Posted March. 19, 2009 09:51,
American International Groups decision to pay employee bonuses with government bailout funds has led to fierce public anger in the United States.
AIG was given more than 170 billion U.S. dollars from Washington to avoid collapse, but paid 165 million dollars in bonuses.
Congress and prosecutors have pressed the insurance giant, saying they will act to retract the bonuses. Though the Obama administration is struggling with the matter, the debate over AIG is expected to linger.
○ AIG paid bonuses Friday
In his letter to House Financial Services Committee Chairman Barney Frank, New York Attorney General Andrew Cuomo released details of AIGs bonus payments, saying I hope this information will be useful to the committee at its hearing on AIG tomorrow.
According to the letter, the top recipient received 6.4 million dollars and 73 individuals received bonuses of one million dollars or more.
The bonuses were paid Friday.
Worse, AIGs retention bonus given to outstanding staff to prevent them from leaving, turned out inefficient. The letter said 11 people who received the bonus of one million dollars or more had left AIG, including one who received 4.6 million dollars.
Prosecutors said AIG plans to pay retention bonuses of 57 million dollars to employees who will leave the insurer soon.
Cuomo said, Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires with taxpayers money.
New York prosecutors will investigate whether AIGs bonus payouts were subject to swindle. Cuomo will summon AIG Chairman Edward Liddy since the company has declined to disclose the list of bonus recipients and the reasons for payment.
○ Rush to retract AIGs bonuses
House Speaker Nancy Pelosi asked three committee chairmen including Frank to draft bills to get taxpayers money back. Pelosi is coming up with measures to pass the bills at the House this week.
House members have suggested bills under which excessive bonuses paid to executives of companies that received bailout money could be taken back. One bill seeks to impose a tax of 100 percent on bonuses exceeding 100,000 dollars.
The Senate also supports measures to get back all bonuses distributed by AIG.
Senate Majority Leader Harry Reid said, I certainly expect them to look for every possible legal way to live up to the pledge made yesterday on behalf of taxpayers.
New York Sen. Chuck Schumer added, 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.
Ten senators signed a letter and sent it to Liddy, urging him to encourage his employees to return the bonuses. They said they are working on a bill to impose a steep tax up to 91 percent on the bonuses after AIGs request for bailout funds.
Iowa Senator Charles Grassley, the ranking Republican on the Senate finance committee, said, If they would follow the Japanese example and come before the American people and take that deep bow and say, Im sorry, and then either do one of two things: resign or go commit suicide.
Certain congressmen have also criticized Treasury Secretary Timothy Geithner, who is in charge of the governments federal bailout. They said he should have invalidated AIGs bonus contracts with its employees before giving rescue funds to the insurer.
Alabama Senator Richard Shelby, the ranking Republican on the Senate banking committee, blasted Geithners mishandling of AIG bonuses.
In a letter sent to Congress, Geithner said, AIG will pay the Treasury an amount equal to the payments.
He added the Treasury will deduct 165 million dollars paid to AIG employees from 30 billion dollars in government assistance to soon go to the company.
○ Extreme case of moral hazard
AIGs payment of hefty bonuses has reignited controversy over Wall Streets moral hazard.
The insurer managed to avoid bankruptcy thanks to taxpayers money, yet gave hefty bonuses to its employees by citing contracts. AIGs case is considered an example of extreme greed on Wall Street.
The Wall Street Journal said certain financial institutions on Wall Street that received government bailouts are seeking to avoid strict regulations on hefty bonuses given public outrage over AIG.