Obama And The AIG Bonus Issue
MADELEINE BRAND, host:
From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.
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And I'm Alex Cohen. Coming up, the collapse of the housing industry has turned the market upside down in Florida. What that means for home owners, that story in a moment.
BRAND: But first, the White House doesn't like them, Congress doesn't like them, and even the company itself says it doesn't like them. But can anyone really do anything about the $165 million in bonuses paid out to workers at AIG's Financial Products Division? For the answer to that question, we turn now to NPR's Jim Zarroli, who's following all this back and forth from his perch in New York. And Jim, the news of these bonuses broke over the weekend and now, everyone is just outraged. What's the latest?
JIM ZARROLI: Well, you are seeing a kind of a competition between Republicans and Democrats over who can rush to condemn these bonuses, you know, faster. You heard yesterday, President Obama made some very strong remarks today. The Senate Majority Leader Harry Reid said, Congress ought to find a way to force AIG to give the money back. Then this morning, you had Senator Charles Grassley of Iowa in a radio interview come out and make this rather remarkable statement...
Senator CHARLES GRASSLEY (Republican, Iowa): The first thing that would make me feel a little bit better towards them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry. And then either do one of two things - resign or go commit suicide.
ZARROLI: Now, his spokesman has since backtracked a bit saying, you know - well, the senator didn't really mean to suggest that anyone at AIG should kill himself. But you can see we're just in the middle of this, you know, full-fledged, fast-burning populist prairie fire. I mean, there's just intense outrage. Andrew Ross Sorkin, who's a columnist for the New York Times, said today in a piece that, you know, as much as we might want to, the government shouldn't be in the business of abrogating contracts. That was the gist of his column today.
BRAND: And the contracts, that's the reason AIG chief executive Edward Liddy says he can't do anything about these bonuses because they're written in these ironclad contracts, right?
ZARROLI: Yeah. AIG officials say they're very unhappy about the bonuses, they've said themselves, but they say this was done by previous management. It was in a different environment. They say they've looked into it, and their lawyers have basically told them that they have no choice - if they try to not pay these bonuses, that they would certainly face legal challenges from employees, and it could end up costing the taxpayers even more than they have to pay now. But of course, that hasn't stopped the outrage.
BRAND: Right, and that's also the point that Andrew Ross Sorkin makes in his column today in the New York Times that you mentioned, that well, maybe these are the only guys who can unwind this mess, that they're the only ones who really understand these complicated credit default swaps which led the company in, you know, into this mess to begin with, and they're the only ones who can get it out of it.
ZARROLI: When the company agreed to pay these bonuses, it was pretty common to give retention bonuses on Wall Street. It wasn't anything that was new; everybody did it. Of course, now is a much different environment, and they're much less common. But back then, it was standard.
BRAND: So Jim, just to put this in perspective, this $165 million in bonuses is one-tenth of 1 percent of all the government money spent on AIG, which is about $170 billion. So why is everyone so outraged over this small amount?
ZARROLI: It is a small piece of the company of AIG. It's only - the unit was only about 450 people at its peak. AIG had 120,000 employees. But these are the same people who designed the products, and a lot of people are outraged by that, that they're - they seem to be getting rewarded for it. So this is really, I think, one of those, you know, kind of icing-on-the-cake moments, something that's really crystallizing the way people look at the situation, just really fueling public anger.
BRAND: OK, now, let's get to that question I posed in the introduction. Can anything be done about these bonuses? Or do we just have to swallow them?
ZARROLI: I think surely the government could do something if it really wants to. AIG is supposed to get another $30 billion in government assistance, so that gives the Obama administration some leverage over the company. The problem is that that wouldn't necessarily mean that the bonuses get rescinded. But it would hurt AIG, and the government has been trying to work with AIG still to unwind all these very troublesome derivatives contracts. And to the extent that you take money away from AIG, you're also slowing down that process. The other thing that's happened right now is the attorney general of New York, Andrew Cuomo, has stepped in and said he's looking into how the bonuses were approved, if there was anything fraudulent committed. If it was, he says he'll pursue legal action. So, if anything can be done to rescind these bonuses at this point, it will be done. But at this point, it's not really clear what that would be.
BRAND: NPR's Jim Zarroli, following this AIG brouhaha. Thank you very much.
ZARROLI: You're welcome.
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