- The Washington Times - Wednesday, March 18, 2009


The embattled head of insurance giant American Insurance Group Inc. told a congressional panel Wednesday that he had asked employees to return some $165 million in bonuses but said he had concluded he had no legal option to cancel them altogether, even as the government was extending $170 billion in loans and other taxpayer aid to the company to keep it solvent.

AIG Chairman and Chief Executive Officer Edward M. Liddy told a House Financial Services subcommittee that there was justified popular outrage over the bonuses, but said he hands were tied and canceling the payouts could put the entire company at risk.

“The judgment was made we would lose all the progress we had made if we didn’t make these bonuses,” he said

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Mr. Liddy, who was drafted by regulators last fall to take over the company, conceded that “mistakes were made at AIG on a scale few could have ever imagined possible.” He said in prepared remarks that his new executive team “has to continue managing our business as a business — taking account of the cold realities of competition or customers, for revenues and for employees.”

“Because of this and because of certain legal obligations, AIG has recently made a set of compensation payments, some of which I find distasteful,” he said.

Mr. Liddy, a former head of Allstate Corp., faces a long day of angry questioning over the bonuses, many of which are going to executives in the London-based financial unit blamed for bringing the company to the brink of insolvency and sparking the massive federal rescue effort.

The AIG bonuses have also led to partisan sniping and questions about the Obama administration’s approach to the financial crisis. Rep. Tom Price, Georgia Republican, said he was disappointed Treasury Secretary Timothy F. Geithner had declined to testify at the hearing.

“Make no mistake, everyone is up in arms over the bonuses paid to AIG,” Mr. Price said at the opening of the hearing. “But the real outrage is that the taxpayer was put in this position in the first place.”

The populist anger over the AIG bonuses made for a popular attraction, with reporters, television cameras and curious onlookers thronging the hall outside the House hearing room.

Rep. Paul Kanjorski, the Pennsylvania Democrat who chaired the hearing. complained that Mr. Liddy had not kept lawmakers informed of the decision to make the bonus payments, and said the popular anger sparked by the bonuses could undermine support for future government aid to bolster the financial and credit markets.

Mr. Liddy said he had approved the bonuses in consultation with the Federal Reserve, and said not paying the bonuses could have left taxpayers with an even bigger tab if the company went under.

“I’m trying desperately to prevent an uncontrolled collapse of this business,” he said.

Mr. Liddy revealed he had asked the more than 70 AIG employees who received the bonus payments to return at least half of their payouts over $100,000, and that some had already volunteered to renounce their entire bonus. He did not supply figures.

Lawmakers rushed to introduce bills this week after the scale of the AIG bonuses became apparent. The White House has said it is exploring options to cancel the bonuses and the Senate Finance Committee is taking up a bill to impose a new confiscatory tax to recover the bonus money.

The Senate bill outlined by committee Chairman Max Baucus, Montana Democrat, would place a 35 percent excise tax on AIG for its bonus costs and a 35 percent tax on the bonus income of recipients. Mr. Baucus said the package would essentially allow the government to reclaim all of the bonus money.

Mr. Geithner, who testifies before the House panel next week, sent a letter to congressional leaders Tuesday night saying he was exploring ways to recover the $165 million in bonus money, including by taking back some of the $30 billion the administration recently approved to bolster the company’s finances. The Treasury Department also plans new restrictions on future bailout money, he said.

House Financial Services Committee Chairman Barney Frank, Massachusetts Democrats, said the government’s 80 percent ownership stake in AIG because of its bailout effort gave it “ownership rights” to challenge the validity of the bonuses.

He also revealed that his committee is prepared to issue subpoenas to obtain the names of the individual AIG employees who received the bonuses — something the company so far has not released. The bonuses to more than six dozen executives were as high as $6 million.

“We do intend to use our power to get these names,” he said.

Mr. Liddy said he was willing to supply the names of AIG officials who had been given the bonuses to Congress, but only if their names were kept confidential.

“I really concerned about the safety of our employees,” he said, reading the committee an anonymous threat sent to the company warning that AIG officials should be dealt with “piano wire around their necks.”

Mr. Liddy also disputed popular estimates of the size of the federal bailout of his company, saying the company must repay a $40 billion investment from the Wall Street bailout fund and another $37.8 billion from the Federal Reserve. He contended the rest of the company’s obligations were Federal Reserve holdings of the company’s assets that will prove profitable in the long run to taxpayers.

“Really, $80 billion is our target,” he said. “We can do that, but we need some help from the markets to do it.”

Alabama Rep. Spencer Bachus, ranking Republican on the financial services committee, sounded a note of caution, saying Mr. Liddy’s new management team should be given time to overhaul the company and begin paying back the government’s massive investment.

“I think the rage we feel shouldn’t distract us from the true issue: to try to recover as much of the taxpayers’ dollars as we possibly can,” he said. “The blame game has to be secondary because we’re all to blame here.”

The bonus contracts were signed before Mr. Liddy was recruited by former Treasury Secretary Henry M. Paulson Jr. to revamp the company. He said AIG has adopted a series of executive-pay restrictions, eliminated federal lobbying activities and stopped political contributions since he took over.

“I am personally mindful of the environment in which we are operating and the president’s call for a more restrained compensation system,” Mr. Liddy said. “At the same time, we are essentially operating AIG on behalf of the American taxpayer so that we can maximize the amount of money we pay back to the government.”

Orice Williams, a financial analyst with the Government Accountability Office, said it was too early to tell how the federal bailout of AIG had affected the marketplace and whether the company would be able to pay back the taxpayer bailout money.

She said the company’s ability to pay back the government funds had been “impaired” by declining revenues and the inability so far to sell certain business lines as part of its overall restructuring plan.

Scott Polakoff, acting director of the Office of Thrift Supervision, which regulated AIG’s holding company, acknowledged his agency should have moved sooner to close down the company’s riskiest business lines five years ago, before the implosion of the U.S. housing finance market sparked a global credit crisis.

“The OTS should have in 2004 stopped this book of business,” Mr. Polakoff said. ” … We should have done it. We didn’t do it.”

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