Posted on 02 Apr 09
News coverage has been dominated by AIG and the more than $165 million in retention payments made to its employees, specifically to its Financial Products subsidiary, the unit that was primarily responsible for the insurer's needing federal funding in the first place. AIG stated these bonuses were planned for some time and designed to retain employees during the unwinding process of the unit. Furthermore, AIG stated it was contractually obligated to pay them.
There was public outcry, and outrage from House members and the Senate as well as from the Obama administration. Treasury Secretary Timothy Geithner pledged to get the money back, possibly deducting the amount from a next federal bailout payment. The House passed a bill in record speed to impose a 90% tax levy on these bonuses and on any other bonuses paid to employees earning more than $250,000 who received them from companies that accepted more than $5 billion from TARP (Troubled Asset Relief Program). The Senate was not far behind with its plan to discuss the possibility of a 70% levy on the bonuses. The long-term implications of this type of legislation seemed to be getting lost in the outrage. Meanwhile, the pundits filled the airwaves with the latest on the bonus news.
Then before you could turn the page, we discovered that the provision omitting these types of bonuses late last year was put back into the stimulus package and some of the same people complaining about the bonuses were responsible for adding the provision back in. This was further highlighted on Tuesday, March 24, when Federal Reserve Ben Bernanke told Congress that he had wanted to take legal action to stop the bonuses but was advised against it by attorneys who said this could result in substantial damages if the lawsuit failed.
With the bonus fracas in full swing, New York State Attorney General Andrew Cuomo announced that he was seeking to get the names of those who received the bonuses. A total of 20 states so far have issued probes into the payments of the AIG bonuses, including Connecticut and New Jersey where many AIG bonus recipients live.
No sooner was this announced, a few days later we learned from Attorney General Cuomo that 15 of the top 20 executives from the Financial Products unit were returning their bonuses, for a total of $50 million. Of the $165 million in controversial bonuses, 47%, or about $80 million of it, was given to Americans, Mr. Cuomo stated. He is aiming to recoup that amount for AIG.
Now the tax levy doesn’t seem as pressing, with the Senate backing off and postponing legislation discussion. Hearings have been held about further reforms and regulation to prevent the type of failure AIG and others have faced, and the Treasury is asking for broader power to shut down troubled institutions to avoid future government bailouts.
And so the tale continues. What do you think of all of this? Please share your comments with us at firstname.lastname@example.org.