WASHINGTON – Under intense pressure from President Barack Obama’s administration and Congress, the head of bailed-out insurance giant AIG declared Wednesday some of the firm’s executives have begun returning all or part of bonuses totalling $165 million.
Edward Liddy offered no details and legislators were in no mood to wait. He was still fielding their questions when House of Representatives Democratic leaders announced plans for a vote Thursday on legislation to tax away 90 per cent of the extra pay for executives at AIG and many other bailed-out firms.
Liddy, brought in last year to oversee a company that has received $182 billion in federal bailout funds, said he, too, was angry about the bonuses. But he did not respond directly when advised to pay to the Treasury all the money handed out last weekend in “retention payments.”
“Eat it now,” said U.S. Representative Gary Ackerman, a New York Democrat.
“Take it out of your profits down the road. It’s a lot sweeter now than it’s gonna be later.”
Liddy slid into the witness chair at a congressional hearing as Obama sought anew to quell a furore that has bedevilled his administration since word of the bonuses surfaced over the weekend.
Obama, in remarks at a town-hall meeting in California, said: “I know Washington’s all in a tizzy, and everybody’s pointing fingers at each other and saying, ‘It’s their fault, the Democrats’ fault, the Republicans’ fault.’ Listen, I’ll take responsibility. I’m the president.”
In the same breath, he said, “We didn’t draft these contracts.” But he added, “It is appropriate when you’re in charge to make sure that stuff doesn’t happen like this.”
Obama tried to head off questions about AIG by saying he understood taxpayers’ anger. And he tried to broaden the issue, which has vexed his young administration.
“These bonuses, outrageous as they are, are a symptom of a much larger problem,” he said. It’s “a culture where people made enormous sums of money taking irresponsible risks that have now put the entire economy at risk.”
The financial bailout program remains politically unpopular and has weighed down on Obama’s new presidency, even though the plan began under former President George W. Bush. It also could hamper any attempts Obama may make to wrest still more financial bailout money from Congress. He has said such money likely would be needed.
Obama spoke as congressional Democrats worked on legislation designed to recoup most or all of the $165 million by exposing it to new taxes.
U.S. Representative Charles Rangel, a New York Democrat, chairman of the tax-writing House ways and means committee, said the new 90-per-cent tax would apply to bonus money paid to employees earning more than $250,000 at firms that have received more than $5 billion in federal bailout funds. Mortgage giants Fannie Mae and Freddie Mac are covered under the proposal.
Majority Leader Steny Hoyer said the bill would be voted on under rules requiring a two-thirds majority for passage. Democrats are in comfortable control of the House but do not control two-thirds of the seats, meaning the outcome of the vote would probably be determined by tax-averse Republicans.
Republicans raised pointed questions about the extent of Treasury Secretary Timothy Geithner’s advance knowledge of the bonuses and stressed they had been locked out of discussions earlier this year when Democrats decided to jettison a provision from legislation that could have revoked the payments.
“The fact is that the bill the president signed, which protected the AIG bonuses and others, was written behind closed doors by Democratic leaders of the House and Senate. There was no transparency,” said Senator Charles Grassley, of Iowa, the senior Republican on the Senate finance committee.
Liddy’s presence in a congressional hearing room was evidence of a bipartisan opposition to the bonuses, although his status as a $1-a-year CEO called out of retirement last year to try and untangle AIG’s financial mess made him a less-than-easy target for expressions of outrage.
“No one knows better than I that AIG has been the recipient of generous amounts of government financial aid,” he said.
“We have been the beneficiary of the American people’s forbearance and patience,” he added, acknowledging the patience was wearing thin.
Liddy said on Tuesday, he had “asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments.”
Some have “already stepped forward and returned 100 per cent,” he added.
Asked by Representative Barney Frank, a Massachusetts Democrat, whether he would turn over the names of individuals who received the money, as well as the amounts, he said he would do so only if assured the information not be made public.
When Frank said he might seek a subpoena, Liddy said he was concerned about the safety of the employees and their families and read aloud from a death threat received by one of them.
Frank said he would be guided in part by security considerations but Ackerman later noted Andrew Cuomo, the New York attorney general, is already seeking the names with a subpoena.
Liddy said he had not yet complied, sidestepped several times when asked whether he would, and finally said: “It would be our intent” to do so.
Cuomo swiftly issued a statement saying Liddy’s pledge was “simply too little, too late…Rather than take half-measures, AIG should immediately turn over the list, which we have subpoenaed, of who got what and when.”
Separately, a New York state judge ordered Bank of America Corp. to disclose information about bonuses given to employees at Merrill Lynch & Co. just before the bank bought the brokerage company. Cuomo, who has been sparring with the bank over release of the information, said the decision “will now lift the shroud of secrecy surrounding the $3.6 billion in premature bonuses Merrill Lynch rushed out in early December.”
“AIG should take heed and immediately turn over the list of bonus recipients we have subpoenaed,” he said.
“The deadline for responding to our subpoena is tomorrow. “
AIG spokesman Mark Herr said he could not say how many executives had turned back the money.
“Bear in mind, these bonuses were only just paid,” he said.
In Wilton, Conn., headquarters of AIG Financial Products Corp., police chief Edward Kulhawik said his department had not received any reports from the company of threats to employees but was in contact with the company and keeping “a special eye on that whole office complex.”
Liddy said the Federal Reserve knew long in advance of the bonus payments and acquiesced in them, noting officials from the independent agency attend key company meetings.
But he said the same was not true of Geithner, adding: “We do our work with the Federal Reserve.”
Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses – he did not call them that – to executives.
He said the money was offered to executives in AIG’s financial products section, where risky investments finally became the entire company’s undoing. He said each executive was offered money to dispose of his “business book,” meaning the transactions he had been in charge of handling, and thus far, the company’s financial derivatives had been reduced from $2.7 trillion to $1.6 trillion.
He had decided it was worth paying the money to retain the services of executives who knew the business best, he said. And he had received legal advice that there were valid contracts requiring the payments.
“I know 165 million is a very large number. It’s a very large number.”
“In the context of 1.6 trillion…we thought it was a good trade,” he said.
Liddy added there was still a risk of financial catastrophe if the remaining $1.6 trillion in financial instruments were not disposed of properly.
But Representative Stephen Lynch, a Massachusetts Democrat, angrily told the witness the contract read like “the captain and the crew of the ship reserving the lifeboats.”
Liddy replied he was not at the firm when the contracts were negotiated and said, as he has before, that he would not have approved them.
Lynch said the terms had been put in place in December, after Liddy arrived at AIG.
But Liddy disputed that.
“I take offence, Sir,” he said.
“Well you take it rightly. Offence was intended,” shot back Lynch.
