Under intense pressure from the Obama administration and Congress, the head of bailed-out insurance giant AIG declared Wednesday that some of the firm’s executives have begun returning all or part of bonuses totaling $165 million.
Edward Liddy offered no details, and lawmakers were in no mood to wait. He was still fielding their questions when House Democratic leaders announced plans for a vote Thursday on legislation to tax away 90 percent of the extra pay for executives at AIG and many other bailed-out firms.
Liddy, brought in last year to oversee a company that has received $182 billion in federal bailout money, said he, too, was angry about the bonuses. But he did not respond directly when advised in pungent terms to pay to the Treasury all the money handed out last weekend in “retention payments.”
“Eat it now. Take it out of your profits down the road. It’s a lot sweeter now than it’s gonna be later,” said Rep. Gary Ackerman, D-N.Y.
Liddy slid into the witness chair at a congressional hearing as President Barack Obama sought anew to quell a furor that has bedeviled his administration since word of the bonuses surfaced over the weekend.
Obama, who took office just under two months ago, told reporters his administration was not responsible for a lack of federal supervision of AIG that preceded the company’s demise, nor for the decision made last year to pay what he called “outrageous bonuses.”
Still, he said, “The buck stops with me.” He said that “my goal is to make sure that we never put ourselves in this kind of position again,” and he disclosed the administration was consulting with Congress on the possibility of creating a new agency to govern the meltdown of large financial institutions such as AIG.
He also gave a strong vote of confidence to Treasury Secretary Tim Geithner, who has been the target of growing Republican criticism.
Later, at a town hall meeting in Costa Mesa, Calif., Obama said that while his administration was addressing the AIG bonuses specifically, he said he wanted to “make sure we dont find
ourselves in this situation again, where taxpayers are on the hook for losses in bad times and all the wealth generated in good times goes to those at the very top.”
Obama spoke as congressional Democrats worked on legislation designed to recoup most or all of the $165 million by exposing it to new taxes.
Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said the new 90 percent tax would apply to bonus money paid to employees earning more than $250,000 at firms that have received more than $5 billion in federal bailout funds. Mortgage giants Fannie Mae and Freddie Mac are covered under the proposal.
Liddy said that on Tuesday, he had “asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments.” Some have “already stepped forward and returned 100 percent,” he added.
Majority Leader Steny Hoyer, D-Md., said the House bill would be voted on under rules requiring a two-thirds majority for passage. Democrats are in comfortable control of the House but do not control two-thirds of the seats, meaning the outcome of the vote would probably be determined by tax-averse Republicans.
Republicans raised pointed questions about the extent of Geithner’s advance knowledge of the bonuses, and stressed they had been locked out of discussions earlier this year when Democrats decided to jettison a provision from legislation that could have revoked the payments.
“The fact is that the bill the president signed, which protected the AIG bonuses and others, was written behind closed doors by Democratic leaders of the House and Senate. There was no transparency,” said Sen. Charles Grassley, R-Iowa, the senior Republican on the Senate Finance Committee.
On Wednesday, Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, acknowledged that his staff agreed to dilute an executive compensation provision that would have applied retroactively to recipients of federal aid. Dodd told CNN the request came from officials at the Treasury Department whom he did not identify.
While the House and Senate reconciled their stimulus bills last month, the Treasury Department expressed concern with a Senate restriction on bonuses, noting that if it applied to existing compensation contracts it could face a legal challenge.
“The alternative was losing, in my view, the entire section on executive excessive compensation,” Dodd told CNN. “Given a choice — this is not an uncommon occurrence here — I agreed to a modification in the legislation, reluctantly.”
The legislation does include a provision that allows the Treasury Department to examine past compensation payments to determine whether they were “contrary to the public interest.” Geithner on Tuesday said he was using that provision to review AIG’s bonuses.
Liddy’s presence in a congressional hearing room was evidence of a bipartisan opposition to the bonuses, although his status as a $1-a-year CEO called out of retirement last year to try and untangle AIG’s financial mess made him a less-than-easy target for expressions of outrage.
“No one knows better than I that AIG has been the recipient of generous amounts of government financial aid,” he said. “We have been the beneficiary of the American people’s forbearance and patience,” he added, acknowledging the patience was wearing thin.
Asked by Rep. Barney Frank, D-Mass., whether he would turn over the names of individuals who received the bonuses, as well as the amounts, Liddy said he would do so only if assured the information not be made public.
When Frank said he might seek a subpoena, Liddy said he was concerned about the safety of the employees and their families, and read aloud from a death threat received by one of them.
Frank said he would be guided in part by security considerations, but Ackerman later noted that Andrew Cuomo, the New York attorney general, was already seeking the names with a subpoena.
Liddy said he had not yet complied, sidestepped several times when asked whether he would, and finally said “it would be our intent” to do so.
Cuomo swiftly issued a statement saying Liddy’s pledge was “simply too little, too late. ... Rather than take half-measures, AIG should immediately turn over the list, which we have subpoenaed, of who got what and when.”
Separately, a New York state judge ordered Bank of America Corp. to disclose information about bonuses given to employees at Merrill Lynch & Co. just before the bank bought the brokerage company. Cuomo, who has been sparring with the bank over release of the information, said the decision “will now lift the shroud of secrecy surrounding the $3.6 billion in premature bonuses Merrill Lynch rushed out in early December.”
“AIG should take heed and immediately turn over the list of bonus recipients we have subpoenaed,” he said. “The deadline for responding to our subpoena is tomorrow. “
AIG spokesman Mark Herr said he could not say how many executives had turned back the money. “Bear in mind, these bonuses were only just paid,” he said.
In Wilton, Conn., headquarters of AIG Financial Products Corp., police chief Edward Kulhawik said his department had not received any reports from the company of threats to employees but was in contact with the company and keeping “a special eye on that whole office complex.”
Liddy said the Federal Reserve knew long in advance of the bonus payments and acquiesced in them, noting that officials from the independent agency attend key company meetings. But he said the same was not true of Geithner, adding, “We do our work with the Federal Reserve.”
Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses — he did not call them that — to executives.
He said the money was offered to executives in AIG’s financial products section, where risky investments finally became the entire company’s undoing. He said each executive was offered money to dispose of his “business book,” meaning the transactions he had been in charge of handling, and thus far, the company’s financial derivatives had been reduced from $2.7 trillion to $1.6 trillion.
He had decided it was worth paying the money to retain the services of executives who knew the business best, he said. And he had received legal advice that there were valid contracts requiring the payments.
“I know 165 million is a very large number. It’s a very large number. In the context of 1.6 trillion ... we thought it was a good trade,” he said.
Liddy added there was still a risk of financial catastrophe if the remaining $1.6 trillion in financial instruments were not disposed of properly.
But Rep. Stephen Lynch, D-Mass., angrily told the witness the contract read like “the captain and the crew of the ship reserving the lifeboats.”
Liddy replied that he was not at the firm when the contracts were negotiated, and said, as he has before, that he would not have approved them.
Lynch said the terms had been put in place in December, after Liddy arrived at AIG.
But Liddy disputed that. “I take offense, Sir,” he said.
“Well you take it rightly. Offense was intended,” shot back Lynch.