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Calls Intensify on Capitol Hill to Recover AIG Bonuses

March 17, 2009 at 6:00 PM EDT
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Lawmaker anger continued Tuesday over AIG's bonus payments, with some calling for recovery of the funds. Business writers weigh varying views on the bonus debate.
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JIM LEHRER: The threats and attacks on and about AIG rattled through Congress today, as the Obama administration sought to defend its handling of the insurance giant’s rescue. Judy Woodruff has our lead story report.

JUDY WOODRUFF: The cries from congressional Democrats were many today, but the theme was the same: Give the money back to the government.

New York Sen. Charles Schumer took to the floor this morning.

SEN. CHUCK SCHUMER, D-N.Y.: We will take this money back by taxing virtually all of it. So let the recipients of these large and unseemly bonuses be warned: If you don’t return it on your own, we’ll do it for you.

JUDY WOODRUFF: On the House side, several Democrats called for taxing 100 percent of any bonuses over $100,000 at companies getting government help. New York Congresswoman Carolyn McCarthy.

REP. CAROLYN MCCARTHY, D-N.Y.: A hundred percent, as far as I’m concerned, is not even enough. If I could tax them 1,000 percent, I would tax them 1,000 percent.

JUDY WOODRUFF: AIG first announced plans for the payments more than a year ago, well before it sought government help. The furor erupted over the weekend when it was revealed the company paid out $165 million as part of the bonus program.

Today, Republicans zeroed in on Treasury Secretary Timothy Geithner. House Minority Leader John Boehner said Geithner failed to ask the right questions when AIG sought its most recent installment of federal aid.

REP. JOHN BOEHNER, R-Ohio, House minority leader: It was Mr. Geithner in late February who said that they had a plan to break up AIG, to sell off the parts, and to solve this problem.

But after they reported a $61 billion loss, it was Mr. Geithner who shipped $30 billion more into AIG, and not one word has been said about solving the problem. It’s time for the administration to present an exit strategy so that these types of abuses can’t happen.

JUDY WOODRUFF: Much of the bonus money went to a division that took huge losses linked to risky mortgages, but company officials have said they need those employees to help undo the damage.

In addition, AIG’s CEO Edward Liddy warned that not paying the bonuses would violate contracts and invite lawsuits.

Even so, the Republican leader in the Senate, Mitch McConnell, charged today something could have been done. He said the administration blew its best chance.

SEN. MITCH MCCONNELL, R-Ky., Senate minority leader: Wouldn’t the Treasury and the taxpayer have had more leverage over AIG’s executive contracts before providing another $30 billion in tax money for them? You know, once that money was handed over to AIG, the leverage was lost. That would have been the perfect time to make sure that this didn’t happen.

JUDY WOODRUFF: At the White House, press secretary Robert Gibbs defended the administration’s actions and Geithner in particular.

ROBERT GIBBS, White House press secretary: Secretary Geithner last week engaged with the CEO of AIG to communicate what we thought were outrageous and unacceptable bonuses, that Secretary Geithner received a commitment to lessen some of the bonuses for senior executives.

JUDY WOODRUFF: As the uproar over AIG enveloped the White House, President Obama today tried to shift the focus back to his governing program. He appealed to Republicans to work with him on the budget.

U.S. PRESIDENT BARACK OBAMA: If certain aspects of this budget people don’t think work, provide us some ideas in terms of what you do. “Just Say No” is the right advice to give your teenagers about drugs. It is not an acceptable response to whatever economic policy is proposed by the other party.

JUDY WOODRUFF: For the moment, though, the focus in Washington is to just say no to AIG bonuses. And there’s more coming tomorrow: The company’s chief executive goes before a congressional committee.

JIM LEHRER: Ray Suarez picks up the story from there.

Breaking contracts

Andrew Ross Sorkin
The New York Times
I didn't make many friends today with this column, which effectively suggested you can't break contracts.

RAY SUAREZ: Now that Congress and the White House are trying to figure out how to get back AIG's bonus money, the question remains, what kind of fallout might there be if the government is successful?

We ask Andrew Ross Sorkin of the New York Times. He wrote a column about that question today and is editor of DealBook, the paper's business blog. And Robert Kuttner, an economics writer and co-editor of the American Prospect magazine, he's also a senior fellow at Demos, a liberal think-tank.

Andrew Ross Sorkin, should the government be trying to claw back that money?

ANDREW ROSS SORKIN, New York Times: Well, I have actually no problem with them clawing back the money, per se, but I think it has to be done voluntarily. And I think that that is the big issue here.

I didn't make many friends today with this column, which effectively suggested you can't break contracts. And the big issue in this case is I think you have no problem going and saying to these employees, "Listen, the world has changed. Things are different. We'd like you to voluntarily agree."

And if you can negotiate, terrific. If you can't, I think there's a real problem with not honoring the contract.

RAY SUAREZ: Well, just in case people didn't see that column, let me make you even fewer friends. You wrote, "Maybe we have to swallow hard and pay up for our own good." What did you mean by that?

ANDREW ROSS SORKIN: Well, listen. I'm as offended as the next guy about these bonuses. And there's no question that, in light of what's happened, these people don't deserve these bonuses.

But I think there is a larger question which is, now we are shareholders of these companies as taxpayers. So when it comes to AIG, we now need and want it to benefit and to succeed so we need to figure out a way to incentivize people to do that.

I'm not suggesting the old bonuses did that, because clearly lots of people left the firm afterwards. But what I am suggesting is that we can't just point all the fingers at this firm and say, "Listen, we're ripping up the contracts unilaterally." It just doesn't work like that. We don't -- fortunately or unfortunately, we still live in a country that's based on laws.

RAY SUAREZ: Robert Kuttner, does that argument convince you?

ROBERT KUTTNER, American Prospect: Not at all. I mean, I think the contract issue is a red herring.

First of all, you heard the president's secretary, press secretary Robert Gibbs, completely give away the argument when he credited Geithner for talking the CEO of AIG, Mr. Liddy, into reducing the bonuses. So if Liddy could be induced to reduce the bonuses, he could have reduced them all the way to zero. And that's not contractual.

Furthermore, you've got autoworkers who are changing their contracts because they know the future of the company's at stake. You've got workers all over America who've lost their health benefits, their pension benefits. You're possibly going to have an emergency program that revises the terms of mortgages, which are contracts.

This is an emergency. And this is a company that has cost the American taxpayer so far $183 billion and counting. So how dare they pay the same people who perpetrated this outrage bonuses; it doesn't pass the smell test.

And if the Obama administration doesn't find a way of persuading these guys to give back the bonuses voluntarily, there's going to be a huge groundswell and Congress is going to do it for them.

Populist backlash

Robert Kuttner
The American Prospect
"The best and the brightest"? These are the worst and the dumbest. These are the people who took down the whole economy.

RAY SUAREZ: Well, Robert Kuttner, earlier today, the CEO of AIG, when asked that same question, said, "We can't attract and retain the best and brightest talent to lead and staff the company if employees believe their compensation is subject to continued review by the U.S. Treasury."

ROBERT KUTTNER: Yes, can you imagine that? I mean, the U.S. Treasury, by the way -- which is to say, the U.S. taxpayers -- owns 80 percent of the company. So it might as well start behaving like an owner.

And "the best and the brightest"? "The best and the brightest"? These are the worst and the dumbest. These are the people who took down the whole economy.

So as far as I'm concerned, these 300 people in this unit in London that lost tens of billions of dollars that they now want the U.S. taxpayer to make up, far from getting bonuses, they should be sharing a cell with Bernie Madoff.

And if the Obama administration doesn't realize that the average American feels that way, then he's going to get on the wrong side of a populist backlash. And the Republicans, who are ordinarily a lot closer to Wall Street, are going to eat his lunch.

RAY SUAREZ: Andrew Sorkin, does AIG still need these people?

ANDREW ROSS SORKIN: You know, this is a very tough question. And I don't want to be an apologist for AIG or a sympathizer, because I don't sympathize with these people at all.

But I do sympathize with this problem, which is, as taxpayers and shareholders of AIG, we do need it to succeed, as I said before. And that means we need talented people to work there.

And, frankly, if you know the folks at AIG right now that are working there, they don't want to work there, and you probably don't want to take a job there. And so we have a problem here, because one of the things that's happening at AIG that has to happen over the next year or two as we wind down this firm is we need to, quote, "unwind trades."

That means that AIG is unwinding trades with a counterparty on the other side. So there's a smart guy on the other side who's going to try to outdo AIG, which is us. And so it would be nice if we had a smart person on our side.

And, frankly, in this environment, with all of the attention and rhetoric that we're talking about on this program, it's very hard to keep people who are talented in their chairs because nobody wants the job.

That's not to suggest you need to pay them $3 million or any of the ridiculous bonuses that have gone out the window so far, but it does mean that we need to figure out a way to make this work.

Value of institutional knowledge

Andrew Ross Sorkin
The New York Times
The folks on the NewsHour are all smart people. Unfortunately, I doubt any of us could walk into AIG tomorrow and do this job.

RAY SUAREZ: Bob Kuttner?

ROBERT KUTTNER: How can you possibly call somebody who lost $183 billion a "smart guy"? There are tens of thousands of people all over Wall Street who are smart guys who've lost their jobs, who'd probably be very grateful to take these jobs for maybe a $250,000, which is more than 95 percent of Americans make.

This is just astounding that any serious person would defend these bonuses either on grounds of retaining smart people or on grounds that a contract is sacrosanct.

RAY SUAREZ: But, Bob, Andrew and others have noted that the complexity of the AIG business dealings with its Financial Products division, which is where most of the money was lost, requires somebody with in-house institutional memory to help unravel this, to reel it back so that you can start to dismantle the company without losing your shirt.

ANDREW ROSS SORKIN: You know, I imagine you're a very bright person. I like to think I'm a smart guy. The folks on the NewsHour are all smart people. Unfortunately, I doubt any of us could walk into AIG tomorrow and do this job.

And I, frankly, don't think there's that many people actually out there that have the institutional knowledge to do this. This is very complicated stuff and, frankly, so complicated that most of us missed this the first time around.

RAY SUAREZ: Bob?

ROBERT KUTTNER: Well, there were some of us who were warning about this the first time around, and there were some people, like some of the folks who unfortunately have been appointed to guard the chicken coops, who were preventing the same regulatory agencies from regulating derivatives so that this wouldn't have happened in the first place.

I'm confident that there are enough smart people in America who could go in and fathom what's going on and unwind these trades. You do not have to keep the same people who perpetrated these outrages on the job on the premise that no one else can understand this. I just don't buy it.

Financial transparency

Robert Kuttner
The American Prospect
It's being run like a private bankers' club, instead of like a government agency that owes the taxpayer some transparency and some accountability.

RAY SUAREZ: Bob, Andrew Sorkin, you and Robert Kuttner agree that a lot of mistakes were made at AIG, but over these past 48 hours so much attention has been paid to these bonuses, which is a fraction of 1 percent of the money that the federal government has turned over to AIG, that less attention is being paid to who else got money from AIG. And billions have gone out the door, haven't they?

ROBERT KUTTNER: Yes.

ANDREW ROSS SORKIN: Absolutely. Go ahead.

ROBERT KUTTNER: Go ahead. Well, they've been -- yes, and they've gone out the door to other investment banking companies, like Goldman and several others.

And, you know, the bonus question -- I think you're right, Ray -- is deflecting attention from the bigger question which is how Treasury is managing this. And instead of transparency, until Congresswoman Maloney, the chair of the Joint Economic Committee, held a hearing last week, Treasury was essentially saying, "This is proprietary business information. We're not even going to require AIG to tell you who got all the money." Finally, they 'fessed up.

You know, this is being run by the Treasury in the way that JPMorgan and Company were brought in after the bank panic of 1907. It's being run like a private bankers' club, instead of like a government agency that owes the taxpayer some transparency and some accountability.

RAY SUAREZ: Andrew, it's true that nobody knows who the recipients are yet or has been able to see these contracts, even though, as Bob Kuttner points out...

ANDREW ROSS SORKIN: Well, we haven't been able to see the actual -- we haven't been able to see the contracts themselves, but we have been able to see -- they did disclose a list of firms that have been effectively propped up by this.

I mean, one of the things I'm not sure everybody appreciates is the money that's gone into AIG hasn't sat in AIG. It's been distributed, tens of billions of dollars, to all of these other banks.

And one of the reasons that was cited back in September when they gave the first $85 billion and the subsequent bailouts, if you will, was not just about AIG, but really propping up the system. And that's what's been going on.

And one of the nerve-wracking things is that it feels like the Fed and the Treasury in this case were trying to obfuscate and not let the public appreciate where this money was going for fear that it would actually put these other firms in jeopardy.

RAY SUAREZ: Andrew Ross Sorkin and Robert Kuttner, gentlemen, thank you for joining us.

ANDREW ROSS SORKIN: Thank you.