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Congress Prods the White House to Use Its Leverage With AIG

AIG's plan to pay out $165 million in bonuses to its disgraced Financial Products unit is prompting some surprising unity on Capitol Hill: Democrats and Republicans in Congress are taking a forward-leaning approach to holding AIG accountable to the taxpayers, while the Obama administration appears to be caught a few steps behind.

The current controversy began on Saturday with a letter from AIG CEO Edward Liddy to Treasury Secretary Tim Geithner. Liddy's missive has been quoted frequently, but it's hard to get the full picture of AIG's commitment to its own enrichment without reading the complete version -- TPMDC's copy is viewable here.

Lawmakers from both ends of the ideological spectrum are seething at Liddy's argument to Geithner that "we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses ... if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

House Financial Services Committee Chairman Barney Frank (D-MA) told NBC today that firings may be necessary at AIG, whether or not the company's 2008 bonuses can be legally withheld. Meanwhile, Richard Shelby (R-AL), Frank's frequent night-and-day opposite on financial issues and the senior Republican on the Senate Banking Committee, was telling ABC the exact same thing.

"You're rewarding failure. A lot of these people should be fired, not awarded a bonus," Shelby said.

So where is the Obama administration? So far, the president and his advisers have shared Congress' keen sense of outrage but remained a few steps behind lawmakers on the fast-moving push to deny AIG its bonuses.

White House economic adviser Larry Summers said yesterday that Geithner had done what he could to recover the bonuses -- which Liddy has promised only to scale back by 30% for 2009 -- but emphasized the need to avoid future cases similar to AIG, rather than look backward. Summers told ABC:

What the Obama administration has done, based on the advice of attorneys, is done everything it can to, within the law and within the tradition of upholding law that we have in this country, to limit these bonuses.

And they have, as a result of Secretary Geithner's efforts, been scaled back.

And, obviously, this whole area is something we're going to have to look at, as we think about regulation in the future. Because no one can be satisfied with -- with what's happened. And in many cases, we just can't continue to do it -- to do it in this way.

Dr. Christina Romer, who chairs Obama's Council of Economic Advisers, said yesterday that the administration was pursuing "every legal means to deal with" AIG's refusal to cancel its bonuses.

You know, I think the truth is AIG is just a problem. It's not a problem anyone wants to have to deal with, and it's unfortunately a problem we've inherited and are managing the best that we can with ... [T]here are questions of contracts and what we're able to do with, with contracts that have been signed.

Romer did not address the question being raised by several senior members of Congress -- whether the government, acting as AIG's largest shareholder, has used all of its political leverage to push the company into forgoing its legal rights to hang onto the bonuses.

The legal hurdles the government faces, in fact, are bigger than today's bonus scandal. Geithner himself said last week that the government lacks the legal authority to prevent AIG's total collapse from recurring at another company.

What's clear right now: If congressional Republicans and Democrats continue to get out in front in responding to taxpayer ire over AIG, the Obama administration may be forced to escalate its efforts.


28 Comments

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Well now we all know why the king bailed out aig last year. There are 2.5 billion reasons out of the 100 billion shoveled in so far. Those 2.5 billion reasons are the total payments to goldman sachs. Basically, the bailout was a back door way to give goldman cash, of course at a tremendous cost to the american taxpayer. Pathetic.

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Let me get this straight. Are you suggesting that we gave 170 bn to AIG so Goldman Sachs could get 2.5 bn?

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Yep. All the people at the top of the food chain in treasury were goldman sachs. If goldman went under, paulson would have lost a ton of money. How is it that goldman is the only survivor in this fiasco? The insurance through aig.

They would never have given a direct payment. Look at what happened to merril et al. They made them get bought up by a bank and then paid the bank.

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The $2.5 billion is only part of the AIG bailout money that went to Goldman Sachs. There was also $5.6 billion in "Maiden Lane III" payments and $4.8 billion in "U.S. Securities Lending" payments for a total of $12.9 billion.

Are you suggesting that its unreasonable to draw a line between that $12.9 to Goldman Sachs and former Goldman Sachs CEO Henry Paulson?

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So Goldman Sachs is double dipping, $10 billion directly from the Treasury and another $2.5 Billion indirectly through AIG?

And to think, all Willy Sutton did was rob banks for perhaps a few thousand.

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Unless I misread that memo, the entire $12.9 billion went to Goldman Sachs indirectly through AIG (and is in addition to any other funds that Goldman received directly from the U.S. Treasury).

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I don't think it was double dipping. Goldman Sachs was "entitled" to payment on the Credit Default Swap insurance they got from AIG. The TARP payment was separate from AIG's.
My concern is that everyone's so focused on the bonuses, we've forgotten about those dirty little toxic assets on AIG's books, like the future liabilities from all those other CDS's AIG sold. I understand they totaled over a TRILLION.

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Sound and fury signifying nothing. Congress has the authority to do more than rant if it wants. Enact legislation allowing AIG to enter into a limited form of bankruptcy and then use the bankruptcy proceedings to nullify the contracts and clawback the bonuses. Or, heck, how about a 100% federal tax on bonus payments recieved by executives in financial institutions where the United States holds over a 50 percent share?

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Go a few steps further ... Congress could enact legislation:
- requiring a comprehensive and intrusive quarterly 3rd party audit for any company that employs any of the personnel in question, to verify their numbers and risk assumptions because it's been demonstrated they can't be trusted
- prohibiting any form of tax write-offs to the companies and officers who employ any of the above personnel

There's ways Congress could guarantee that none of those folks ever work in finance again, maybe even the private sector. Just make it onerous for any firm that employs them.

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From what I'm hearing, these contractual 'bonuses' are just commission. MSN's labeled them 'bonuses', but they are rewards to individuals for selling a certain number of insurance policies. If it's in a AIG worker's contract, then it's not, technically, a bonus.

I don't like AIG, I don't like what they have done, I think we ought to let them fail, but this bonus crap is, well, crap.

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I respect what you're saying, but even if they're straight commissions, I'm not satisfied that they have leaned on these people enough. The sums could at least be slashed, IMO. It may be a crap opinion, but mine is that Liddy should be fired, and Geithner needs a sit-down with Rahm Emanuel.

The President has not been very well served here.

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You seem to know more about the details of these contracts than I do, but what do you think is the appropriate contractual "reward" for selling "a certain number of insurance policies" that cause a global financial meltdown? Remember, most of AIG remains a good, solid enterprise. These "bonuses" or "commissions" are going to the specific group in AIG that caused the problem.

AIG's contractual obligations matter, but when we are talking about misfeasance that has caused damage on the scale of what AIG Financial Products unit wrought -- and when the public fisc in epic volumes is required to address the disaster -- then public policy must come into play. Congress has the authority to set the public policy of the United States and abrograte these contractual obligations to the extent they violate it.

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I'm just saying that part of the problem is the language--that these payments have been called 'bonuses' and not 'commission'. If I were a AIG salesman, I'd want my contract to be fulfilled or would probably cause trouble (of course, in this climate, an AIG employee isn't going to win much).

Defending AIG and the section that caused the mess? Sorry, not going to do that. Personally, I think we ought to let AIG go into a managed bankruptcy, where the bad parts are spun off and allowed to fail in a controlled way, while the rest of the company can thrive and pay back the government over time. But is this even feasible? I don't know as the White House won't tell us what 'assets' are involved and what parties are involved either.

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[[If I were a AIG salesman, I'd want my contract to be fulfilled or would probably cause trouble]]

Not if you're one of the AIGFP execs getting a bonus. The last thing you want to start doing is answering questions under oath about what you did and how you did it.

Take their damn bonuses back, let them sue if they like, and have DOJ looking over their shoulder during the depositions. I think that'd be a lot of fun.

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AIG may be contractually obligated to pay the bonuses, but the recipients aren't obligated to accept them. Why not make their names (and pictures, and bios, etc.) all public and, in effect, dare them to accept? Or ask them to, thank you very much, return them to the taxpayers or explain why they aren't going to.

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This is the kind of thing that they obviously could have done already, haven't, and you wonder why the hell not. And part of it is because this Liddy doesn't have his heart in it, which is why he should be fired immediately.

Wall Street may be anxious to hire a guy determined to dole out premium bonuses in an insolvent company that should long ago be officially bankrupt. That may be just the kind of vision the market is looking for.

As I've said, the other question is why Geithner accepted his ridiculous explanation, absent steps like you indicated.

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FIRE Geithner!
FIRE Summers!

KILL AIG!!!!!

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DRINK BEER!

(sorry, I let all the capital letters go to my head! If you aren't inclined to drink beer, please don't let my opinion sway you in any way, shape, or fashion)

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Geithner : Summers :: Dubya : Cheney

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One thing AIG has done: produced a weird form of bipartisanship.

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Touche!

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LOL

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Douche!

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If I am a AIG employee I'd take my regular pay, say keep the bonus, and be damn glad to still have a job. And not in jail where they should be.
If these people take the bonuses they are nothing but two bit whores.
I feel better now that I've vented.

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We give out hundreds of billions of dollars to these firms, *no strings attached*, and we have the unmitigated gall to act shocked when they use it in a cavalier manner? These are the same companies that ran the global economy into the ground! What did we THINK they were going to do with the money?

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We received preferred shares of stock for our tax dollars. When the AIG stock price rises we make bank. So, why is Obama trying to penalize AIG. If AIG does well the tax payer does well. And has anyone received a bonus they didn't deserve?

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Why is Obama whining about AIG? The government gets back 40% of the AIG bonuses and if anyone cared about tax money they would of tried to save a little of it last week! If anyone deserves a bonus now it is AIG, they have to deal with a loud mouth double dipping "partner" that hasn't showed up for a day of work and can't even balance his own check book!

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Barney Frank was Maddow's show tonight and made the point that back in Sept. when AIG got the first bailout payment, it came from the FED not through TARP or the Treasury Dept.
Should the FED had been expected to perform a due diligence on AIG as to the strings they attached to the funds, like limiting executive compensation and/or bonuses?
What are the implications on the whole AIG fiasco if the FED started it and only later did Treasury take over "managing" the bailouts, first under Paulson and then Geithener??

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