WASHINGTON — Rep. Barney Frank charged Monday that a decision by financially strapped insurance giant AIG to pay millions in executive bonuses amounts to "rewarding incompetence."
Echoing outrage expressed on both sides of the political aisle in the wake of revelations that American International Group will pay roughly $165 million in bonuses, Frank said he believes it's time to shake up the company.
"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank, a Massachusetts Democrat who is chairman of the House Financial Services Committee.
Appearing on NBC's "Today" show, 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. He said he did not think sufficient safeguards were built into that initial bailout by the Fed.
The $165 million was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue.
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.
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, 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.
On ABC's "Good Morning America" Monday, Sen. Richard Shelby said Congress must do everything it can to make sure the government money going to AIG is handled appropriately.
"We ought to explore everything that we can through the government to make sure that this money is not wasted," the Alabama Republican said. "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."
Frank said he was disgusted, asserting that "these bonuses are going to people who screwed this thing up enormously."
"Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs. ... In high school, they wouldn't have gotten retention (bonuses), they would have gotten detention."
AIG has agreed to Obama administration requests to restrain future payments. Treasury Secretary Timothy Geithner 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 President Barack Obama's Economic Recovery Advisory Board.
Lawrence Summers, a leading Obama economic adviser, said Sunday that Geithner had used all his power, "both legal and moral, to reduce the level of these bonus payments."
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.