Obama Cites ‘Outrage’ Over AIG Bonuses
“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” the president said at the White House during an appearance to announce help for small businesses hurt by the recession. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”
It was revealed over the weekend that AIG is in the process of paying out $165 million in corporate bonuses and employee retention, despite posting a record $62 billion loss in the fourth quarter of 2008. The company has benefited from more than $170 billion in federal rescue money.
Observing that AIG has “received substantial sums” of federal aid, Mr. 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.”
These bonus payments are legally binding since they were promised before the government rescue. AIG, however, said it will scale back the payments after demands from Treasury officials. AIG agreed to reduce some retention payments in 2009 by 30 percent and tie bonuses to the company’s recovery.
House Financial Services Committee chairman Rep. Barney Frank, D-Mass., said Monday that the decision to pay millions in executive bonuses amounts to “rewarding incompetence.”
“These people may have a right to their bonuses. They don’t have a right to their jobs forever,” Frank said NBC’s “Today” show.
AIG also revealed Sunday that it used more than $90 billion in federal aid to pay out dozens of foreign and domestic banks, some of whom had received their own rescue funds from the U.S. government.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks, reported the Associated Press: 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 is under federal scrutiny for its bonus plans, received $6.8 billion as of Dec. 31.
The money went to the banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions. The Federal Reserve decided last fall to save AIG, which has ties to financial holdings in multiple countries, from collapse with a huge rescue loan.
Fed and Treasury officials have since warned of a “systemic risk” to financial markets if the company was allowed to fail.
Other banks receiving funds included Bank of America ($5.2 billion), UBS of Switzerland ($5 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).
The disclosure by AIG was made after the company consulted the Federal Reserve.
“These are extraordinary times,” AIG spokeswoman Christina Pretto said Sunday, reported the Washington Post. “And we and our partners at the Fed thought this was right thing to do.”
President Obama’s top economic adviser also expressed anger at the firm over the weekend. “There are a lot of terrible things that have happened in the last 18 months, but what’s happened at AIG is the most outrageous,” said White House National Economic Council chairman Lawrence Summers on ABC’s “This Week.” “What that company did, the way it was not regulated, the way no one was watching, what’s proved necessary, it is outrageous.”