U.S. lawmakers expressed outrage in a congressional hearing on Wednesday about tens of millions of dollars in employee bonuses paid by the troubled insurance conglomerate, American International Group, or AIG. Testimony by AIG's chief executive came as the House of Representatives prepared to take up legislation on Thursday aimed at recovering government money.
House Democrats announced that the House will consider a measure that would impose a tax as high as 90 percent on bonuses handed out by companies that receive government funds.
House Ways and Means Committee Chairman Charles Rangel said the step is an attempt to reverse the damage done by what he called "greed and irresponsibility" in the financial world.
"One thing we know for certain, this is not going to happen again. The light is flashing and letting them know that American won't take it. And the House of Representatives [has] heard their voices and we have acted," he said.
In a long day before the House Financial Services Subcommittee, CEO Edward Liddy faced angry and frustrated lawmakers asking why AIG went ahead with $165 million in bonuses designed to keep employees with the company under contracts concluded before the U.S. government's financial rescue program got underway.
AIG received about $170 billion in government funds under the Troubled Asset Relief Program approved by Congress late last year to deal with the U.S. financial meltdown.
Democrat Paul Kanjorski and other lawmakers said million dollar bonuses are intolerable at a time when Americans face economic hardships.
"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, Liddy said he shares the anger Americans have with "mistakes made at AIG on a scale few could have ever imagined possible."
But, he said, bonuses based on legal contracts should be honored, adding that they would help prevent a complete collapse of AIG's financial products unit, which would pose a wider economic risk.
"It was distasteful to have to make these payments. 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 said.
Liddy 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.
House Financial Services Committee Chairman, Democrat Barney Frank says the U.S. government should use the leverage it has as 80 percent owner of AIG to recover the funds.
"I think the time has come for the federal government to assert greater ownership rights," he said.
Frank said he reserves the right to issue subpoenas to obtain the names of employees who received bonuses. Liddy expressed concern that providing such information without an assurance of confidentiality might place individuals in physical jeopardy and referred to anonymous threats against AIG employees.
Democratic Representative Gary Ackerman had this exchange with Liddy:
ACKERMAN: "I want to try and help you . . .
"LIDDY: "Thank you, I need all the help I can get.
"ACKERMAN: "All right, this old school teacher is going to give you a little bit of advice. Pay the $165 million back."
President Barack Obama said on Wednesday that Americans have a right to be angry, adding that new regulatory structures are needed to prevent a recurrence of financial system excesses and another economic crisis.
"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," he said.
But Republicans such as Scott Garrett and Jeb Hensarling assert that the Obama administration in its first months failed to exert enough oversight over government financial rescue funds.
GARRETT: "Why didn't [Treasury] Secretary [Timothy] Geithner raise this issue just last week with the president when we knew he was briefed in detail about the bonuses from the CEO of AIG? What about the fact that the Fed [i.e., Federal Reserve, the nation's central bank] and the administration still have not outlined an exit strategy from this whole situation? "
HENSARLING: "The greater outrage ought to be [that] four [financial] bailouts [of AIG] later, [there is] no end in sight and no plan of sustainability or exit strategy that has been explained to this committee."
Scott Polakoff with the U.S. government's Office of Thrift Supervision, the primary regulator of federally-chartered banks, said regulators failed to predict how a U.S. housing market collapse would affect the complex financial instruments known as credit default swaps that AIG and other institutions engaged in.
In outlining efforts to keep AIG afloat, Edward Liddy told lawmakers that the $1.6 trillion remaining in the portfolio of the company's financial products unit poses a substantial risk to U.S. taxpayers.