President Barack Obama is going after the bonuses paid to employees of insurer AIG, expressing outrage that taxpayer money was used to reward executives at the bailed-out firm.
From the Washington Post:
“It’s a mob effect,” one senior executive said. “It’s putting people’s lives in danger.”
Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products’ complex trades and who are trying to dismantle the division before it further endangers the world’s economy.
“It’s going to blow up,” said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. “I have a horrible, horrible, horrible feeling that this is going to end badly.”
President Obama yesterday vowed to “pursue every legal avenue to block these bonuses.” But that pledge might have come too late. About $165 million in retention payments started to go out Friday to employees at Financial Products, after numerous discussions with the Treasury Department and the Federal Reserve.
Though the insurance giant is being kept alive on a government bailout of up to $180 billion, it is now paying out $165 million in bonuses.
“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama said.
“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” he said at the White House.
“How do they justify this outrage to the taxpayers who are keeping the company afloat?”
Obama said he had ordered Treasury Secretary Timothy Geithner to pursue “every single legal avenue” to cancel the bonuses and a Treasury official said later it would modify a planned $30 billion capital infusion for American International Group to try to recoup the bonuses.
White House spokesman Robert Gibbs said the Treasury could impose rules on the $30 billion loan facility for AIG but declined to go into specifics or spell out ways the legal avenues available to the administration to block the payments.
Obama said Geithner was working on the problem.
“I want everybody to be clear that Secretary Geithner’s been on the case. He’s working to resolve this matter with the new CEO, Edward Liddy, who, by the way, everybody needs to understand, came on board after the contracts that led to these bonuses were agreed to last year,” Obama said.
Liddy told Geithner in a letter the insurer was legally obliged to fulfill 2008 employee retention payments but had agreed to revamp its system for future bonuses.
Obama said overall financial regulatory reform was vital to ensure this did not occur again.
He said the government needed “some form of resolution mechanism in dealing with troubled financial institutions, so that we’ve got greater authority to protect American taxpayers and our financial system in cases such as this.”
Pausing to cough, Obama said he was “choked up with anger.”
“We don’t have all the … regulatory power that we need. And this is something that I expect to work with Congress to deal with in the weeks and months to come.”