Washington: Congress prepared on Wednesday to rip into the chief of American International Group Inc., the insurance giant that took federal bailout money then paid huge bonuses to its employees. President Barack Obama was leaving town for two days in California.
Edward M Liddy, who only took over as chairman and chief executive of AIG at the request of the government, faces a grilling over the more than $200 million in bonus payments. The payouts--Liddy says they were contractually mandated--were designed to keep employees from leaving the firm's financial products division, the sector under fire for much of the business that crippled the company.
AIG has taken $170 billion in federal bailout money since the US financial crisis erupted late last year with the collapse of the housing market, accelerating a recession that has reached depths not seen since World War II.
Obama will escape the capital, but the AIG brouhaha won't be left behind during his two-day journey to California, that includes a first-ever presidential appearance on Jay Leno's popular late-night American television talk show and town hall meetings in Los Angeles and Orange County, a big tourist destination.
The financial bailout program remains politically unpopular and has been a drag on Obama's new presidency, even though the plan began under his predecessor, George W. Bush. The White House is well aware of the nation's bailout fatigue--anger that hundreds of billions of taxpayer dollars have gone to prop up financial institutions that made poor decisions, while many others who have done no wrong have paid the price.
Overall, AIG has paid $220 million in retention awards to its financial products employees; it distributed $55 million in December and $165 million had to be paid this month.
Documents provided by AIG to the Treasury Department said the awards ranged from $1,000 to nearly $6.5 million. Seven employees were to receive more than $3 million. New York Attorney General Andrew Cuomo said AIG last week paid bonuses of $1 million or more to 73 employees, including 11 who no longer work there.
Public outrage--reflected in congressional anger--is tarnishing the Obama administration. In particular, Treasury Secretary Timothy Geithner was taking heat for not doing more to block the bonus payments.
There were also questions about when he informed Obama of the pending payouts. The president joined the angry chorus against AIG earlier this week, but not before word of the bonus payments consumed weekend television interview programs.
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Explaining the sudden burst of official outrage, the White House for the first time on Tuesday night said Geithner learned of the impending bonus payments a week ago Tuesday, told the White House about them last Thursday, and senior aides informed President Barack Obama later that day.
As talk of Geithner's possible resignation swirled through Washington, White House officials were obliged to say that Geithner retained the president's full confidence.
The retention payments were not Liddy's idea. He is not getting a bonus. The deals were cut early last year, long before then-Treasury Secretary Henry Paulson asked Liddy to take over the company.
"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Liddy wrote to Geithner, over the weekend.
But the payments went out and Congress wants the money back. Liddy, who had been scheduled to testify about AIG before the bonus story took root, becomes a handy target.
The bonus uproar blocked out other news that might have set off explosions of anger. AIG also disclosed over the weekend that it used more than $90 billion in federal aid to pay debts to foreign and domestic banks, including some that had multibillion-dollar U.S. government bailouts of their own.
AIG is the single largest recipient of government assistance --a company so big and whose financial transactions were so intricate and intertwined that it was considered simply too big to fail.
Lawmakers already were troubled by the idea that any one institution's failure could single-handedly topple the financial system.
Congress and the Obama administration on Tuesday appeared to race each other to find ways to strip bonus recipients of their bonus money.
The Democratic chairman of the Senate Finance Committee, Max Baucus of Montana, and the panel's top Republican, Charles Grassley of Iowa, immediately proposed legislation that would require companies and individuals to pay a 35 percent tax on all retention awards and on all other bonuses over $50,000. Others suggested even higher tax rates.
"If you don't return it on your own, we will do it for you," Sen. Charles Schumer, a New York Democrat, said.
Amid the clamor, Geithner said he was working with the Justice Department to find ways to recover some of the bonus payments. He cited a provision in the recent economic stimulus law that gave him authority to review compensation to the most highly paid employees of companies that already have received federal assistance.
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