The indignation over millions of dollars in bonus payments for American International Group Inc. executives grew Monday when a top lawmaker said he believes it's time to shake up the company.
Rep. Barney Frank charged that a decision by the financially strapped insurance giant, which is 80 percent owned by taxpayers, to pay millions in executive bonuses amounts to "rewarding incompetence."
"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank, echoing outrage expressed on both sides of the political aisle in the wake of revelations that AIG will pay roughly $165 million in bonuses.
The money was payable to executives by Sunday and was part of a larger total payout reportedly valued at $450 million. The company has benefited from more than $170 billion in a federal rescue. AIG has argued that it was contractually obligated to pay the bonuses.
Appearing on NBC's "Today" show, Frank noted that the Federal Reserve Board, using a Depression-era statute, was the institution that gave AIG its initial government bailout, before Congress passed legislation providing for additional assistance. He said he did not think sufficient safeguards were built into that initial bailout by the Fed.
Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, added on NBC's "Today" show that "it does appear to be that we're rewarding incompetence."
On ABC's "Good Morning America" Monday, Sen. Richard Shelby said Congress must do everything it can to make sure the government money going to AIG is handled appropriately. The Alabama Republican, who is the ranking member of his party on the Banking Committee, also said he was angry.
"We ought to explore everything that we can through the government to make sure that this money is not wasted," Shelby said. "These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous."
Frank said he was disgusted, asserting that "these bonuses are going to people who screwed this thing up enormously."
"Maybe it's time to fire some people," he said. "We can't keep them from getting bonuses but we can keep them from having their jobs. ... In high school, they wouldn't have gotten retention (bonuses), they would have gotten detention."
Frank said Congress intends to make very clear that it will not stand for "any more abuses of this nature."
Payments to banks
Frank's statement came as AIG revealed it used more than $90 billion in federal aid to pay out foreign and domestic banks, some of which had received their own multibillion-dollar U.S. government bailouts.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks — France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
"The ability of AIG to meet its obligations is important to the stability of the U.S. financial system and to getting credit flowing to households and businesses," Federal Reserve spokeswoman Michelle Smith said.
The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
Other banks receiving between $1 billion and $3 billion from AIG's securities lending unit include Citigroup Inc., Switzerland's UBS AG and Morgan Stanley.
Municipalities in certain states, including California, Virginia and Hawaii, received a total of $12.1 billion under guaranteed investment agreements.
The company said it used billions more to fund its Maiden Lane business, which was set up following the federal bailout to purchase toxic assets, and to repay debt and provide capital for some of its operations.
"I've been asking for this information for months. This is a good first step, but I'm concerned by how long it took,' said Rep. Carolyn Maloney, who is chair of Congress' Joint Economic Committee.
In a letter to Treasury Secretary Timothy Geithner dated Saturday, AIG Chairman Edward Liddy said outside lawyers informed AIG that it had contractual obligations to make the payments and could face lawsuits if it did not do so.
Liddy said the company entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout.
AIG has agreed to the Obama administration's requests to restrain future payments.
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