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Obama blasts AIG 'outrage,' will try to block bonuses
President Barack Obama said Monday he will attempt to block bonuses to executives at ailing insurance giant AIG, payments he described as an "outrage."
"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama told politicians and reporters in the Roosevelt Room of the White House, where he and Treasury Secretary Tim Geithner were unveiling a package to aid the nation's small businesses.
The president expressed dismay and anger over the bonuses to executives at AIG, which has received $173 billion in U.S. government bailouts over the past six months.
"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?"
Obama was referring to the bonuses paid to traders in AIG's financial products division, the tiny group of people who crafted complicated deals that wound up shaking the world's economic foundations.
The president said he has asked Geithner to "pursue every single legal avenue to block these bonuses and make the American taxpayers whole."
Obama spared AIG's new CEO, Edward Liddy, from criticism, saying he got the job "after the contracts that led to these bonuses were agreed to last year."
But he said the impropriety of the bonuses goes beyond economics. "It's about our fundamental values," he said.
"All across the country, there are people who are working hard and meeting their responsibilities every single day, without the benefit of government bailouts or multimillion-dollar bonuses. You've got a bunch of small-business people here who are struggling just to keep their credit line open," Obama said.
"And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic that we have to demand."
Obama said he would work with Congress to change the laws so that such a situation cannot recur.
Then, coughing, he added in jest, "I'm choked up with anger here."
Under pressure from the Treasury, AIG scaled back the bonus plans and pledged to reduce 2009 bonuses -- or "retention payments" -- by at least 30 percent. That did little to temper outrage at the initial plan, however.
In a letter Sunday to Geithner, U.S. Sen. Russ Feingold urged the Obama administration to explore "legal options" to prevent the millions in AIG payouts.
"I write to ask why any bonuses would be legally required, given the company's abysmal performance," says Feingold, D-Wisconsin.
Feingold asked whether the bonuses could be canceled or recouped from recipients, and whether the administration will sue AIG executives for breaching their duties to shareholders
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Lawrence Summers, head of the National Economic Council, told ABC's "This Week."
"What that company did, the way it was not regulated, the way no one was watching, what's proved necessary, it is outrageous."
And on "Fox News Sunday," White House economic adviser Austan Goolsbee said Geithner was "really upset by the news."
"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," Goolsbee said.
In a letter to Geithner, obtained Saturday by CNN, AIG Chairman and CEO Edward Liddy said his company was taking steps to limit compensation in AIG Financial Products -- the British-based unit responsible for issuing the risky credit default swaps that have brought the company to the brink of collapse. The default swaps amount to insurance against losses from bad loans, which have increased dramatically since the U.S. housing boom peaked.
In the letter to Geithner, Liddy said the unit's 25 highest-paid contract employees will reduce their salaries to $1 this year and all other officers in the unit will reduce their salaries by 10 percent. Other "non-cash compensation" will be reduced or eliminated. But he told Geithner that some bonus payments are binding legal obligations of the company, and "there are serious legal, as well as business consequences for not paying."
Rep. Barney Frank, the chairman of the House Financial Services Committee, told Fox that bailout recipients should have to follow stricter compensation rules, and said Congress should look into whether the bonuses are "legally recoverable."
"We can't just violate legal obligations, I understand that," the Massachusetts Democrat said. "But I do want to find out at what point these legal obligations were incurred. Who said, and at what point, 'We're going to give these bonuses no matter what?' And I do think it's inappropriate for those people to stay in power at that company."
Frank said that if banks complain that the Obama administration has made things too tough, "They can give the money back. We made that easy."
Goolsbee said AIG was following "a policy that's really not sensible, is obviously going to ignite the ire of millions of people."
"We've done exactly what we can do to prevent this kind of thing from happening again," Goolsbee said. Summers told ABC that the administration was taking "every legal step possible to limit those bonuses."
AIG lost a record $62 billion in the fourth quarter of 2008. It has more than 74 million insurance policies issued in 130 countries around the world.
