"The chief executive of insurance giant American International Group told Congress today that he allowed millions of dollars in "distasteful" bonuses to be paid to top employees of a troubled division because he was trying to prevent that business from collapsing, but he said he has asked recipients to return part of the payments in view of public outrage over them."
“I have asked the employees of A.I.G. Financial Products to step up and do the right thing,” Mr. Liddy told lawmakers. “Specifically, I have asked those who received retention payments of $100,000 or more to return at least half of those payments.”
"Edward M. Liddy said AIG has been making progress in winding down a part of the firm that caused the problems, but he noted that the division -- AIG Financial Products -- still has a $1.6 trillion portfolio that continues to impose "substantial risk."
"Explaining his decision to let the retention bonus payments go ahead, Liddy told a subcommittee of the House Financial Services Committee, "I was trying desperately to prevent an uncontrolled collapse of that business." He referred to $165 million in retention bonuses that were paid last weekend, out of a total of more than $400 million in such bonuses payable for 2008 and 2009.Explaining his decision to let the retention bonus payments go ahead, Liddy told a subcommittee of the House Financial Services Committee, "I was trying desperately to prevent an uncontrolled collapse of that business." He referred to $165 million in retention bonuses that were paid last weekend, out of a total of more than $400 million in such bonuses payable for 2008 and 2009."
"In response to questions, Liddy said AIG has kept the Federal Reserve informed of its plans, including the bonus payments, but had not directly discussed them with the Treasury Department or Congress. He denied that there was "any intent to deceive or hide anything" from Treasury or the Congress."
"Of the 418 employees who received bonuses, 298 got more than $100,000, according to the New York attorney general, Andrew M. Cuomo. The highest bonus was $6.4 million, and 6 other employees received more than $4 million. Fifteen other people received bonuses of more than $2 million and 51 received $1 million to $2 million."
"In response to Mr. Liddy’s offer, Mr. Cuomo said in a statement that it was too little, too late. “Rather than take half-measures, A.I.G. should immediately turn over the list, which we have subpoenaed, of who got what and when,” Mr. Cuomo said.
"Before Mr. Liddy’s testimony, the A.I.G. affair prompted President Obama to declare that a culture of “excess greed” demonstrated in A.I.G.’s dealings should have no place in a new Wall Street.
“As we get out of this crisis, as we work toward getting ourselves out of this recession, I hope that Wall Street and the marketplace don’t think that we can return to business as usual,” the president said after meeting with his economic advisers."
"Accordingly, Mr. Obama said, he will push for quick Congressional legislation to create a regulatory framework for entities like A.I.G., which is not a bank, similar to the powers that the Federal Deposit Insurance Corporation has over banks."
“I’m angry,” the president said. “What I want us to do, though, is channel our anger in a constructive way.”
"The president reiterated his faith in Treasury Secretary Timothy F. Geithner. “No Treasury secretary since maybe Alexander Hamilton has faced such challenges,” he said. Mr. Obama has already called for Mr. Geithner to explore whatever legal means might be available to retrieve the bonuses. The president and his aides have also noted often that the near-collapse of A.I.G. and other aspects of the financial crisis began to manifest themselves before the start of the Obama administration."
"Liddy said AIG has "made great progress in winding down" its financial products business, reducing its portfolio by about $1.1 trillion. But with $1.6 trillion still on the books, "there is a risk that that could blow up," he said. "If it explodes, it could cause irreparable damage" to the progress already made and could jeopardize a massive federal bailout of the entire company, Liddy added. He said of the bonus payments, "in the context of the $1.6 trillion and the money already invested in us, we thought that was a good trade."
"The AIG chief, who said he came out of retirement to run the company for a salary of $1 a year, told the subcommittee he fears that "the damage is done" from the bonuses and that employees who are needed to wind down the financial products division are likely to return them "with their resignations." He praised those employees for reducing the risk to American taxpayers through their efforts so far."
"We have to keep shrinking this business dramatically and quickly so it doesn't get away from us," he said.
"The president did not call on Wednesday for the bonuses to be paid back, or taken back somehow. But there was strong sentiment on Capitol Hill over the $165 million in bonuses, and it was by no means clear that asking bonus recipients to give up half of their windfalls would appease the lawmakers. A.I.G. has received nearly $200 billion in federal bailout funds."
"By late afternoon, several legislative proposals to recoup the bonuses were being discussed in the Capitol, although their prospects were not clear."
“We are the effective owners of this company,” said Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, going on to suggest a lawsuit to recover the $165 million in bonuses. “I think it’s worth trying.”
By “we,” Mr. Frank made clear, he meant the American taxpayers, whose collective anger has been felt on Capitol Hill over the last several days. And no wonder, said Representative Gary L. Ackerman, a Democrat from Long Island. The typical taxpayer knows he is “the ultimate sucker” in the A.I.G. debacle, Mr. Ackerman said.
"The lawmakers, having heard from their furious constituents, seemed unwilling to be mollified by the pledge from Mr. Liddy, who took the helm at A.I.G. last fall after it had begun imploding because of reckless investments, that the company’s 116,000 employees were united in wanting to work out of the morass, and work “shoulder to shoulder” with federal regulators.
"Instead, the lawmakers were focused on the recipients of bonuses at the very unit that caused A.I.G. “to teeter on the brink of collapse,” as Representative Paul E. Kanjorski, the Pennsylvania Democrat who heads the capital markets subcommittee, put it.
“A million dollars is a sizable sum to the typical American family,” Mr. Kanjorski said, “and a million dollars is a lottery prize for anyone who has just lost a job.” He called on A.I.G.’s employees to join with the legions of Americans who “have made personal sacrifices to survive these difficult times.”
"For the American people, said Representative Paul Hodes, Democrat of New Hampshire, the initials “A.I.G.” now stand for “arrogance, incompetence and greed.”
"In prepared testimony submitted to Congress earlier today, Liddy said that "mistakes were made at AIG on a scale few could have ever imagined possible." He said the company strayed from its insurance business into what became "an internal hedge fund" that then grew overexposed to market risk."P
"But he said AIG's new management team has addressed the company's liquidity crisis and stabilized its cash position."
"As lawmakers heard testimony on AIG, President Obama called on Congress to give the government greater regulatory authority over financial institutions. Speaking to reporters on the White House lawn before leaving on a trip to California, he said he is consulting with Capitol Hill on legislation that would provide resolution authority similar to the powers that the Federal Deposit Insurance Corp. holds over banks."
"It would allow us proactively to get out in front, make sure that we're separating out bad assets from good, dealing with contracts that may be inappropriate, and preventing the kinds of systemic risks that we've seen taking place with AIG," Obama said. He said this authority would be part of "a broader package of regulatory steps."
"While Americans are "rightly outraged" by the AIG bonuses, "just as outrageous is the culture that these bonuses are a symptom of," Obama said, "a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag." He reiterated his call to move beyond "a constant bubble-bust mentality" and build a foundation for sustainable economic growth."
"I hope that Wall Street and the marketplace don't think that we can return to business as usual," Obama said. "The business models that created a lot of paper wealth but not real wealth in the country and have now resulted in crisis can't be the model for economic growth going forward."
"Asked if he wished he had found out about the bonuses sooner than last week, Obama said "nobody here" drafted the bonus contracts or supervised AIG when it started to "put the economy at risk." But he said, "We are responsible, though. The buck stops with me. And my goal is to make sure that we never put ourselves in this kind of position again."
"Obama also rebuffed calls for the resignation of Treasury Secretary Timothy F. Geithner, saying he has "complete confidence" in him. "Nobody's working harder than this guy," the president said with Geithner standing nearby. "He is making all the right moves in terms of playing a bad hand."
"Liddy acknowledged that AIG has received "generous" federal aid, and he conceded that "the patience of America's taxpayers is wearing thin." Because of a need to "continue managing our business as a business" and "certain legal obligations," he said, "AIG has recently made a set of compensation payments, some of which I find distasteful."
"Liddy added that "we are all in this together" and that the company is working hard to execute a restructuring plan aimed at repaying AIG's debt to the government "to the maximum extent possible," continuing the company's main insurance business and protecting policyholders.
"Frank called the bonuses "wholly unjustified" and said it was time for the federal government to assert its "ownership rights" under the bailout to make major changes in the way the company operates. Because of the Treasury's assistance, the government now effectively owns about 80 percent of AIG. He attributed the bonus problem to the way AIG contracts are written."
"Frank called the bonuses "wholly unjustified" and said it was time for the federal government to assert its "ownership rights" under the bailout to make major changes in the way the company operates. Because of the Treasury's assistance, the government now effectively owns about 80 percent of AIG. He attributed the bonus problem to the way AIG contracts are written."
"They give themselves contracts which effectively insulate them from losses," he said. "What I think we should be doing is exercising our rights as owners of this company and bring lawsuits." The people getting the bonuses "performed so badly" and the losses are so great, he said, "that we are justified in rescinding the bonuses."
"In deciding to bail out AIG, the government concluded that, given the company's "deeply embedded role in the global financial system," it could not be allowed to fail because a collapse "posed too great a risk to the global economy, particularly in the context of the near or actual failure of other financial institutions," Liddy said.
"Seeking to assuage the public anger over the bailouts, Liddy said AIG understood that its behavior needed to change because of its receipt of federal bailout money."
"So, on our own initiative, we adopted a series of restrictions on executive compensation, eliminated our federal lobbying activities, halted corporate political contributions and kept controls on our expenses," he said.
"The bonus retention payments range from $1,000 to nearly $6.5 million, according to documents that AIG provided to the Treasury Department. Seven employees were getting more than $3 million, and 73 employees -- including 11 who no longer work at AIG -- received $1 million or more last week, according to New York Attorney General Andrew Cuomo.
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