Tuesday, March 17, 2009

Obama tries to halt AIG bonuses

President Barack Obama said Monday that he will seek ''every single legal avenue'' to block the payout of $165 million in bonuses to executives of disgraced insurer American International Group, a company that U.S. taxpayers are bailing out.Obama unleashed his criticism in the White House East Room, eclipsing an event where he announced $15 billion in new help for small businesses.

Before promoting those steps, however, Obama went after AIG, blaming its woes on executives' ''recklessness and greed,'' and asking, ``How do they justify this outrage to the taxpayers who are keeping the company afloat?''It was unclear whether Obama thinks the government has authority to take back AIG's bonuses, or instead is primarily seeking to position himself to keep in step with public outrage.

The Financial Products division, which did the most damage to the company's standing, is based in London. It sold billions of dollars worth of credit-default swaps, complex insurance-like financial instruments, which ultimately AIG couldn't fund. Most of the bonus money was earmarked for about 400 employees in that division.AIG officials and administration officials, including Larry Summers, the head of the White House National Economic Council, previously indicated that the bonuses appeared to be protected by contract law, especially British law.


AIG is receiving about $170 billion in taxpayer assistance and is now about 80 percent taxpayer-owned. Federal officials moved to save it in September because they thought its failure would take down the global financial system since AIG insured the assets of so many major financial institutions.

''Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,'' Obama said.Obama said that given the taxpayer assistance AIG is receiving, he would ask Treasury Secretary Timothy Geithner ``to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole. . . . This is not just a matter of dollars and cents, it's about our fundamental values.''

White House spokesman Robert Gibbs said that Obama inherited the contracts AIG signed last year under former President George W. Bush. ``We can't change everything in the past. We will do all that we can.''


Late Sunday night, AIG released the names of companies on the other end of its swap transactions. Its business partners were mainly major U.S. and foreign banks, adding to the public's rising sense of injustice over the bonuses, since taxpayers are now bailing out the banks both through the front door with government loans and the back door via support for AIG.

New York Attorney General Andrew Cuomo also turned up the political heat on AIG on Monday, demanding that it identify all employees receiving the bonuses, their job descriptions, performance records and copies of their work contracts. He issued subpoenas late Monday. In a letter to the company, Cuomo said he wants to determine if the bonuses amount to ''fraudulent conveyances'' under New York law, and that the contracts might be unenforceable because fraud was involved.


Obama used his bully pulpit to push for corporate responsibility. He also was seeking, however, to separate himself from unpopular corporate excesses. A new Pew Center poll released Monday showed that Obama has begun to suffer declining public support because of the economic crisis.

''The president shares the public's outrage on this,'' Gibbs said.Lawmakers on Capitol Hill sounded off, too.

''At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money,'' said Sen. Russ Feingold, D-Wis. Other lawmakers from both parties said much the same.

Added House GOP Leader Rep. John Boehner of Ohio: ``The latest revelation about AIG executives receiving millions in bonuses while taxpayers continue to bail out the company with hundreds of billions of dollars is outrageous and the clearest example yet of why an exit strategy is essential. The administration should pursue all means of recovering these bonus payments and present Congress and, more importantly, taxpayers an exit plan as soon as possible.''

A House Financial Services subcommittee scheduled a Wednesday hearing on AIG.


The AIG flap overshadowed Obama's announcement of help for small businesses, which was warmly welcomed. His latest economic rescue package will waive fees for small-business loans, buy up to $15 billion in securities linked to loans guaranteed by the Small Business Administration, and require monthly reports from large banks and quarterly reports from other banks on small-business lending.

For more news: http://www.miamiherald.com/business/story/953480.html

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