It's MORNING EDITION from NPR News. I'm Steve Inskeep.


And I'm Linda Wertheimer. Over the weekend, we learned that the insurance company AIG is paying big bonuses to employees who work in the very unit that crippled the company. President Obama's top Economic Advisor Lawrence Summers expressed his dissatisfaction with the excesses of AIG yesterday on ABC's "This Week."

(Soundbite of TV show, "This Week")

Mr. LAWRENCE SUMMERS (Director, National Economic Council): 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. What that company did, the way it was not regulated, the way no one was watching, what's proved necessary - it is outrageous.

WERTHEIMER: AIG has also revealed the names of some of the big banks it's paying off with the billions of dollars in taxpayer money it's received so far. In a moment, we'll hear why some banks are balking at taking government money. They complain the funds are too restricted. First, NPR's John Ydstie joins us to talk about AIG's bonuses. Good morning, John.


WERTHEIMER: Now, the government owns almost 80 percent of AIG. It's pumped billions into the company. Why couldn't the Obama administration say no to bonuses?

YDSTIE: Well, according to the administration, Treasury Secretary Tim Geithner tried to get the bonuses stopped last week during a rather intense conversation with AIG's CEO Edward Liddy. But Liddy told Geithner that AIG was legally bound to pay the bonuses, which were promised in contracts signed back in 2008 before the government took over the company.

WERTHEIMER: And the government can't tear up these contracts, given that some of these AIG employees made this mess?

YDSTIE: Well, according to both Treasury Department attorneys and lawyers consulted by AIG, the government can't legally abrogate the contracts. Here's how Larry Summers explained why they had to be paid yesterday.

(Soundbite of TV show, "This Week")

Mr. SUMMERS: We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner.

WERTHEIMER: I understand that Congress is not entirely prepared to leave it at that.

YDSTIE: Well, that's right. House Speaker Pelosi and Financial Services Committee Chairman Barney Frank are talking about looking into this and trying to get the contracts changed. Senate Republican Leader Mitch McConnell has called it an outrage. So I think we'll - we're likely to hear more about this.

What's particularly embarrassing for Liddy and for the government is that the bonuses are going to 400 employees in the Financial Products unit of AIG, and that's the unit that made the bad bets on credit default swaps and mortgage-backed securities that brought AIG to its knees. By the way, the bonuses reportedly range in size from about $1,000 to six-and-a-half million dollars. Now, Liddy did say in his letter to Treasury that he hoped to cut this year's bonuses by 30 percent, and also reduce the salaries of the top 25 executives of the Financial Products unit to $1 for 2009.

WERTHEIMER: John, AIG also revealed this weekend the names of some of the companies that it has paid off with its bailout money. Congress has been pushing for this since last year. What do we learn from this list?

YDSTIE: Well, not a lot of surprises. There are dozens of companies involved who, for the most part, bought insurance from AIG for protection against losses in securities backed by subprime mortgages. Some big-name companies are among them. Goldman Sachs got $13 billion. Two foreign banks - Societe Generale, a French bank, and Deutsche Bank - each got 12 billion. And a number of municipalities from around the US were also among the beneficiaries. Of course, this was the point of the government injecting money into AIG, to keep it from defaulting and destabilizing the financial system. The question remains: Were any of these entities forced to take losses on their contracts with AIG, or is it just the taxpayer holding the bag?

WERTHEIMER: Okay, John. Thank you.

YDSTIE: You're welcome, Linda.

WERTHEIMER: That's NPR's John Ydstie.

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