From Outrage to the Future: Learning From the AIG Bonuses
Lawmakers Called Taxpayer-Funded AIG Bonuses 'Ridiculous' and 'Outrageous'
By SARAH NETTER and JOHN HENDREN
March 16, 2009—
abcnews.go.com
While there's seemingly no shortage of outrage aimed at beleaguered insurance giant AIG's plan to pay out $165 million in executive retention bonuses, it may turn out that the best the country can hope for in response is to learn its lesson for next time and make sure it doesn't happen again.
Sen. Richard Shelby, R-Ala., told "Good Morning America" today that the American people had been "fooled by AIG."
"These people brought themselves, now you're rewarding [them,]" he said. "A lot of these people should be fired."
AIG has refused to comment on the contracts' specifics, including how it could allow for such bonuses after losing $61 billion in a single quarter, while taking $170 billion in government bailout money.
"It's ridiculous," U.S. Rep. Elijah Cummings, D-Md., told "GMA," adding that he doesn't buy the notion that the government doesn't have enough control over taxpayer dollars to stop bonuses like these.
Even though they may not like it, the nation's top financial officials can't seem to do much to stop it, citing AIG's position that they it's contractually obligated to pay the bonuses.
"We are a country of law," Lawrence Summers, chairman of the White House National Economic Council, said on ABC's "This Week With George Stephanopoulos." "There are contracts. The government cannot just abrogate contracts."
AIG CEO Edward Liddy said in a letter to Treasury Secretary Timothy Geithner that the payments can't be stopped and that his "hands are tied."
Cummings admitted that the stimulus package was moved through Congress so quickly that there may be room for improvement going forward, including add-ons that would prevent failing banks and institutions from using government money to reward the same executives who were responsible for the company's failure in the first place, such was the case with AIG.
"We have to be very careful & we don't allow these things to happen again," Cummings said.
Even Federal Reserve System chairman Ben Bernanke said he was so angry after hearing about the AIG bonuses that he slammed the phone down.
He told CBS' "60 Minutes" Sunday that out of all the events in the last 18 months, the federal government's intervention with AIG makes him the angriest, saying the company made "unconscionable bets."
After the weekend's firestorm over the bonuses, AIG for the first time released a list of companies that received taxpayer bailout money from AIG. The companies that were paid include Goldman Sachs ($12.9 billion,) Bank of America ($5.2 billion) and Citigroup ($2.3 billion.) Also receiving AIG payments were more than a dozen foreign banks including Societe Generale of France, the British bank Barclay's and UBS of Switzerland.
The payments were the result of insurance policies AIG underwrote guaranteeing bank mortgage investments these institutions held that collapsed when the real estate bubble burst in the fall.
Many of these institutions have also received bailout payments directly from the U.S. government.
'This Is an Outrage'
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Summers said this morning on ABC's "This Week With George Stephanopoulos." "What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous."
Summers repeated the characterization several times on the morning talk show circuit.
Lawmakers, too, are furious at the payout of big bonuses at a company that has so far eaten up $170 billion in taxpayer money, and whose risky behavior has helped push the economy into one of the biggest financial crises in American history.
"The message here, I'm afraid, to any business out there that's thinking about taking government money, is let's enter into a bunch of contracts real quick, and we'll have the taxpayers pay bonuses to our employees," Senate Minority Leader Mitch McConnell, R-Ky., said today on "This Week." "This is an outrage."
Today Sen. Russ Feingold, D-Wis., sent a letter to Treasury Secretary Timothy Geithner saying he "would like to know what legal options have been explored for canceling the bonuses or recouping the money from the recipients, and in particular whether the Administration has considered holding AIG executives accountable in court for any breaches of their fiduciary duties to the shareholders."
An angry Geithner called AIG chief executive Edward Liddy Wednesday, demanding he slash the bombshell bonuses.
"AIG'S hands are tied," Liddy replied. In a letter to Geithner yesterday, Liddy said he found the bonuses "distasteful" but he added, "These are legal, binding obligations" and "we must proceed with them."
President Obama's top economics adviser agreed that despite committing $170 billion in bailout money to AIG, the government was limited in its power to stop the bonuses.
"This is an example of people at the commanding heights of the economy misbehaving, abusing the system," Rep. Barney Frank of Massachusetts said today on "Fox News Sunday."
"I do think it's inappropriate for those people to stay in power at that company," Frank said.
"We're the first people to be angry," Christina Romer, chairwoman of the administration's Council of Economic Advisers, said today on NBC's "Meet the Press." "So absolutely Secretary Geithner has been furious and has been pushing back, urging them to renegotiate this. We're pursuing every legal means to deal with it."
'You Got to Help Me Screw You'
AIG's Liddy was recruited last year by the Bush Administration to run the company, and the bonuses were negotiated before he arrived.
Cummings cites AIG's lavish corporate parties and historic losses and says Liddy should step down. He said he can't believe most of the bonuses are to retain the executives who have been leading AIG.
"It's like, OK, you got to help me screw you," Cummings said. "And by the way I'm going to take your money and I'm going to slap you with it. As I walk into this $1,500-a-night hotel to have fun."
"Hundreds of thousands, millions of people either lost their job or gave up part of their bonus so their company could survive through this crisis," New York Times op-ed columnist Thomas Friedman told CBS' Bob Schieffer today on "Face the Nation."
Friedman said he wished the administration could have taken the matter up with Liddy.
"You wish they could have come to him and said, 'Look, we know that contractually you get these bonuses, but I'm telling you, you better find a way, OK, to dramatically reduce them, postpone them, because there's going to be real outrage by taxpayers,'" Friedman said.
Others today suspected AIG's actions would make it harder to push future financial regulations through on Capitol Hill.
"I think that right now, it's politically impossible to ask Congress for another big chunk of money," Fox News contributor Mara Liasson of National Public Radio said today. "There's bailout fatigue. There's populist anger at the way the money's been spent. AIG is kind of example No. 1 for this week. I'm sure there'll be many other ones."
Still, despite big bonuses at AIG, Romer remained confident the administration is making the right moves to lift the country out of the financial crisis.
"We haven't won yet," Romer said. "We have staged a wonderful battle. So far we have put in place just a host of programs: the stimulus package, the financial rescue plan, the housing plan. We think it's the right medicine and we think it will work."
On Sunday afternoon, AIG disclosed which "counterparties" were getting their bailout money after Summers pressed the company to do so.
Liddy will face soon more questions about the bonus backlash as well. He'll be in the hot seat at a House hearing this week to explain how American taxpayers ended up paying millions more to executives who have already cost them billions.
ABC News' Kate Barrett, Matthew Jaffe and The Associated Press contributed to this report.
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