Posted by AzBlueMeanie:
Over the weekend it was disclosed that AIG, a company which is now on its third TARP bailout to rescue it from its bad bets on toxic debts, paid out $450 million in bonuses to its executives on Friday – presumably using the TARP bailout funds, and presumably because their executives had done such a fine outstanding job of destroying one of the largest companies in the world. A Treasury spokeman initially said the government had no bargaining power to prevent payment of the bonuses, ostensbly because AIG is contractually obligated to pay the bonuses. The perverse compensation incentives on Wall Street actually reward the destruction of a company?
The disclosure touched off a firestorm of populist outrage in Washington and in the media over the weekend.
House Speaker Nancy Pelosi announced that Congress will "examine legal options to recover taxpayer funds" from AIG, according to the speaker's blog, The Gavel. The Speaker even called the bonuses "unconscionable." (h/t to Susan G at Daily Kos)
While American workers see their wages decline and face record job losses, it is unconscionable that AIG, which is receiving more than $170 billion in government assistance, would permit such extravagant executive compensation practices without any accountability to the taxpayer.
I have asked Chairman Barney Frank of the House Financial Services Committee to examine options that are legally available to recover taxpayer funds of companies that abuse the privilege of taxpayer assistance.
I call upon the executives at AIG to right the wrong they have done to American taxpayers, who are footing the bill for the most expensive government rescue in history. They should renounce the bonuses and refuse the excessive retention pay they previously agreed to.
On Monday, President Obama addressed the bonus outrage:
Here's a transcript of President Obama's remarks (h/t Jed Lewison at Daily Kos), as prepared:
But before I talk about the new steps we’re taking to get credit flowing to small businesses across our country, I want to comment on the news about executive bonuses at AIG.
This is a corporation that finds itself in financial distress due to recklessness and greed.
Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?
In the last six months, AIG has received substantial sums from the US Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.
I know he’s working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year. This isn’t just a matter of dollars and cents. It’s about our fundamental values. All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules.
That is an ethic we must demand.
What this situation also underscores is the need for overall financial regulatory reform, so we don’t find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions, so we have greater authority to protect the American taxpayer and our financial system in cases such as this. We will work with Congress to that end.
Monday afternoon the Wall Street Journal is reporting that "a White House official said the Treasury Department will use a planned $30 billion infusion into AIG to compel the company to repay the bonuses to employees of its financial-products group, which is responsible for selling the exotic financial instruments that brought the company to near-collapse."
"The infusion, announced March 2, won't be finalized until the company and the Treasury work up repayment options, the official said. The bonuses to the financial-products division were "found to be completely unacceptable given that AIG is already surviving on taxpayer funds," the official said." Obama Asks Geithner to Find Way to Rescind AIG Payouts
In addition, New York Attorney General Andrew Cuomo on Monday issued subpoenas to AIG seeking the names of those employees who received bonuses at the financial-products subsidiary. AIG has informed the attorney general's office that the bonus payments were made on Friday.
The subpoenas from the New York attorney general's office came after Mr. Cuomo on Monday morning asked for the names of bonus recipients, their jobs, their 2008 performance reviews and for the names of individuals involved in setting up the retention plan. In a letter, Mr. Cuomo gave the company until 4 p.m. to respond to his request for the information. His office has been investigating AIG bonuses since last fall.
"Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system," he wrote in the letter.
Mr. Cuomo said he is looking into whether any of the individuals receiving payments were involved in conduct that led to the insurer's near-collapse; whether the contracts may be unenforceable for fraud or other reasons; and whether the payments may be consider fraudulent conveyances under state law.
In a statement in response to Mr. Cuomo's subpoena, AIG said, "We are in ongoing contact with the attorney general and will respond appropriately to the subpoena." Obama Asks Geithner to Find Way to Rescind AIG Payouts
Former Clinton Labor Secretary Robert Reich explains The Real Scandal of AIG:
The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG's chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But most will be paid anyway, because, according to AIG, the firm is legally obligated to do so. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needed to be able to retain talent.
AIG's arguments are absurd on their face. Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid; indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if it laughing weren't already so expensive.
Apart from AIG's sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that's "too big to fail" and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG's bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.