VOL. 124 | NO. 52 | Tuesday, March 17, 2009
Obama: AIG Can't Justify 'Outrage' of Bonuses
WASHINGTON (AP) - President Barack Obama on Monday issued a blistering attack on American International Group and pledged to stop the struggling insurance and investment giant from paying out millions in executive bonuses.
AIG has taken $170 billion in federal bailout funds, and the company announced over the weekend that it was bound contractually to pay out tens of millions in executive bonuses, prompting a storm of criticism inside the Obama administration.
The $165 million was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million.
"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?," the president said.
Also Monday, New York Attorney General Andrew Cuomo told the company he wanted a list on his desk by the end of the day of employees set to receive millions of dollars in bonuses.
Cuomo said his office will investigate whether the employees were involved in the insurance giant's near-collapse and whether the $165 million in bonus payments are fraudulent under New York state law.
He later said AIG had missed the deadline and he was issuing subpoenas for the information.
AIG spokeswoman Christina Pretto told The Associated Press, "We are in contact with the Attorney General and will of course respond to his request."
AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
Said Obama: "All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."
"This isn't just a matter of dollars and cents," he added. "It's about our fundamental values."
Noting that AIG has received substantial aid from the federal government, Obama said he has asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Rep. Barney Frank, chairman of the House Financial Services Committee, earlier Monday charged that the move to pay bonuses amounted to "rewarding incompetence."
"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank, a Democrat.
Frank noted that the Federal Reserve Board, using a Depression-era statute, was the institution that gave AIG its initial government bailout, before Congress passed legislation providing for additional assistance and said that not enough safeguards were built into the deal.
It also was revealed over the weekend that American International Group Inc. used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks – France's Societe Generale at $11.9 billion,
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'>Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
"We ought to explore everything that we can through the government to make sure that this money is not wasted," said Sen. Richard Shelby, a Republican, "These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous."
AIG has agreed to Obama administration requests to restrain future payments. Geithner had pressed the president's case with AIG's chairman, Edward Liddy, last week.
"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," said Austan Goolsbee, staff director of Obama's Economic Recovery Advisory Board.
Obama did note in his remarks Monday that Liddy "came on board after the contracts that led to these bonuses were agreed to last year."
In an interview that aired Sunday on CBS' "60 Minutes," Federal Reserve Chairman Ben Bernanke did not address the bonuses but expressed his frustration with the AIG intervention.
"It makes me angry. I slammed the phone more than a few times on discussing AIG," Bernanke said. "It's – it's just absolutely – I understand why the American people are angry."
In a letter to Geithner dated Saturday, Liddy said outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.
New York's attorney general said in a letter to Liddy on Monday that he has been investigating AIG compensation arrangements since last fall and was disturbed to learn during the weekend of its bonus plans.
In addition to the list of people set to receive bonuses, Cuomo demanded details about who developed the bonus plans and a status report on whether payments have been made.
"Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system," Cuomo wrote.
Obama's comments on AIG came as he and Geithner announced a small business loan program and a series of temporary tax incentives. The small business package includes $730 million from the stimulus plan, with reduced small-business lending fees and an increase on the guarantee for some Small Business Administration (SBA) loans to 90 percent.
The government also planned aggressive steps to boost bank liquidity with more than $10 billion aimed at unfreezing the secondary credit market – a key to making it easier for small businesses to borrow.
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