department and the Federal Reserve have pledged up to $180 billion in aid to AIG, giving the government a nearly 80% stake in the company. That aid includes loans from the Fed and $40 billion in purchases of the company's stock out of the $700 billion financial rescue plan passed by Congress last year.
Company executives who receive money from the financial rescue plan are subject to compensation limits after legislation was signed into law in February.
Liddy told Geithner the bonuses were negotiated in early 2008 and "outside counsel has advised that these are legal, binding obligations of AIG, and there are serious legal, as well as business, consequences for not paying."
He said he is not taking a bonus for his work and the company is "committed to seeking other ways to repay the American taxpayers" for the bonus payments.
He added that there's more at stake than the prospect of having to spend more money to settle potential lawsuits by executives seeking unpaid bonuses. Liddy said that although he said he found it "difficult," AIG had to keep its contract to pay the bonuses because "honoring contractual commitments is at the heart of what we do in the insurance business."
AIG is scheduled to pay another $230 million in bonuses to employees in March 2010, according to a letter from Federal Reserve Bank of New York President William Dudley to Liddy on Friday.
AIG expects the amount to be smaller because of employee departures and the reduction of the financial products unit, Dudley said. "You have committed to aggressively pursue alternatives for reducing and restructuring" the 2010 bonus program, Dudley wrote to the company.
'I'm losing patience'
Bruce Ellig, author of The Complete Guide to Executive Compensation, said AIG probably is contractually obligated to pay the bonuses. "This is a very good reason why companies should be very careful in such contracts," he said. "They should include an escape clause for bona fide reasons, such as when the company loses money."
Tim Haidinger, president of the website WhatAreTheyPaid.com, said companies must have compensation packages that include bonuses, stock options, and retirement benefits to be competitive. "Sadly these packages often seem completely detached from company performance," he said.
Other companies, including Citibank, also have been taken to task for doling out executive bonuses after receiving federal bailout money.
AIG has faced criticism on other counts as well, including for having a sales meeting at a luxury resort in Phoenix after taking public funds. And lawmakers have argued for months that the company should be more open about what it was doing with the government money.
On Sunday, the insurance firm for the first time announced who it was paying to settle its debts with the funds, an array of major firms that include Merrill Lynch and Bank of America.
"I'm losing patience with the whole operation," said Kanjorski, the subcommittee chairman who will grill Liddy this week.
Rep. Scott Garrett, R-N.J., the senior Republican on the panel, said the bonuses raise questions about what the Fed knew when it decided to prop up AIG. He said lawmakers will have to raise those same questions when they are presented with future proposed bailouts.
That skepticism could spill over onto Obama's agenda. Next month, he is expected to propose a detailed budget that will propose spending that will lead to a $1.75 trillion deficit in the name of ending the recession. He also wants to overhaul the nation's health care system.
Those ambitious goals could be threatened if Congress rejects more heavy spending.
William Black, a senior bank regulator during the 1980s savings and loan crisis, said Obama needs to be honest about the depth of the financial crisis to restore trust in government. "The way you build public confidence is to find the truth, tell people about the truth," he said.
Rep. Elijah Cummings, D-Md., said that's already Obama's strong suit. "He's not going to sugarcoat it," he said.
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