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Lawmakers Talk Tough On AIG Bonuses

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Lawmakers Talk Tough On AIG Bonuses


Lawmakers Talk Tough On AIG Bonuses

Lawmakers Talk Tough On AIG Bonuses

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

The federal government has lent $170 billion to troubled insurance giant AIG to prevent its collapse. There's been criticism of that bailout, but it pales when compared to widespread outrage over the $165 million that AIG paid recently in employee bonuses. Republicans have gone on the offensive against the Obama administration, while Democrats are scrambling to recoup the bonus payments.


This is MORNING EDITION from NPR News. I'm Renee Montagne.


And I'm Steve Inskeep. A huge political problem of the financial bailout is finally catching up with it. It's a problem that's been there since the start: Federal money is going to big companies and wealthy people.

MONTAGNE: Today, that becomes a very personal problem for Edward Liddy. He's the chief executive appointed to clean up the mess at AIG, the big insurance company. He will try to explain to Congress why AIG accepted billions in federal rescue money, then paid $165 million in bonuses.

INSKEEP: In a moment, we'll ask if the anger over the payments could limit President Obama's options for dealing with the crisis. We begin with NPR's David Welna.

DAVID WELNA: With the public seething over AIG's bonuses, Republicans in Congress smell political opportunity. Here's Missouri's Kit Bond yesterday on the Senate floor blaming the whole mess on President Obama's new treasury secretary.

Senator KIT BOND (Republican, Missouri): There is a rat hole, and we have thrown $170 billion down it. At the same time, the Treasury Secretary Geithner should have and could have ensured that taxpayer dollars wouldn't be used to pay these bonuses, but he didn't. This is another example, I regret to say, of the secretary's failed leadership.

WELNA: Last night, Treasury Secretary Timothy Geithner sent a letter to congressional leaders saying AIG would have to repay the government the $165 million it's paying in bonuses, and that that amount would be deducted from the next bailout payment being made to AIG. Still, Senate GOP leader Mitch McConnell said Geithner could have acted sooner.

Senator MITCH MCCONNELL (Republican, Kentucky; Senate Minority Leader): This is an outrage, and this administration could have and should have - through the process of providing for them another $30 billion two weeks ago, just two weeks ago - prevented this from happening.

WELNA: So while congressional Republicans focus on the AIG funds paid out on the Obama administration's watch, their Democratic colleagues are floating schemes to get that money back. Here's Senate Majority Leader Harry Reid.

Senator HARRY REID (Democrat, Nevada; Senate Majority Leader): I think where we are is in a position where these bonuses that AIG paid their employees should be returned. If not, we'll have the opportunity in the next few days to pass legislation, which I think will pass overwhelmingly.

WELNA: Reid and a handful of other Senate Democrats sent a letter yesterday to AIG chief Liddy, who is testifying today before a House Financial Services panel. In it, they told him to either renegotiate the contracts that called for the employee bonuses or face paying an excise tax on those bonuses of more than 90 percent. Minnesota Democrat Amy Klobuchar also signed that letter.

Senator AMY KLOBUCHAR (Democrat, Minnesota): They may be laughing all the way to the bank right now, but if AIG can't or won't fix this problem, these people will soon be crying all the way to the tax office.

WELNA: Republicans had little to say about what's being called the bonus baby tax. But because those bonuses are mostly for AIG employees in London, it's not clear how much they'd be affected by such a tax. And because the US government now owns 79 percent of AIG, it would, in effect, be largely taxing itself. The chairman of the House Financial Services Committee, Democrat Barney Frank, said the huge share of AIG owned by the U.S. is the key for recovering those bonus payments.

Representative BARNEY FRANK (Democrat, Massachusetts; Chairman, House Financial Services Committee): You begin by asserting your rights of ownership. And I do think asserting our rights of ownership strengthens the legal case. I think we should be suing to get those bonuses back, not as the government that gave money to this private entity, but as the owner, saying, you know what? You got bonuses that you didn't deserve, and we want them back on the merits.

WELNA: Frank said he expected the AIG bonus fight would eventually have to be settled in court. But Iowa's Charles Grassley, who's the top Republican on the Senate Finance Committee, insisted there's another way to reign in such bonuses. He told an Iowa radio station Monday that AIG executives ought to follow the example of disgraced Japanese executives and resign or commit suicide. Grassley later insisted he'd been speaking rhetorically.

Senator CHARLES GRASSLEY (Republican, Iowa): And why it got attention yesterday, I don't know. But I do know this, that corporate America needs an ethic like they have in Japan where corporate executives take responsibility for what they're doing and apologize to the people of Japan. We don't have that in this country, and we ought to have it.

WELNA: Grassley indicated he, too, may support a heavy tax on AIG's bonuses. But he also said Congress must respect what he called the constitutional right to contract.

David Welna, NPR News, the Capitol.

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Democrats Seek To Douse Furor Over AIG Bonuses

Congressional Democrats sought Tuesday to douse taxpayer outrage by promising to get a refund of some or all of the bonuses paid to executives of insurance giant American International Group, which has received $170 billion in bailout funds.

Proposals from both the House and Senate to recover at least some of the $165 million came a day after President Obama expressed outrage over the matter. On Tuesday, the president directed Treasury Secretary Timothy Geithner to see if there was a way to reverse the AIG bonuses.

New York Attorney General Andrew Cuomo said Tuesday that AIG paid $1 million or more in bonuses to 73 employees, including 11 who no longer work for the company.

In the Senate, Finance Committee Chairman Max Baucus (D-MT) suggested imposing an excise tax on the AIG bonuses.

"What is the highest excise tax we can impose that will stand up in court?" Baucus asked. "Let's find out what it is."

His remarks came as House Democrats tried to outdo one another on similar proposals.

Michigan Democrat Gary Peters introduced a bill that would slap a 60 percent surtax on bonuses that exceed $10,000 at any company "which the U.S. government has a 79 percent or greater equity stake in. ... Currently, AIG is the only company that meets this threshold," according to a statement.

Meanwhile, Reps. Steve Israel (D-NY) and Tim Ryan (D-OH) introduced a bill that would that would tax at 100 percent any bonuses above $100,000 paid by companies that have received federal bailout money.

Ryan called his proposal "a wake-up call that the days of arrogance and greed on Wall Street are coming to an end. We will use any means necessary."

The Internal Revenue Service currently withholds 25 percent from bonuses of less than $1 million and 35 percent for bonuses of more than $1 million.

The flurry of congressional activity follows growing outrage from both parties over the bonuses, paid to AIG staffers months after the Bush administration initiated a bailout to save AIG from a collapse that threatened to take down other high-profile financial institutions.

Despite the bailout funds, AIG reported this month a fourth-quarter loss of $61.7 billion — the largest corporate loss in history.

The top Republican on the Senate Banking Committee, Richard Shelby of Alabama, questioned why Geithner didn't try to head off the AIG bonuses. Shelby stopped short of calling for Geithner's resignation.

"I don't know if he should resign over this. He works for the president of the United States," Shelby said. "I can tell you that this is just another example of where he seems to be out of the loop."

Shelby's comments followed incendiary remarks to Cedar Rapids, Iowa, radio station WMT by Iowa Sen. Charles Grassley, who called for AIG executives to make a Japanese-style corporate exit 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."

Grassley spokesman Casey Mills later said the Republican senator wasn't calling for AIG executives to kill themselves, but said those who accept tax dollars and spend them on travel and bonuses do so irresponsibly.

Obama, speaking in Washington on Tuesday, referred to the "shenanigans" on Wall Street.

"Such activity ... leads to the illusion of prosperity and, as we're finding out, it hurts us all in the end," he said.

Appearing with the chairmen of the congressional budget committees, Obama again asked Congress to pass his $3.6 trillion budget, saying it was an "economic blueprint for the future."

The country can no longer afford "an economy based on reckless spending and spending beyond our means," he said.

Cuomo issued subpoenas on Monday for the names of AIG employees who got bonuses amid an investigation of whether the payments are fraudulent under state law because they were promised when the company knew it wouldn't have the money to cover them.

The attorney general sent a letter on Tuesday to Rep. Barney Frank, the chairman of the House Committee on Financial Services, calling for a hearing on Wednesday to discuss the bonuses.

"Last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome," Cuomo said in the letter.

The top bonus paid was more than $6.4 million, and the top seven received more than $4 million each.

AIG and some federal regulators have said the company was obligated by contract to make the payments.

NPR wire services contributed to this report