The head of American International Group told a congressional panel Wednesday that he asked his company's executives to give back part of the retention bonuses that have sparked widespread anger among taxpayers amid a government bailout of the ailing insurer.
"This morning, I have asked the employees of AIG financial products to step up and do the right thing," AIG Chairman and CEO Edward Liddy testified before a House Financial Services subcommittee.
"Specifically, I've asked those who received retention payments in excess of $100,000 or more to return at least half of those payments," he said. "Some have already stepped up and agreed to return 100 percent of those payments."
But Liddy defended $165 million in bonuses that were given out even as the company received billions in government bailout funds. He acknowledged that U.S. taxpayers' patience was "wearing thin" but said his hands were tied by competitive realities.
'Mistakes Were Made'
"It was distasteful to have to make these payments, but we concluded that the risk to the company and therefore the financial system and the economy were unacceptably high," he said, adding that if the bonuses were not paid, the company could lose vital talent that would precipitate a collapse.
"Americans are asking quite simply, 'Why pay these people anything at all?' " Liddy said. "Here's why: I am trying desperately to prevent an uncontrolled collapse of that business."
Liddy also told the subcommittee that "mistakes were made at AIG on a scale few could have ever imagined possible."
"We have been the beneficiary of the American people's forbearance and patience," he said. "And we are acutely aware not only that we must be good stewards of the public funds we have received, but that the patience of America's taxpayers is indeed wearing thin."
Congress, Public Seethe Over Payments
Following Liddy's opening remarks, Rep. Barney Frank (D-MA), chairman of the full House committee, announced that he intended to ask for the names of those who received bonuses.
"If Mr. Liddy declines to give us the names, then I will convene the committee to vote a subpoena for the names," Frank said. "We do intend to use our power to get the names."
Liddy declined to name names out of concern for the safety of his employees, citing threats of violence that had been received.
The bonus issue has exploded since the payments, including 73 of $1 million or more, were made public last week. Average Americans — many of them facing job losses and foreclosures amid the deepening recession — are wondering why their tax dollars should go to highly paid executives who ran their company to the verge of collapse.
The outrage comes at a time when Congress and the White House are still struggling to deal with the faltering economy. The Federal Reserve announced Wednesday that it will start buying long-term government bonds, its latest step to try to lift the country out of recession. The Fed's move to buy up to $300 billion in Treasury securities over the next six months could drive down long-term interest rates.
"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending," the central bank said in a statement.
The Fed infused an initial $85 billion into AIG last September as the company teetered under the weight of its risky investment insurance business, largely collateralized with toxic subprime mortgages.
Speaking at the White House on Wednesday, President Obama said he had metwith his economic team to draft plans for a "resolution authority" similar to the FDIC that would exert more control over financial institutions.
Acknowledging that "people are rightly outraged by these particular bonuses," the president said that "they should be equally outraged by a culture that these bonuses are a symptom of."
Ultimately, he said, "the buck stops with me."
Seeking To Recover Bonus Money
On Tuesday, Senate Democrats wrote a letter to Liddy demanding that he rescind the bonuses.
In the House, two bills were introduced specifically targeting the AIG bonuses. The bills would slap hefty excise taxes on the payments in an effort to recover at least some of the money.
Frank said he hopes a Depression-era law that allowed $85 billion in Federal Reserve money to go to AIG can be rewritten by Congress to allow legislative oversight.
"I do believe that it is time for us to assert our ownership rights under this arrangement," he said before the subcommittee. "The bonuses are wholly unjustified, and they are an example of the problem with the financial incentives that compensation gives in general."
Treasury Secretary Timothy Geithner has been criticized for his oversight of AIG. The White House has defended Geithner, saying he first learned of the bonuses a week ago Tuesday and told administration officials about them Thursday. The bonus checks reportedly were mailed out the next day.
On Wednesday, the president defended Geithner, saying he was "making all the right moves" in playing a bad hand.
Deals Cut Early Last Year
According to documents provided by AIG to the Treasury Department, the awards ranged from $1,000 to nearly $6.5 million. Seven employees were to receive more than $3 million.
Liddy, who was tapped last year by then-Treasury Secretary Henry Paulson to head the ailing company, will not receive a bonus. In a letter to Geithner over the weekend, the CEO said the deals for the payments were cut early last year, well before he took over AIG.
Geithner told congressional leaders in a letter Tuesday that AIG would be required "to pay the Treasury from the operations of the company the amount of the retention awards just paid."
"In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments," he wrote.
Liddy testified Wednesday that AIG was "too complex, too unwieldy and too opaque ... to be well managed."