IG, Obama under fire as as Congress, public take aim
The US Congress tapped into growing public ire over bailed-out insurance giant AIG's payment of bonuses as legislators explored ways to reclaim the $165 million on Wednesday.world Updated: Mar 19, 2009 11:07 IST
The US Congress tapped into growing public ire over bailed-out insurance giant AIG's payment of bonuses as legislators explored ways to reclaim the $165 million on Wednesday.
At the centre of the storm was American International Group (AIG), the world's largest insurance firm whose near failure in September 2008 over insuring questionable financial instruments helped push a teetering US financial system into rapid descent.
With an estimated $180 billion government keeping AIG afloat, the country erupted in outrage when AIG paid $165 million in retention bonuses over the weekend to the very traders who had created the problem.
US President Barack Obama fended off calls for Treasury Secretary Timothy Geithner to resign over his failure to stop the bonuses, and vowed to end the US culture of corporate greed.
Some fingers were pointed at Congress itself, for passing stimulus legislation that grandfathered contracts signed for bonuses and executive pay up to mid-February, when the law was passed.
Other blame was laid at the feet of the Federal Reserve, which according to testimony before the House Financial Services Committee from AIG head Edward Liddy had known about the intention to pay the bonuses all along.
Whoever was at fault, Representative Gary Ackerman reflected the irate messages flooding congressional offices.
"There's a tidal wave of rage throughout America right now,"Ackerman said. "The taxpayer knows that they are the ultimate sucker on the list of who pays for all of the greed that has been going on in the marketplace for years and years."
At least one employee received more than $6 million.
Liddy, the man appointed to head AIG by the US government for $1 a year when Washington took over 80 percent ownership of the firm, conceded to Congress that the "patience of America's taxpayers is wearing thin."
But he defended the bonuses, saying AIG was contractually obligated to pay them and that he was trying "desperately to prevent an uncontrolled collapse" of the business.
He said the only way to "avoid systemic shock to the economy" was to pay the bonuses in order to keep the traders who were sorting out the malaise of a remaining $1.6 trillion of risky assets at the centre of the AIG crisis.
He said the financial products unit had already shown considerable progress in whittling the sum down from $2.7 trillion.
Subcommittee head Paul Kanjorski and other legislators wondered why Liddy had not chosen to break the contracts and allow the legal chips - possible lawsuits from traders - to fall where they may.
As a conciliatory gesture, Liddy said that just that morning he had asked employees to "step up and do the right thing" by offering to return at least half of all bonuses in excess of $100,000.
"Some have stepped forward and offered 100 percent," Liddy said. "We are working to ensure the highest level of employee participation in the days ahead."
But legislators were not satisfied, insisting that zero bonuses should have been paid. All told, AIG is apparently obligated to pay $1 billion in retention bonuses over the coming year.
Obama has ordered Geithner to figure out how to block future bonus payments and recover what's already been paid out.
Ideas being floated include up to 100 percent taxation on bonuses paid to bailed-out firms; a lawsuit by the US government as the main shareholder in the firm; a criminal investigation into whether AIG violated its fiduciary duty; and deduction of the bonus pay from future loans.
"We should be exercising our rights as owners to say these people performed so poorly ... we are justified in rescinding the bonuses," said US Representative Barney Frank, a Democrat and chair of the House Financial Services Committee.
Pressure also grew on Wednesday in Congress and from the New York state's attorney for AIG to divulge the names of bonus recipients. Liddy has refused, citing threats of bodily injury to traders and their families.
Obama, who was departing for two days in California, insisted he and his administration were not responsible for creating the AIG "mess". But he added that ultimately, the "buck stops" with him and noted the new oversight authority his government was setting up.
Jose Baca, a Democrat on the committee, said Americans felt moral outrage. "Isn't there any remorse or feeling ... for human beings who have lost their jobs, have lost their homes and, yet, we're giving out 165 million?" Baca said.