Summers: AIG bonuses ‘outrageous’

UPDATED:

“Outrageous.”

That’s what Lawrence Summers, director of the National Economic Council, called the $165 million in new bonuses to be paid out by the troubled insurance giant American International Group, which has received more than $170 billion in public bailout funds.

Members of both parties joined Mr. Summers on Sunday morning in criticizing AIG, which posted a loss of $61.7 billion — the largest corporate loss in history — during the fourth quarter of last year.

Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, said the AIG leaders who approved the bonuses shouldn’t stay in power.

Senate Minority Leader Mitch McConnell, Kentucky Republican, said the payments do little to boost public confidence.

“This is an outrage,” Mr. McConnell said. “And for them to simply sit there and blame it on the previous administration or claim contract — we all know that contracts are valid in this country, but they need to be looked at.”

AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company.

Treasury Secretary Timothy F. Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday.

This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Mr. Geithner had called AIG Chairman Edward Liddy on Wednesday to demand that Mr. Liddy renegotiate AIG’s current bonus structure.

Mr. Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.

In a letter to Mr. Geithner dated Saturday, Mr. Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Mr. Liddy said in his letter that “quite frankly, AIG’s hands are tied,” although he said that in light of the company’s current situation, he found it “distasteful and difficult” to recommend going forward with the payments.

Mr. Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.

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