The White House Seeks to Block Bonuses at A.I.G.
By EDMUND L. ANDREWS and JACKIE CALMESPublished: March 17, 2009
WASHINGTON - President Obama and his top economic advisers scrambled to calm a nationwide furor on Monday over bonuses paid at the American International Group, even as administration officials acknowledged they had known about the issue for months.
One day after the economic advisers insisted that their hands had been tied by contracts requiring the payments, Mr. Obama ordered the Treasury Department to "pursue every single legal avenue to block these bonuses" and make the American taxpayers whole.
"In the last six months, A.I.G. has received substantial sums from the U.S. Treasury," Mr. Obama said. "How do they justify this outrage to the taxpayers who are keeping the company afloat?
"But as anger from lawmakers escalated and criticism of the retention bonuses overshadowed other news for a second consecutive day, White House and Treasury officials offered only a general sense of how they would carry out Mr. Obama's order and few explanations for why they had not acted earlier.
White House officials said the Treasury would recapture the bonus money by writing new requirements into a $30 billion installment of government aid scheduled to go soon to the ailing insurance conglomerate. The government has already provided $170 billion in taxpayer assistance to keep A.I.G from failing and now owns nearly 80 percent of the company.
But administration officials conceded that almost all of the most recent round of bonuses, totaling $165 million, had been paid last Friday, one day before the Treasury publicly acknowledged that it had reluctantly approved the payouts. The officials said that people who received the bonuses would probably be able to keep them.
Bonuses at A.I.G.
By seeking to link repayment of the bonus money to the coming $30 billion in assistance, the administration seemed to leave open the possibility that the company would effectively be repaying taxpayers with taxpayer money. A Treasury official disputed that taxpayers would be repaying themselves, but could not specify how else the company would give back the money.
Increasing the pressure on the company, Andrew M. Cuomo, the New York attorney general, said he would subpoena A.I.G. for the names, job descriptions and performance evaluations of the employees receiving the bonuses.
"You could argue that if taxpayers hadn't bailed out A.I.G., the contracts wouldn't be worth the paper they were signed on," Mr. Cuomo said.
For all of the furor since details of the bonuses became public over the last several days, the issue of retention payments to A.I.G. employees globally has been percolating publicly since A.I.G. was bailed out in mid-September. About $1 billion in retention payments for 2008 and 2009 are in question, but the controversy involves about half of that, about $450 million over two years, that was intended for employees of A.I.G.'s financial products unit. That unit was the source of the financial derivatives blamed for the near-collapse at the heart of the economy's downturn.
The Treasury and Federal Reserve officials said they had known about the bonus program as far back as last fall. The program has provoked public protests from a handful of critics and at least one Democratic lawmaker in Congress - Representative Elijah E. Cummings of Maryland, a member of the House Committee on Government Oversight, who demanded without success in December that A.I.G. provide information about the bonuses.
Mr. Cummings said he had been communicating regularly with A.I.G.'s chief executive, Edward M. Liddy, about the bonuses ever since December. Mr. Cummings said he was particularly concerned that the bonuses were supposed to be paid by March 15, adding that he assumed Treasury officials had the same worries.
"I assumed that they were well aware of it and would take appropriate action" before the March 15 deadline, Mr. Cummings said. "In light of the biggest quarterly loss in history, you would think that A.I.G. and Mr. Liddy would have been able to convince folks who were supposed to be getting these retention payments, based at least in part on performance, that they might want to voluntarily not take all or part of them."
Treasury and Fed officials said they knew that A.I.G. paid $55 million in bonuses in December.
But administration officials said that the Treasury secretary, Timothy F. Geithner, did not personally become aware until last week that an even bigger round of payments was due on March 15. Administration officials said Mr. Geithner learned of the deadline early last week, when the Federal Reserve Bank of New York alerted him that the bonus payments were coming due.
Mr. Geithner, according to Treasury officials, insisted that the bonus plan was "unacceptable" and called Mr. Liddy on Wednesday to demand changes.
A.I.G. executives said they would never have proceeded with the bonus payments before getting approval from the Treasury and the Federal Reserve.
"We would never make any important business decisions without discussing them with our government managers and owners," said one executive, who did not want to be identified because of the sensitivity of the matter.
A.I.G. has so far declined to identify the employees receiving the bonuses, some of whom are thought to be foreigners who worked out of offices in London.
The White House Seeks to Block Bonuses at A.I.G.
The tangle over bonuses highlighted a broader confusion over who actually controls the insurance conglomerate. The Treasury and the Federal Reserve have both pumped vast amounts of money into the company, but the two agencies have never made it clear which of them is in charge. Both agencies have insisted that neither of them "owns" A.I.G., or controls its management decisions, even though the federal government owns almost 80 percent of the company. As a result, the Treasury and Fed officials have repeatedly resisted forcing the company to disclose more about how A.I.G. was spending taxpayer money.
It was only on Sunday, after Democratic lawmakers had criticized the Fed and Treasury for weeks for being too protective of the company, that A.I.G. released the names of the companies that it had repaid with money it received from the government.
Since November, A.I.G.'s financial products unit has been led by Gerry Pasciucco, a former vice chairman of Morgan Stanley who was brought in by Mr. Liddy with instructions to wind down the unit. Company executives said they faced a need to keep skilled professionals in the business unit, which traded trillions of dollars worth of financial derivatives, because it would take great expertise to shut down the business in an orderly manner and without causing more turmoil.
Christina Pretto, a spokeswoman for A.I.G., said Mr. Pasciucco was traveling on Monday and was unavailable. But she said that since his arrival, the company had reduced the volume of its financial positions by more than 25 percent, starting with the "complex and difficult-to-manage positions."
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http://mobile.nytimes.com/2009/03/17/business/17bailout.xml
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My Thoughts
"The Treasury and Federal Reserve officials said they had known about the bonus program as far back as last fall."
That sentence is what jumped out at me the most. They knew about this for months. How can they feign shock and outrage when they didn't do one thing to stop it before it happened? Sen. Dodd (D) even was the one responsible for the amendment in the bill that allowed them to keep their bonuses. they feignback as last fall.
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