U.S. lawmakers expressed outrage in a congressional hearing on Wednesday about tens of millions of dollars in bonuses paid out by the troubled insurance conglomerate, American International Group, or AIG. Testimony by AIG's chief executive Edward Liddy came amid increasing pressure on the company from Congress and the Obama administration to recover the funds.
With Democrats and Republicans pursuing legislative steps to try to recover tens of millions of dollars AIG paid in employee retention bonuses, Liddy faced angry and frustrated members of a House of Representatives financial services subcommittee.
AIG received about $170 billion in government funds under the Troubled Asset Relief Program, or TARP. The company is under fire because of $220 million paid out as retention bonuses, including $165 million recently paid under contracts concluded last year.
At a time when Americans face economic hardships, the panel chairman, Democrat Paul Kanjorski, said million-dollar bonuses for AIG employees are intolerable.
"Something is seriously out of whack and AIG needs to fix it now. We face the most challenging economy since the Great Depression [of the 1930s]. Many have made personal sacrifices to survive these difficult times. AIG and its employees should do the same," he said.
Named six months ago to take over the faltering company, Edward Liddy said he shares the anger many Americans have with "mistakes made at AIG on a scale few could have ever imagined possible."
But he said compensation payments under legal contracts should be honored, saying that doing so will help prevent the complete collapse of AIG's financial products units, which would pose a wider risk to the U.S. and global economies.
"Make no mistake - had I been CEO [i.e., Chief Executive Officer] at the time, I would never have approved the retention contracts that were put in place over a year ago. It was distasteful to have to make these payments," he said. "But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high and if not paid we ran the risk that we would have happen what everyone has worked so hard thus far not to have happen," he added.
Liddy said U.S. taxpayers still face substantial risks from $1.6 trillion remaining in the portfolio of AIG's financial products unit, adding that he is trying desperately to prevent the uncontrolled collapse of that business in order to pay back U.S. government funds and prevent another shock to the economy.
Liddy also announced that employees in the financial products division who received $100,000 or more in retention bonuses have been asked to return at least half of the money.
Many lawmakers are troubled by AIG's justifications for the pay outs.
Democrat, Gary Peters said, "People are sick of this double standard where working class and middle class workers are treated differently than the financial industry executives. What people are looking for is a shared sense of sacrifice."
Democrat Paul Hodes said the government must recover bonuses paid to AIG employees.
"As far as the American people are concerned, I think AIG now stands for 'arrogance, incompetence and greed.' It is unacceptable that TARP funds are being pocketed by AIG executives and it must not be allowed to stand," he said.
Republican Spencer Bachus said AIG engaged in "reckless and risky behavior". But he asserted that Congress also must share some of the blame.
"This Congress, some of our policies, have contributed to some of that behavior. The failure to regulate, the failure of oversight by this Congress. We are [also] to blame," he said.
President Barack Obama said again on Wednesday that his administration will pursue every legal avenue to recover the bonuses from AIG.
Saying that Americans have a right to be angry about AIG, the president said regulatory structures are needed to prevent a recurrence of financial system excesses and another economic meltdown.
"I am confident that we can strike the right balance that allows our financial system to stabilize, allows people to innovate in the financial markets, but don't allow them to put everybody else's savings, everybody else's well-being, other people's jobs, other people's homes at risk. And that is the task that lies before us and I am confident we can get it done," said the president.
Back in the congressional hearing room, Republicans continued to assert that the Obama administration and Treasury Secretary Timothy Geithner, in particular, failed to exert enough oversight over how government financial rescue funds were spent.
Republican, Mike Castle said, "It is my understanding that the Treasury [Department], Federal Reserve, and AIG executives have been discussing these bonus payments amongst themselves for the last three months. I would like to know what was said between these agencies, what options were weighed and how the bonus decisions were ultimately made."
House Financial Services Committee Chairman, Democrat Barney Frank asked AIG chief Liddy to provide Congress "without restriction" the names of AIG employees who received bonuses.
In response, Liddy said he would comply with any congressional subpoena to obtain the information, but he expressed concern for the safety of company employees, referring to anonymous death threats made in recent days against company employees.