AIG Bonuses: Scandal Spurring Gov To Rein In Bailout Funds
WASHINGTON — The Obama administration says it's trying to put strict limits on the next $30 billion installment in taxpayers' money for insurance giant AIG amid questions about whether it responded fiercely enough to executive bonus payments.
President Barack Obama and his top aides expressed outrage at reports that American International Group Inc. went ahead with $165 million in bonuses even though the company received more than $170 billion in federal rescue money. Obama directed Treasury Secretary Timothy Geithner to see whether there was any way to retrieve or stop the bonus money _ a move designed as much for public relations as for public policy.
"I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama said Monday, in announcing a plan to help small businesses.
The financial bailout program remains politically unpopular and has been a drag on Obama's new presidency, even though the plan began under his predecessor, President George W. Bush. The White House is aware of the nation's bailout fatigue; hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.
The burgeoning controversy raged Tuesday as Sen. Richard Shelby, ranking Republican on the Banking Committee, charged that Geithner had known about the AIG bonus payments before they were made and failed to stop them.
"I don't know what President Obama knew about it," Shelby said. "I'd say he probably didn't know about it."
Shelby said that Geithner "either knew or should have known what was going on. We need to know, what are the details of this? When were the bonuses signed up? Who's getting it?"
The Alabama senator stopped short of calling for Geithner's resignation, saying "he's under fire from all sides now."
"I don't know if he should resign over this," Shelby said. "He works for the president of the United States. But I can tell you, this is just another example of where he seems to be out of the loop. Treasury should have let the American people know about this."
Administration officials said over the weekend that Treasury determined the government had no legal authority to block the current payments by AIG _ which are part of a larger total payout reportedly valued at $450 million.
Instead, Geithner asked that the company scale back future bonus payments where legally possible, the administration said. Geithner was characterized as having called AIG Chairman Edward Liddy on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.
In a letter to Geithner dated Saturday, Liddy informed Treasury that 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.
AIG got predictably raked over the coals at a Senate Banking Committee hearing on regulating the insurance industry.
"One way or another, we're going to try to figure out how to get these resources back," said Christopher Dodd, D-Conn., the panel's chairman.
"This is ridiculous," exclaimed Sen. Jon Tester, D-Mont. He said AIG executives "need to understand that the only reason they even have a job is because of the taxpayers."
Expressions of outrage across the political spectrum reached a new crescendo Monday when Sen. Charles Grassley suggested in an Iowa City radio interview that AIG executives should take a Japanese approach toward accepting responsibility for the collapse of the insurance giant by resigning or killing themselves.
"Obviously, maybe they ought to be removed," the Iowa Republican said. "But I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
Grassley spokesman Casey Mills said the senator wasn't calling for AIG executives to kill themselves, but said those who accept tax dollars and spend them on travel and bonuses do so irresponsibly.
In another development, New York Attorney General Andrew Cuomo said he has issued subpoenas for the names of American International Group employees given bonuses despite their possible roles in its near-collapse.
Cuomo said his office will investigate whether the $165 million in payments are fraudulent under state law because they were promised when the company knew it wouldn't have the money to cover them. AIG reported this month that it lost $61.7 billion in the fourth quarter of last year, the largest corporate loss in history, and it has benefited from more than $170 billion in a federal rescue.
"When a company pays funds that the company effectively doesn't have, it's akin to a looting of a company," Cuomo said. "You could argue if the taxpayers didn't bail out AIG, those contracts wouldn't be worth the paper it's printed on."
News that AIG still needs billions in taxpayer dollars to prevent a collapse did little to build public confidence, Obama aides acknowledged. Seeking to turn the public tide, White House spokesman Robert Gibbs aggressively criticized AIG and said administration officials were working to put strict limits on the next $30 billion installment bound for the company.
"Treasury has instruments that can address the excessive retention bonuses, and add provisions to ensure that taxpayers are made whole," Gibbs said.
The AIG news overshadowed what Obama's aides had hoped to spend the first part of the week discussing: billions of dollars to help the nation's small businesses in the hopes of getting credit flowing again. Obama heaped praise on the little guys of American industry, often overshadowed in the blitz of government bailouts.
Two months into office, Obama's job approval rating is 61 percent, according to Gallup polling. That number has been relatively stable so far this month but has dropped from the 68 percent when the president took office. The major factor has been a decline in support among Republicans, from 41 percent to 26 percent.
A separate poll out Monday by the Pew Research Center put Obama's approval at 59 percent, slipping from 64 percent last month. The Pew poll found that a growing number of Americans see him as listening more to the liberals than to the moderates in the Democratic Party.
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PHILIP ELLIOTT | March 17, 2009 10:56 AM EST |
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