Solutions to AIG’s bonuses? Death or taxes

Members of Congress and President Barack Obama are clearly as angry as their constituents over the millions of dollars in bonuses awarded to American International Group’s financial products employees, likely paid by injections of taxpayers’ monies since the U.S. government owns a substantive portion of the insurance corporation.

AIG agreed to issue the government a 79.9 percent equity stake in exchange for $85 billion last September, after reaching a liquidity crisis. The total amount of bailout funds received by AIG since last fall top $180 billion.

In spite of admonishments by Federal Reserve Chairman Ben Bernanke earlier this month, in which AIG was scolded for having abused loopholes in the financial regulatory system through excessive use of credit default swaps, AIG began to process bonuses or retention pay to employees in the financial products group which sold these swaps.

Furor over the bonuses mounted over the weekend, after it was reported that the bonuses would not only be paid, but that AIG believed that it had no legal recourse but to issue the bonuses.

President Barack Obama said yesterday that he was “choked up with anger” over the bonuses, and asked Treasury Secretary Tim Geithner to take all legal measures to recover the bonus money.

New York’s state attorney general Andrew Cuomo sent a letter yesterday to AIG demanding the names of employees who received the bonuses; Cuomo threatened to subpoena the information if it was not furnished yesterday.

Rep. Chuck Grassley (R-Iowa) said that the AIG employees in question should consider the Japanese approach, suggesting that they take responsibility for the failure of AIG, offer an apology and their resignation with a deep bow to the American public, or suicide.

Rep. Gary Peters (D-Michigan) submitted a bill yesterday which would implement a 60% tax rate on all bonuses about $10 thousand, targeting employees of firms in which the U.S. government holds an equity stake greater than 79 percent. The bill is clearly aimed at the excesses of AIG, but is believed to avoid rejection as a “bill of attainder” since the bill covers any firm in which the government may hold nearly 80 percent or more ownership stake. Given the current conditions within the financial industry, it’s not a stretch to imagine other large banks fitting similar conditions if their liquidity does not improve.

On Wednesday the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises will hold a hearing about AIG’s operations, at which AIG’s CEO Edward Liddy is expected to testify. Questions from the subcommittee are expected to include queries about the legal justification for payment of the bonuses, in spite of AIG’s announcement earlier this month of a $61.7 billion quarterly loss, the largest quarterly loss ever reported in U.S. business history.

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John E. Bredehoft (Empoprises)

I love all of these targeted bills like the one that Rep. Gary Peters wrote. Hmm…only applies to firms in which the U.S. government holds an equity stake greater than 79 percent? Why not just make it apply to firms who sponsor sports teams in the city of Manchester, England? Yet another reason why politicians should be kept far away from AIG – they're bound to make a bad situation infinitely worse.

chetlyzarko

The utter hypocrisy of Peters on this one stinks.

He voted for the package. He didn't read it. He agreed with the president that the package should be rushed fast and again, didn't read.

He should Tax all Congressman who make more than $100,000 and voted for the bill at 100% tax rate before he tries to turn his own steaming lump of dung into political gold.

Rayne1

Apparently the persons who voted for the first $85 billion in exchange for 79.9% equity stake last September also didn't perform thorough due diligence — that includes the Treasury Secretary and Fed Reserve Chair who pushed the package — since the “retention bonuses” were on the books for over a year.

Where were you then?

chetlyzarko

Where were you and your reporters? I mean, you and your reporters are paid to cover that kind of stuff – I'm not. So you ask your readers – where they were covering something you could have uncovered? And had you found it then, it'd no doubt have embarrassed R's.

Turns out that Democrat Senator Chris Dodd is the guy who slipped the language in there. And he received $108,000 from AIG in campaign donations. Where were you then … and now … on that issue.

You blame your readers – and the world – for not knowing as if they have deep inside access to that. What a bizarro world you see. In reality, Tim Geitner knew weeks ago but never disclosed it publicly until it happened – O'Bama has broken all of his transparency promises (bill waiting periods the most relevant here). Gary Peters voted for a bill he didn't have time to read or investigate – that's why his faux outrrage is misplaced. He demands AIG employees admit their moral responsibility – unless he at least admits his own while doing that, its hypocritical.

Where were you then? Where everyone else was – in the non-transparent dark.

Where are we now on government spending? In the dark – until its too late to do anything about the open barn doors.

I'll admit to you that now-out-of-power Republicans share some historical culpability, but that not the issue of who had the “last clear chance” to stop this accident, as the term of legal art would suggest. It also doesn't represent real change – shifting blame is politics as usual.

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Solutions to AIG’s bonuses? Death or taxes