- The Washington Times - Sunday, March 15, 2009

Leaders of the White House economic team and members of both political parties bellowed about bonuses at a bailed-out insurance giant and pledged to prevent such payments in the future.

From one Sunday talk show to the next, they tore into the contracts that American International Group asserted had to be honored, to the tune of about $165 million and payable to executives by Sunday, even as the company has benefited from more than $170 billion in a federal rescue.

AIG has agreed to Obama administration requests to restrain future payments. Treasury Secretary Timothy F. Geithner pressed the president’s case with AIG’s chairman, Edward Liddy, last week.

“He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this,” said Austan Goolsbee, staff director of President Obama’s Economic Recovery Advisory Board.

“I don’t know why they 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.

Lawrence Summers, director of the National Economic Council, called the bonuses “outrageous.” But Mr. Summers, who is Mr. Obama’s top economic adviser, added: “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. Summers said Mr. Geithner used all his power, “both legal and moral, to reduce the level of these bonus payments.”

The Democratic administration’s argument about the sanctity of contracts was more than Senate Minority Leader Mitch McConnell, Kentucky Republican, could bear.

“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,” Mr. McConnell 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.”

Mr. McConnell added that the payments do little to boost public confidence.

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.

AIG reported this month that it lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

In a letter to Mr. Geithner dated Saturday, Mr. Liddy said 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.

The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

Mr. Goolsbee acknowledged the AIG example could make it harder to sell the administration’s financial plan to Congress.

“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.

Mr. Goolsbee and Mr. Frank appeared on “Fox News Sunday,” and Mr. Summers was on CBS’ “Face the Nation” and ABC’s “This Week,” where Mr. McConnell also was interviewed.

Copyright © 2023 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.

Click to Read More and View Comments

Click to Hide