|Representatives Carolyn Maloney and Steve Israel of New York announced legislation that would use the tax code to punish executives who get large bonuses after being bailed out. (Chip Somodevilla/Getty Images)|
Geithner vows to recoup bonuses
Tells Congress AIG must repay Treasury
WASHINGTON - As anger intensified over the $165 million in post-bailout bonuses paid to AIG executives, Treasury Secretary Timothy Geithner said yesterday that any bonus payments that the Treasury cannot recoup will be recovered by requiring AIG to repay the Treasury an amount equal to the remaining bonuses.
The Treasury also would deduct an amount equal to the payments from AIG's latest $30 billion credit line from the government, Geithner wrote in a letter to congressional leaders.
On Capitol Hill, livid Democrats issued the insurance giant an ultimatum: Give back the bonuses, or watch Congress tax it away with emergency legislation.
Outrage has been building across the country and official Washington over the bonuses, which went Friday to employees of AIG's Financial Products division, the unit primarily re sponsible for the meltdown that forced it to take more than $170 billion in taxpayer bailout funds.
Edward Liddy, the CEO of AIG, is scheduled to testify today before the House Committee on Financial Services. In advance of the hearing, Cuomo provided more ammunition in a letter yesterday to Representative Barney Frank, a Massachusetts Democrat who is the panel's chairman, that outlined information on the bonuses he received after issuing a subpoena on Monday.
Outrage understandable but misdirected, a bailout administrator says. B7.
Cuomo, who is trying to determine whether the payments constitute fraud under state law because company officials knew that it could not afford them, said the top individual bonus at AIG was more than $6.4 million, the top seven received more than $4 million each, and the top 10 received $42 million combined.
"Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG," Cuomo wrote. "Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome."
And the contracts written last March guaranteed employees 100 percent of their 2007 bonus amounts for 2008, "despite obvious signs that 2008 performance would be disastrous in comparison to the year before," Cuomo wrote.
"AIG also claims that retention of individuals at Financial Products was vital to unwinding the subsidiary's business," the attorney general wrote to Frank. But AIG has been unwilling to provide their names, despite his subpoena for the list, making it impossible to test that claim, Cuomo said.
Cuomo also asserted that despite their contracts, Financial Products employees agreed to take 2009 salaries of $1 in exchange for receiving their retention bonus packages. He said the fact AIG could negotiate the terms of the payments "flies in the face of AIG's assertion" that it was obligated to pay the bonuses because of employee contracts.
Congressional Republicans, meanwhile, said President Obama's administration should have done more to stop the bonuses in the first place, raising sharp questions about Geithner's role in particular.
"I don't know if he should resign over this," said Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee. "But I can tell you, this is just another example of where he seems to be out of the loop."
White House press secretary Robert Gibbs said yesterday that Obama has full confidence in Geithner. Administration officials say he found out about the bonuses last Tuesday, called Liddy on Wednesday to protest, and told the White House on Thursday. Asked whether Obama is satisfied that he found out about the bonuses in a timely fashion, Gibbs replied: "Yes, the president is satisfied."
On Monday, Obama lambasted AIG for "recklessness and greed" and ordered Geithner to determine whether there was any way to retrieve or stop the bonus money.
Senate Democrats were preparing legislation to levy a 91 percent excise tax on the bonuses to put pressure on the company.
"If you don't return it on your own, we will do it for you," said Senator Chuck Schumer of New York.
Representatives Steve Israel of New York and Tim Ryan of Ohio introduced a bill that would tax at 100 percent bonuses above $100,000 paid by any company that has received federal bailout money. The Internal Revenue Service currently withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million.
"We will use any means necessary," said Ryan. "It boggles my mind how these executives can be so unaware of what the American people are going through."
Late yesterday, House Democrats directed three powerful committees to come up with legislation this week to authorize Attorney General Eric Holder to recover such bonus payments.
In all the outrage over the bonuses, Senator Charles Grassley went the furthest. In a radio interview Monday night, the Iowa Republican called on AIG executives to follow the Japanese approach toward accepting responsibility.
"I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, 'I'm sorry,' and then either do one of two things: resign or go commit suicide," Grassley said.
Asked yesterday about the suicide remark, he suggested that it was more of a rhetorical flourish. "You ought to be able to tell rhetoric when you hear it," he said on MSNBC.