Bonuses Attacked, But What About Bailout?
The bonuses granted to American International Group officials have become a lightning rod for public anger over the past and present excesses of executives in the financial industry.
They also have energized the debate over whether the $170 billion federal bailout of the insurance giant has been effective or defensible.
New York Attorney General Andrew Cuomo said in a letter to Congress today (PDF) that the bonuses "made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees." He says he has subpoenaed the company for the list of recipients.
The former New York governor, Eliot Spitzer, writes today on Slate that beyond the bonuses, the bailout has allowed AIG to pay billions to many of the counterparties in its bad deals. The counterparties are largely the same banks that, in turn, have received government bailouts themselves. Spitzer argues that this is the real scandal because it represents "the same insiders protecting themselves against sharing the pain and risk of their own bad adventure."
Others maintain that despite justified public anger at the bonuses, the bailout is working. Rick Newman at U.S. News advises everyone to "breathe deep" and realize that despite the justified anger over the bonuses, the payouts made by AIG to its counterparties are "sensible."
The bonuses that raise the most public outrage went to AIG's Financial Products unit, which has now been recognized as ground zero for the near-collapse of the financial system last year. The relatively small London-based unit came to public attention last fall. And in December, The Washington Post's Robert O'Harrow Jr. and Brady Dennis published a three-part narrative on the rise and downfall of the division, which feasted on risky instruments called credit-default swaps.
When AIG disclosed last year that it would award $400 million in planned bonuses and retention payments, lawyers for the Federal Reserve did not object, determining that otherwise the company would face costly lawsuits and penalties.
But President Obama yesterday vowed to "pursue every legal avenue to block these bonuses." And today Congress stepped in, with Senate Democrats promising to move quickly to pass a measure that would tax up to 98 percent of the bonus money.
By The Editors |
March 17, 2009; 4:52 PM ET
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