Published March 16, 2009
President Obama said Monday that he's urged his treasury secretary to do whatever he can to "block" bailed-out American International Group from distributing $165 million in bonuses, calling the insurance giant's actions "hard to understand."
The president, talking about the matter for the first time following revelations that AIG was going ahead with plans to shell out tens of millions in bonuses to executives, called the move "an outrage" and said it underscores the need to overhaul financial regulations.
"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," Obama said.
New York Attorney General Andrew Cuomo also announced his office would investigate the matter.
The U.S. government now has a massive stake in AIG, which has benefited from more than $170 billion in a federal rescue. Lawmakers have called for the government to use that influence to start cleaning house at the top levels of the company.
"I've asked Secretary (Timothy) Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole," Obama said Monday.
"This is not just a matter of dollars and cents. It's about our fundamental values," Obama said.
The $165 million was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.
The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
"Treasury has the instruments that can address the excessive retention bonuses, and add provisions to ensure that taxpayers are made whole," Gibbs said.
As for bonuses already in the pipeline, Cuomo said his office will investigate whether the employees were involved in the insurance giant's near-collapse and whether the $165 million in bonus payments are fraudulent under state law.
In a letter Monday to AIG chief executive Edward Liddy, Cuomo said he has been investigating AIG compensation arrangements since last fall and he was "disturbed" to learn over the weekend of its plans to pay millions in bonuses to members of its Financial Products subsidiary.
It also was revealed over the weekend that AIG used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks -- 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 also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
Key lawmakers have been calling for the government to crack down on AIG in light of the news.
House Speaker Nancy Pelosi issued a written statement Monday calling on executives to give up the bonuses, or else.
"AIG executives should voluntarily forgo their excessive retention payments, but if they refuse, the U.S. Treasury should use whatever tools at its disposal to make AIG repay taxpayers," she said.
Though Liddy claims his hands are contractually tied, Rep. Barney Frank, D-Mass., said Monday he's not convinced.
"I want to look at it very carefully," said the chairman of the House Financial Services Committee. "These people may have a right to their bonuses -- they don't have a right to their jobs forever."
Appearing on NBC's "Today" show, Frank noted that federal government "is the 80 percent owner" of the company and has some leverage.
"Maybe it's time to fire some people," he said, adding that the bonuses were "rewarding incompetence."
"Forget about the legal matter here for a second," Frank said. "These bonuses are going to people who screwed this thing up enormously, who made terrible decisions."
Obama stressed Monday that Liddy came on board with AIG after the bonus contracts were signed last year.
A subcommittee for Frank's panel plans to call Liddy to testify during a hearing on Wednesday.
Paul Kanjorski, D-Pa., chairman of the subcommittee, said in a statement that lawmakers would investigate the bonuses at the hearing.
"We cannot allow individuals who acted irresponsibly to reap undue benefits," he said.
"These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous," the Alabama Republican said.
AIG has agreed to Obama administration requests to restrain future payments. Geithner pressed the president's case with Liddy last week.
In a letter to Geithner dated Saturday, Liddy said 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.
The Associated Press contributed to this report.