Bonuses at AIG draw Hill's wrath

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By Kara Rowland

Lawmakers and White House economists are hammering American International Group for doling out millions in executive bonuses after receiving $170 billion in taxpayer funds, but they concede there is little the government can do.

National Economic Council Director Lawrence H. Summers called AIG's $165 million in bonuses "outrageous," but stressed the payments are based on contracts that predate the government bailout.

"We are a country of law; there are contracts," Mr. Summers said on ABC's "This Week" on Sunday. "The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by [Treasury Secretary Timothy F.] Geithner and by the Federal Reserve system."

Austan Goolsbee of the White House Council of Economic Advisers spoke similarly on "Fox News Sunday," saying the government had done what it could legally but could not prevent poor decision-making.

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"I don't know why [AIG] would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people, and we've done exactly what we can do to prevent this kind of thing from happening again," Mr. Goolsbee said.

Rep. Darrell Issa of California, ranking Republican on the House Committee on Oversight and Government Reform, said Congress and the administration should take action to ensure that taxpayer money is not used for future corporate bonuses.

"If this is how AIG is going to use bailout funds, I think all Americans would agree: We want our money back," Mr. Issa said in a statement Sunday. "This completely undermines any credibility AIG had with the American people and the Congress. Clearly, provisions passed by Congress that aimed to address the issue of executive compensation have fallen short."

Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, also acknowledged the legal constraints but told "Fox News Sunday" he plans to take a look at "whether these bonuses are legally recoverable."

Senate Minority Leader Mitch McConnell, Kentucky Republican, said on ABC's "This Week" that the administration could not pass the buck.

"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," he said. "Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place? I think it's an outrage."

Last week, Mr. Geithner asked AIG's government-appointed chairman, Edward Liddy, to renegotiate the bonuses, but only managed to lower some of them after Mr. Liddy said the company was advised that it was legally obliged to pay them and would risk expensive lawsuits if it did not.

In a letter Saturday to Mr. Geithner, Mr. Liddy called paying the bonuses "distasteful."

The government owns 80 percent of AIG's holding company. AIG lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Mr. Summers warned against populist outrage, saying "the easy thing would be to just say ... off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."

Mr. Goolsbee acknowledged the AIG bonuses could prove politically awkward for the Obama administration when it is trying to sell Congress on bailout plans for financial institutions.

"Yes, you worry about that backlash. But you're also angry that this would happen at an institution that has been so troubled and you're trying to save. So I think that's perfectly fair," he said.