Wednesday, March 18, 2009
United States President Barack Obama stated Monday that insurance giant AIG is in financial trouble due to “recklessness and greed,” and called for legal action to stop the company from giving out millions of dollars in bonuses to its executives.
“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat.”
Obama’s statement comes after reports surfaced last weekend saying the insurance agency, which is in deep financial trouble, had paid US$165 million to executives in bonuses, after receiving $170 billion as part of a government bailout plan.
AIG has said that the bonuses have to be given out, as the company is legally required by contract to do so. A representative with the National Economic Council, Lawrence H. Summers, also said that the bonuses were required to be given out. If AIG had refused to give out the bonuses, employees could file a lawsuit against the company for the money.
“We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” AIG CEO Edward M. Liddy said in a letter addressed to Treasury Secretary Timothy F. Geithner on Saturday.
Liddy said that he asked Geithner “to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole.”
“I want everybody to be clear that Secretary Geithner’s been on the case,” Obama said. “He’s working to resolve this matter with the new CEO, Edward Liddy, who, by the way, everybody needs to understand, came on board after the contracts that led to these bonuses were agreed to last year.”
If the bonuses cannot be stopped, the U.S. Congress says they want AIG to reimburse the government. Congress is looking to impose stiff new taxes on the pay, or ordering the company to return the money which was originally granted from a government bailout. In a letter to House Speaker Nancy Pelosi on Tuesday, senator Richard Shelby promised that the treasury will recover all of the money. Several U.S. senators along with Liddy have sent letters to AIG asking for the bonuses to be renegotiated, something AIG agreed to and says they will reduce future bonuses by 30%. Senators state that if Libby does not respond by renegotiating the bonuses, the Senate Finance Committee will propose an excise tax. Not only will an excise tax be proposed on AIG, but all companies receiving bailout money and their employees who receive bonuses.
|What is the highest excise tax we can impose that will stand up in court? Let’s find out.|
Numerous House Democrats have introduced legislation which would place a 100% tax on any bonuses of over $100,000 from companies that are receiving government bailout funds. Meanwhile in the Senate, a bipartisan proposal by Max Baucus (D-Montana) and Charles Grassley (R-Iowa) would levy a special 90% excise tax on AIG’s bonuses. Asked Senator Baucus, who chairs the Senate Finance Committee: “What is the highest excise tax we can impose that will stand up in court? Let’s find out.”