AIG bonus payments controversy
Encyclopedia
The AIG bonus payments controversy began in March 2009, when it was publicly disclosed that the American International Group
(AIG) was to pay approximately $218 million in bonus payments to employees of its financial services division.
AIG is notable for having received $170 billion in taxpayer bailouts and in the fourth quarter of 2008 posted a loss of $61.7 billion, the greatest ever for any corporation. Beyond the $165 million in bonus payments that were recently announced, total bonuses for the financial unit could reach $450 million and bonuses for the entire company could reach $1.2 billion. This quickly led to what some have labeled a "populist
outrage."
said, "[I]t’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" and "In the last six months, AIG has received substantial sums from the U.S. Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Politicians on both sides of Congress reacted with outrage to the planned bonus payments. Senator Chuck Grassley
(Republican, Iowa
) said "I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example
and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide." Senator Chuck Schumer (Democrat, New York) accused AIG of "Alice in Wonderland business practices" and said "It boggles the mind." He has threatened to tax the bonuses at up to 100%. Senator Richard Shelby
(Republican, Alabama
) 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." Senator Mitch McConnell
(Republican, Kentucky
) echoed his comments, saying "This is an outrage." Senator Jon Tester
(Democrat, Montana
) said "This is ridiculous." and AIG executives "need to understand that the only reason they even have a job is because of the taxpayers." Senator Dick Durbin (Democrat, Illinois
) said "I've had it." and "The fact that they continue to do it while we pour in billions of dollars is undefensible." Representative Paul Hodes
(Democrat, New Hampshire
) said "I think AIG now stands for arrogance, incompetence and greed."
Representative
Barney Frank
(Democrat, Massachusetts
), Chairman of the House Financial Services Committee, said paying these bonuses would be "rewarding incompetence" and "These people may have a right to their bonuses. They don't have a right to their jobs forever." Representative Mark Kirk
(Republican, Illinois) said "AIG should not be on welfare from Uncle Sam, and yet paying bonuses and transferring a considerable amount of taxpayer funds to entities overseas." Federal Reserve
Chairman Ben Bernanke
said "It makes me angry. I slammed the phone more than a few times on discussing AIG." Lawrence Summers
, Director of the National Economic Council, said "The easy thing would be to just say, you know, ‘Off with their heads
,’ and violate the contracts." Austan Goolsbee
, of the Council of Economic Advisers
said "I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people." and "You worry about that backlash."
Representative Barney Frank
said "I do want to stress, this initial intervention into AIG was not part of the congressional rescue plan.", "Before we were even asked by the Bush administration to do the rescue plan, President Bush‘s two top economic appointees Mr. Bernanke and Mr. Paulson came to us and said--Mr. Bernanke, as head of the Federal Reserve is going to lend $85 billion to AIG under a statute that dates back to 1932. They didn‘t ask us. They didn‘t solicit our opinion. They simply informed us.", and "Since then, when we have voted, we have put tough conditions on. And, in fact, this won‘t be happening again. The conditions are so tough that there have been articles recently in the Washington Post and the New York Times from banks complaining that we‘ve made the conditions so tough they are going to give us our money back."
Representative Thaddeus McCotter (R-Michigan) said in a speech to Congress, "Every single Democrat in this House that voted for that bill voted to approve and protect those AIG bonuses." Senator Jim Inhofe
(R-Oklahoma) said that much of the blame for the bonuses should be directed at the 74 Senators who voted for the bailout, "... including now President Obama, who voted in favor of handing over an unprecedented amount of money and power to an unelected bureaucrat last August."
The Senate version of the bill is similar to the House bill except it will levy a 70% tax on bonuses awarded by corporations that are receiving any amount of Treasury aid from the Troubled Asset Relief Program (TARP). The 70% tax will be paid through a 35% excise tax on the corporation and 35% tax on the receiver of the bonus.
Some commentators suggested that such a tax would run into constitutional problems, because Article 1, Section 9 of the U.S. Constitution prohibits Congress from enacting bill of attainder
and ex post facto laws. However, Laurence Tribe
quoted in the blog of the Wall Street Journal, said that there were no insoluble constitutional difficulties. The New York Times quoted experts on constitutional and tax law having said it was likely the House bill could pass muster. Numerous court rulings have upheld retroactive tax provisions, particularly over short periods (The House bill applies back only to January 1, 2009). The measure is also strengthened by the fact that it does not apply to just one company or group of individuals, and does not take aim only at past bonuses paid in 2009 but also bonuses to be paid in future.
Some employees at Goldman Sachs
, who would also have to pay the 90% tax, have started looking for employment at firms where they would not have to pay the tax.
In a March 22, 2009 Wall St. Journal editorial, Jonathan Clements, a Citi employee, wrote, "... by mid-October, I will hit $250,000 in total income -- and have no incentive to earn any more income in 2009. At that point, I plan to ask Citi for an unpaid sabbatical." He also notes that some individuals have already received and spent most of their bonuses and will not be able to afford the tax.
A March 24, 2009 CNN
article said that private companies wouldn't feel comfortable doing business with the U.S. government if they thought the government would change the rules after the contracts have already been signed. Also on March 24, 2009, The Hill
reported that Michael Feroli, a senior economist at JP Morgan, claimed that the tax would destroy one million U.S. jobs because it would put U.S. companies at a competitive disadvantage compared to companies in other countries where the tax did not exist. A March 26, 2009 Associated Press
article stated, "Obama then warned the public against vilifying investors and entrepreneurs who are needed to keep the economy alive."
introduced a bill to restrict base salaries of employees of firms who have taken $5 billion or more in the Troubled Asset Relief Program by taxing all non-bonus compensation over $500,000. It is designed to tax all compensations, including all payments that may be "re-named" bonuses to ensure that individuals and firms will not escape the bonus tax.
said "I would deny them the bonuses if possible. I would be for an exemplary hanging
or two. Have it in Times Square, invite Madame Defarge
. You borrow a guillotine
from the French
and we could have a party." Mort Kondracke
, another conservative commentator, said "I was going to recommend boiling in oil
in Times Square." MSNBC
host Rachel Maddow
said "Sometime in early 2008, that company signed contracts with its employees that said: 'Even if you cause the company to fail and nearly bring down the worldwide financial system, you will still get a bonus.' I mean, who writes those contracts?" Chuck Todd
, also an MSNBC commentator, wrote that "It's a lynch mob
out there, and members of Congress seem to be carrying torches." Comedy Central
host Jon Stewart
said "You know, they say angry populism
is all the rage. Literally, it's been building for months, simmering. Our proletarian
rage feels so unfocused. If only someone would step up and put on the kick me sign." and "They're not good people." The New Jersey Star-Ledger
editorial page read "This band of "best and brightest" just blew a $62 billion hole in the company. What's to retain? Heads should be rolling
. Besides, is there really that much cutthroat competition for such an overpaid bunch of losers?"
CNN
reporter Carol Costello
said "Some political analysts fear public anger has reached a tipping point." Commentator William Kristol
wrote "Can capitalism
survive the behavior of some capitalists? It's always been an open question. But if capitalism is to survive, shouldn't the Republican party, the party that defends democratic capitalism, be particularly vehement in denouncing its excesses? Isn't this a pretty spectacular one?" Robert Lenzer wrote in Forbes
that "The $170 billion bailout of AIG and the $165 million bonus outrage are the result of reckless behavior by AIG and most especially by its egomaniacal
former chairman, Maurice "Hank" Greenberg
. This supposed paragon of higher finance was just plain playing Russian roulette
with his shareholders' money, destroying nearly $200 billion in equity and putting an onerous cost on Uncle Sam and taxpayers." Lenzer accused AIG and Greenberg of "cowboy capitalism", "numbskull ... tomfoolery", and "rotten arrogance." Karim Bardeesy, writing in Slate
, compared AIG to Imperial Japan
and Nazi Germany
, stating "Sometimes the internal workings of a society are so rotten that it takes a complete outsider to come in and change the culture and the cultural production within it. Allies came in and rewrote constitutions for the corrupted societies in Japan and Germany after World War II."
MSNBC host Keith Olbermann
said "Certainly, we can screw these guys out of these bonuses the way they screwed us." He has labeled the bonuses "failure bonuses" and "failure rewards." George Washington University
law professor Jonathan Turley
said "I have some question about fraud here. I mean, these contracts seem to have been written in haste when the company could not possibly have honored them short of a bailout." Turley also said that there is "real social unrest
" and that "Congress has finally pushed this country to the breaking point
." John Kelso wrote in the Austin American-Statesman
that "irate Americans...are about to start chasing these guys around the castle the way the townsfolk with the torches went after Frankenstein
" and "The gated communities these suits live in are gated for a reason. For when the revolution starts." He also wrote that AIG "really stands for America Is Gyped. Avarice Is Great, or Actually, It's Graft." Susan Antilla
, reporting for Bloomberg
, wrote that "The public is angry. They are steaming, off-with-their-heads
mad at AIG and other financial companies for the greed and cheating that pushed us into a financial meltdown." and "Americans want to see heads roll
." Fred J. Joseph, commissioner of the Colorado division of securities and president of the North American Securities Administrators Association
, said "If these people could get their hands on pitchforks, they really would storm the castle."
The Washington Post reported that "Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all." The paper quoted one anonymous AIG executive as saying "It's a mob effect. It's putting people's lives in danger." and another as saying "It's going to blow up. I have a horrible, horrible, horrible feeling that this is going to end badly." The Associated Press quoted one anonymous AIG executive as saying "It's scary. People are very, very nervous for their security." The AP reported that "police cars that now regularly patrol the well-kept streets" of a neighborhood of AIG executives. AIG has advised employees "to avoid wearing the company logo" and "to travel in pairs at night and park in well-lit areas." Reuters quoted an anonymous senior equity salesman at a bank receiving TARP funds as saying "At this point, it's like the French Revolution
-- the mob has got the banks' heads in the guillotine
."
NBC Connecticut, through the Freedom of Information Act, obtained information about dozens of death threats that were made to employees of AIG and their families. Some of the people who made the threats left their email addresses and phone numbers, making it much easier for law enforcement officials to identify them.
In an online editorial for the Wall Street Journal, James Taranto
speculated that for bonus recipients living in New York City
, if the 90% bonus tax passed by the United States House of Representatives
is added to the Medicare FICA tax of 1.45%, plus the state and local taxes of 6.85% and 3.648%, respectively, it adds up to a tax rate of 101.948%. This means the individual receiving the bonus will have to paid more than he or she 'received' from the bonus.
In a nationally syndicated opinion column, economist Thomas Sowell
claimed that the politicians who did the most to create the situation that led to the use of taxpayer money to fund the bonuses are now the same ones who are complaining the most about the bonuses. Sowell also wrote, "If members of Congress can't be bothered to read the laws they pass, then they have no basis for whipping up lynch mob outrage against people who did read the law and acted within the law."
Mike Cassidy of the San Jose Mercury News
wrote that the bonuses bring "a whole new meaning to the phrase 'bank robber.'" He also wrote "These bankers and brokers and investing Svengalis knew exactly how their obscene cash-grabbing orgy would look to the rest of us. They just didn't care."
. MSNBC host David Shuster
said "The argument that these were so-called retention bonuses is undermined by the fact that 52 of the people who received them have already left the company."
To date, few people outside of AIG itself have defended AIG's payments of the bonuses. Former White House Press Secretary
under the George W. Bush
administration Dana Perino
defended AIG, saying "If they don't get it [the bonus], maybe they won't be motivated enough to try to help the company turn around." and accusing the "rhetoric in Washington" of "demonizing people". Terence Corcoran
, writing in the Financial Post
, claims that AIG is innocent, and instead "massive government failure" on the part of Barack Obama
, whom Corcoran claims "doesn't get it," is at fault. Evan Newmark of The Wall Street Journal
accused those attacking AIG of "hysterical, bloodthirsty ravings" and "populist hurly-burly." Andrew Ross Sorkin
of The New York Times
argued the case for paying bonuses, saying there was likely some truth to AIG's claim that it needed to retain its top talent, and that its most talented employees could find employment elsewhere. Sorkin also said not paying the bonuses could spark problems across the business community. "If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right," wrote Sorkin. Joshua Zumbrun of Forbes
and Eliot Spitzer of Slate
argued that the outrage over bonuses distracted from a larger issue: that AIG had taken much of the bailout money and used it to settle contracts with its counterparties, Wall Street banks, hedge funds and non-U.S. banks, at full price.
Conservative political commentator Rush Limbaugh
defended AIG, saying "We've got peasants
with their pitchforks phoning in death threats at AIG. We have members of the United States Senate and the United States House of Representatives sounding like communist dictators." Limbaugh's comments defended that the bonuses were legal and productive, saying "This money went to American citizens. This money went mostly to American citizens who are registered Democrats. These people who got the bonus are going to spend it. That's called private sector stimulus...The ones who got the bonuses did so on the basis of sales success. These were reported as merit bonuses that they are contractually permitted to get. If you violate their contract, if you don't give them their bonus, you have got a lawsuit on your hands and 80% of this company is now owned by Barney Frank
and Chris Dodd and [Nancy] Pelosi
, and so they would be sued, the government would be sued by these people."
AIG CEO Edward M. Liddy
told Congress that he asked employees who received bonuses over $100,000 to give half back. David Shuster said "That sounded half-assed to members of Congress who were both channeling and deflecting voter outrage."
AIG has pointed out that Connecticut, the state where AIG is based, has a law called the Wage Act. According to the law, employers who don't pay employees the money which they are contractually obligated to pay, could ultimately be required to pay twice that amount.
As of March 23, 2009, 9 of the 10 highest paid AIG executives had agreed to give back their bonuses - and of the 20 highest paid, 15 had agreed to give back their bonuses.
sent a letter to AIG demanding "the list of individuals who are to receive payments" and "a description of each individual's job description and performance at AIG Financial Products" in order to determine "whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout" and "whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions." AIG failed to respond, so Cuomo subpoenaed them for the names of the bonus recipients. Cuomo announced that 73 AIG employees were each paid more than $1 million in bonuses, saying "AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout." and "Something is deeply wrong with this outcome."
On March 21, Connecticut Attorney General Richard Blumenthal
issued a subpoena to AIG to find out why they gave out an additional $53 million in bonuses on top of the $165 million already reported.
The same article went on to mention that Treasury Secretary Timothy Geithner and Lawrence Summers "had called Sen. Dodd and asked him to reconsider". When the bill left conference, Dodd's provision had been removed and replaced with the explicit exemptions lobbied for by Geithner and Summers.
As Dodd explained in his March 18 interview on CNN, at Geithner and the Obama Administration's insistence he removed the language he had himself inserted and replaced it with Geithner and Summers' loophole, which thus allowed the bonuses which formed the basis for the AIG scandal.
Dodd retreated from his original statement that he did not know how the bill was changed Dodd was criticised by many in the Connecticut media for the apparent flip-flop. In a March 20, 2009 editorial the New Haven Register called Dodd "a lying weasel" The same day, Hartford Courant columnist Rick Green called on Dodd not to seek re-election in 2010.
printed the open letter
of resignation of Jake DeSantis, an executive vice president of AIG’s financial products unit, to Edward M. Liddy, the chief executive of AIG DeSantis stated that he and the majority of AIG-F.P. employees had nothing to do with the money-losing credit default swaps, that many of them had lost much of their savings in the form of deferred compensation invested in the capital of AIG-F.P., that he and others had agreed to work for an annual salary of $1 out of a sense of duty to the company, that AIG-F.P. employees were assured many times following the government bailout in September 2008 that AIG would honor the pre-existing retention contracts with scheduled payments to be made in March 2009, and that AIG-F.P. employees believed they were let down by Liddy's lack of support against opportunistic political pressure. He also stated he was going to donate his March 2009 payment to those suffering from the global economic downturn.
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...
(AIG) was to pay approximately $218 million in bonus payments to employees of its financial services division.
AIG is notable for having received $170 billion in taxpayer bailouts and in the fourth quarter of 2008 posted a loss of $61.7 billion, the greatest ever for any corporation. Beyond the $165 million in bonus payments that were recently announced, total bonuses for the financial unit could reach $450 million and bonuses for the entire company could reach $1.2 billion. This quickly led to what some have labeled a "populist
Populism
Populism can be defined as an ideology, political philosophy, or type of discourse. Generally, a common theme compares "the people" against "the elite", and urges social and political system changes. It can also be defined as a rhetorical style employed by members of various political or social...
outrage."
Responses from lawmakers
President Barack ObamaBarack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
said, "[I]t’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" and "In the last six months, AIG has received substantial sums from the U.S. Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Politicians on both sides of Congress reacted with outrage to the planned bonus payments. Senator Chuck Grassley
Chuck Grassley
Charles Ernest "Chuck" Grassley is the senior United States Senator from Iowa . A member of Republican Party, he previously served in the served in the United States House of Representatives and the Iowa state legislature...
(Republican, Iowa
Iowa
Iowa is a state located in the Midwestern United States, an area often referred to as the "American Heartland". It derives its name from the Ioway people, one of the many American Indian tribes that occupied the state at the time of European exploration. Iowa was a part of the French colony of New...
) said "I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example
Seppuku
is a form of Japanese ritual suicide by disembowelment. Seppuku was originally reserved only for samurai. Part of the samurai bushido honor code, seppuku was either used voluntarily by samurai to die with honor rather than fall into the hands of their enemies , or as a form of capital punishment...
and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide." Senator Chuck Schumer (Democrat, New York) accused AIG of "Alice in Wonderland business practices" and said "It boggles the mind." He has threatened to tax the bonuses at up to 100%. Senator Richard Shelby
Richard Shelby
Richard Craig Shelby is the senior U.S. Senator from Alabama. First elected to the Senate in 1986, he is the ranking member of the United States Senate Committee on Banking, Housing, and Urban Affairs and was its chairman from 2003 to 2007....
(Republican, Alabama
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
) 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." Senator Mitch McConnell
Mitch McConnell
Addison Mitchell "Mitch" McConnell, Jr. is the senior United States Senator from Kentucky and the Republican Minority Leader.- Early life, education, and military service :...
(Republican, Kentucky
Kentucky
The Commonwealth of Kentucky is a state located in the East Central United States of America. As classified by the United States Census Bureau, Kentucky is a Southern state, more specifically in the East South Central region. Kentucky is one of four U.S. states constituted as a commonwealth...
) echoed his comments, saying "This is an outrage." Senator Jon Tester
Jon Tester
Jon Tester is the junior U.S. Senator for Montana, serving since 2007. He is a member of the Democratic Party. He previously served as President of the Montana Senate.-Early life, education, and farming career:...
(Democrat, Montana
Montana
Montana is a state in the Western United States. The western third of Montana contains numerous mountain ranges. Smaller, "island ranges" are found in the central third of the state, for a total of 77 named ranges of the Rocky Mountains. This geographical fact is reflected in the state's name,...
) said "This is ridiculous." and AIG executives "need to understand that the only reason they even have a job is because of the taxpayers." Senator Dick Durbin (Democrat, Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
) said "I've had it." and "The fact that they continue to do it while we pour in billions of dollars is undefensible." Representative Paul Hodes
Paul Hodes
Paul Hodes is an attorney, musician, and the former U.S. Representative for , serving fom 2007 until 2011. He is a member of the Democratic Party. He was New Hampshire's first Jewish representative....
(Democrat, New Hampshire
New Hampshire
New Hampshire is a state in the New England region of the northeastern United States of America. The state was named after the southern English county of Hampshire. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Atlantic Ocean to the east, and the Canadian...
) said "I think AIG now stands for arrogance, incompetence and greed."
Representative
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
Barney Frank
Barney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...
(Democrat, Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
), Chairman of the House Financial Services Committee, said paying these bonuses would be "rewarding incompetence" and "These people may have a right to their bonuses. They don't have a right to their jobs forever." Representative Mark Kirk
Mark Kirk
Mark Steven Kirk is the junior United States Senator from Illinois and a member of the Republican Party. Previously, Kirk was a member of the United States House of Representatives, representing Illinois's 10th congressional district....
(Republican, Illinois) said "AIG should not be on welfare from Uncle Sam, and yet paying bonuses and transferring a considerable amount of taxpayer funds to entities overseas." Federal Reserve
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
Chairman Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....
said "It makes me angry. I slammed the phone more than a few times on discussing AIG." Lawrence Summers
Lawrence Summers
Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...
, Director of the National Economic Council, said "The easy thing would be to just say, you know, ‘Off with their heads
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
,’ and violate the contracts." Austan Goolsbee
Austan Goolsbee
Austan Dean Goolsbee is an American economist, formerly serving as the Chairman of the Council of Economic Advisers and the youngest member of the cabinet of President Barack Obama. Goolsbee is from the University of Chicago where he is the Robert P...
, of the Council of Economic Advisers
Council of Economic Advisers
The Council of Economic Advisers is an agency within the Executive Office of the President that advises the President of the United States on economic policy...
said "I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people." and "You worry about that backlash."
Representative Barney Frank
Barney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...
said "I do want to stress, this initial intervention into AIG was not part of the congressional rescue plan.", "Before we were even asked by the Bush administration to do the rescue plan, President Bush‘s two top economic appointees Mr. Bernanke and Mr. Paulson came to us and said--Mr. Bernanke, as head of the Federal Reserve is going to lend $85 billion to AIG under a statute that dates back to 1932. They didn‘t ask us. They didn‘t solicit our opinion. They simply informed us.", and "Since then, when we have voted, we have put tough conditions on. And, in fact, this won‘t be happening again. The conditions are so tough that there have been articles recently in the Washington Post and the New York Times from banks complaining that we‘ve made the conditions so tough they are going to give us our money back."
Representative Thaddeus McCotter (R-Michigan) said in a speech to Congress, "Every single Democrat in this House that voted for that bill voted to approve and protect those AIG bonuses." Senator Jim Inhofe
Jim Inhofe
James Mountain "Jim" Inhofe is the senior Senator from Oklahoma and a member of the Republican Party. First elected to the Senate in 1994, he is the ranking member of the United States Senate Committee on Environment and Public Works and was its chairman from 2003 to 2007. Inhofe served eight...
(R-Oklahoma) said that much of the blame for the bonuses should be directed at the 74 Senators who voted for the bailout, "... including now President Obama, who voted in favor of handing over an unprecedented amount of money and power to an unelected bureaucrat last August."
Tax on bonuses
On March 19, 2009, the House of Representatives approved, by a vote of 328 to 93, a measure to levy a 90% tax on bonuses awarded by corporations receiving more than $5 billion in Treasury aid from the Troubled Asset Relief Program (TARP). The House bill affects individuals who make $250,000 or more in total household income and bonuses paid or scheduled to be paid after December 31, 2008.The Senate version of the bill is similar to the House bill except it will levy a 70% tax on bonuses awarded by corporations that are receiving any amount of Treasury aid from the Troubled Asset Relief Program (TARP). The 70% tax will be paid through a 35% excise tax on the corporation and 35% tax on the receiver of the bonus.
Some commentators suggested that such a tax would run into constitutional problems, because Article 1, Section 9 of the U.S. Constitution prohibits Congress from enacting bill of attainder
Bill of attainder
A bill of attainder is an act of a legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a judicial trial.-English law:...
and ex post facto laws. However, Laurence Tribe
Laurence Tribe
Laurence Henry Tribe is a professor of constitutional law at Harvard Law School and the Carl M. Loeb University Professor at Harvard University. He also works with the firm Massey & Gail LLP on a variety of matters....
quoted in the blog of the Wall Street Journal, said that there were no insoluble constitutional difficulties. The New York Times quoted experts on constitutional and tax law having said it was likely the House bill could pass muster. Numerous court rulings have upheld retroactive tax provisions, particularly over short periods (The House bill applies back only to January 1, 2009). The measure is also strengthened by the fact that it does not apply to just one company or group of individuals, and does not take aim only at past bonuses paid in 2009 but also bonuses to be paid in future.
Some employees at Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, who would also have to pay the 90% tax, have started looking for employment at firms where they would not have to pay the tax.
In a March 22, 2009 Wall St. Journal editorial, Jonathan Clements, a Citi employee, wrote, "... by mid-October, I will hit $250,000 in total income -- and have no incentive to earn any more income in 2009. At that point, I plan to ask Citi for an unpaid sabbatical." He also notes that some individuals have already received and spent most of their bonuses and will not be able to afford the tax.
A March 24, 2009 CNN
CNN
Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...
article said that private companies wouldn't feel comfortable doing business with the U.S. government if they thought the government would change the rules after the contracts have already been signed. Also on March 24, 2009, The Hill
The Hill (newspaper)
The Hill, a subsidiary of News Communications Inc., is a newspaper published in Washington, D.C. since 1994.Its first editor was Martin Tolchin, a veteran correspondent in the Washington bureau of The New York Times....
reported that Michael Feroli, a senior economist at JP Morgan, claimed that the tax would destroy one million U.S. jobs because it would put U.S. companies at a competitive disadvantage compared to companies in other countries where the tax did not exist. A March 26, 2009 Associated Press
Associated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
article stated, "Obama then warned the public against vilifying investors and entrepreneurs who are needed to keep the economy alive."
Restriction on base compensation
Congressman Brad ShermanBrad Sherman
Bradley J. "Brad" Sherman is an American politician. He has been a Democratic member of the United States House of Representatives since 1997, representing ....
introduced a bill to restrict base salaries of employees of firms who have taken $5 billion or more in the Troubled Asset Relief Program by taxing all non-bonus compensation over $500,000. It is designed to tax all compensations, including all payments that may be "re-named" bonuses to ensure that individuals and firms will not escape the bonus tax.
Media commentary
Political commentators and journalists have expressed an equally bipartisan outrage. Commentator Charles KrauthammerCharles Krauthammer
Charles Krauthammer, MD is an American Pulitzer Prize–winning syndicated columnist, political commentator, and physician. His weekly column appears in The Washington Post and is syndicated to more than 275 newspapers and media outlets. He is a contributing editor to the Weekly Standard and The New...
said "I would deny them the bonuses if possible. I would be for an exemplary hanging
Hanging
Hanging is the lethal suspension of a person by a ligature. The Oxford English Dictionary states that hanging in this sense is "specifically to put to death by suspension by the neck", though it formerly also referred to crucifixion and death by impalement in which the body would remain...
or two. Have it in Times Square, invite Madame Defarge
Madame Defarge
Madame Thérèse Defarge is a fictional character in the book A Tale of Two Cities by Charles Dickens. She is a tricoteuse, a tireless worker for the French Revolution and the wife of Ernest Defarge....
. You borrow a guillotine
Guillotine
The guillotine is a device used for carrying out :executions by decapitation. It consists of a tall upright frame from which an angled blade is suspended. This blade is raised with a rope and then allowed to drop, severing the head from the body...
from the French
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
and we could have a party." Mort Kondracke
Mort Kondracke
Morton M. Kondracke is an American political commentator and journalist. He gained great visibility via a long stint as a panelist on The McLaughlin Group. Kondracke worked for several leading publications, serving for twenty years as executive editor and columnist for the non-partisan Capitol...
, another conservative commentator, said "I was going to recommend boiling in oil
Boiling to death
Death by boiling is a method of execution in which a person is killed by being immersed in a boiling liquid such as water or oil. While not as common as other methods of execution, boiling to death has been used in many parts of Europe and Asia...
in Times Square." MSNBC
MSNBC
MSNBC is a cable news channel based in the United States available in the US, Germany , South Africa, the Middle East and Canada...
host Rachel Maddow
Rachel Maddow
Rachel Anne Maddow is an American television host and political commentator. Maddow hosts a nightly television show, The Rachel Maddow Show, on MSNBC. Her syndicated talk radio program, The Rachel Maddow Show, aired on Air America Radio...
said "Sometime in early 2008, that company signed contracts with its employees that said: 'Even if you cause the company to fail and nearly bring down the worldwide financial system, you will still get a bonus.' I mean, who writes those contracts?" Chuck Todd
Chuck Todd
Charles David “Chuck” Todd is an American journalist, Chief White House Correspondent and political director for NBC News, and contributing editor to Meet the Press...
, also an MSNBC commentator, wrote that "It's a lynch mob
Lynching
Lynching is an extrajudicial execution carried out by a mob, often by hanging, but also by burning at the stake or shooting, in order to punish an alleged transgressor, or to intimidate, control, or otherwise manipulate a population of people. It is related to other means of social control that...
out there, and members of Congress seem to be carrying torches." Comedy Central
Comedy Central
Comedy Central is an American cable television and satellite television channel that carries comedy programming, both original and syndicated....
host Jon Stewart
Jon Stewart
Jon Stewart is an American political satirist, writer, television host, actor, media critic and stand-up comedian...
said "You know, they say angry populism
Populism
Populism can be defined as an ideology, political philosophy, or type of discourse. Generally, a common theme compares "the people" against "the elite", and urges social and political system changes. It can also be defined as a rhetorical style employed by members of various political or social...
is all the rage. Literally, it's been building for months, simmering. Our proletarian
Proletariat
The proletariat is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian...
rage feels so unfocused. If only someone would step up and put on the kick me sign." and "They're not good people." The New Jersey Star-Ledger
The Star-Ledger
The Star-Ledger is the largest circulated newspaper in the U.S. state of New Jersey and is based in Newark. It is a sister paper to The Jersey Journal of Jersey City, The Times of Trenton and the Staten Island Advance, all of which are owned by Advance Publications.The Newark Star-Ledgers daily...
editorial page read "This band of "best and brightest" just blew a $62 billion hole in the company. What's to retain? Heads should be rolling
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
. Besides, is there really that much cutthroat competition for such an overpaid bunch of losers?"
CNN
CNN
Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...
reporter Carol Costello
Carol Costello
Carol Costello is a CNN national correspondent and anchor, working out of the network's New York City bureau. She was part of CNN's Peabody-winning coverage of Hurricane Katrina and the 2008 presidential election, and also covered the Virginia Tech shootings, the Obama inauguration and the Casey...
said "Some political analysts fear public anger has reached a tipping point." Commentator William Kristol
William Kristol
William Kristol is an American neoconservative political analyst and commentator. He is the founder and editor of the political magazine The Weekly Standard and a regular commentator on the Fox News Channel....
wrote "Can capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
survive the behavior of some capitalists? It's always been an open question. But if capitalism is to survive, shouldn't the Republican party, the party that defends democratic capitalism, be particularly vehement in denouncing its excesses? Isn't this a pretty spectacular one?" Robert Lenzer wrote in Forbes
Forbes
Forbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
that "The $170 billion bailout of AIG and the $165 million bonus outrage are the result of reckless behavior by AIG and most especially by its egomaniacal
Egotism
Egotism is "characterized by an exaggerated estimate of one's intellect, ability, importance, appearance, wit, or other valued personal characteristics" – the drive to maintain and enhance favorable views of oneself....
former chairman, Maurice "Hank" Greenberg
Maurice R. Greenberg
Maurice Raymond "Hank" Greenberg is an American business executive and former chairman and CEO of American International Group , which was the world's 18th largest public company and its largest insurance and financial services corporation.He is currently chairman and CEO of C.V. Starr & Co., Inc....
. This supposed paragon of higher finance was just plain playing Russian roulette
Russian roulette
Russian roulette is a potentially lethal game of chance in which participants place a single round in a revolver, spin the cylinder, place the muzzle against their head and pull the trigger...
with his shareholders' money, destroying nearly $200 billion in equity and putting an onerous cost on Uncle Sam and taxpayers." Lenzer accused AIG and Greenberg of "cowboy capitalism", "numbskull ... tomfoolery", and "rotten arrogance." Karim Bardeesy, writing in Slate
Slate (magazine)
Slate is a US-based English language online current affairs and culture magazine created in 1996 by former New Republic editor Michael Kinsley, initially under the ownership of Microsoft as part of MSN. On 21 December 2004 it was purchased by the Washington Post Company...
, compared AIG to Imperial Japan
Empire of Japan
The Empire of Japan is the name of the state of Japan that existed from the Meiji Restoration on 3 January 1868 to the enactment of the post-World War II Constitution of...
and Nazi Germany
Nazi Germany
Nazi Germany , also known as the Third Reich , but officially called German Reich from 1933 to 1943 and Greater German Reich from 26 June 1943 onward, is the name commonly used to refer to the state of Germany from 1933 to 1945, when it was a totalitarian dictatorship ruled by...
, stating "Sometimes the internal workings of a society are so rotten that it takes a complete outsider to come in and change the culture and the cultural production within it. Allies came in and rewrote constitutions for the corrupted societies in Japan and Germany after World War II."
MSNBC host Keith Olbermann
Keith Olbermann
Keith Theodore Olbermann is an American political commentator and writer. He has been the chief news officer of the Current TV network and the host of Current TV's weeknight political commentary program, Countdown with Keith Olbermann, since June 20, 2011...
said "Certainly, we can screw these guys out of these bonuses the way they screwed us." He has labeled the bonuses "failure bonuses" and "failure rewards." George Washington University
George Washington University
The George Washington University is a private, coeducational comprehensive university located in Washington, D.C. in the United States...
law professor Jonathan Turley
Jonathan Turley
Jonathan Turley is an American lawyer, legal scholar, writer, commentator, and legal analyst in broadcast and print journalism...
said "I have some question about fraud here. I mean, these contracts seem to have been written in haste when the company could not possibly have honored them short of a bailout." Turley also said that there is "real social unrest
Rebellion
Rebellion, uprising or insurrection, is a refusal of obedience or order. It may, therefore, be seen as encompassing a range of behaviors aimed at destroying or replacing an established authority such as a government or a head of state...
" and that "Congress has finally pushed this country to the breaking point
Breaking point (psychology)
In human psychology, the breaking point is a moment of stress in which a person breaks down or a situation becomes critical. For example, finally getting someone to confess to a crime during an interrogation means the suspect has been broken...
." John Kelso wrote in the Austin American-Statesman
Austin American-Statesman
The Austin American-Statesman is the major daily newspaper for Austin, the capital city of Texas. It is an award-winning publication owned by Cox Enterprises. The Newspaper places focus on issues affecting Austin and the Central Texas region....
that "irate Americans...are about to start chasing these guys around the castle the way the townsfolk with the torches went after Frankenstein
Frankenstein
Frankenstein; or, The Modern Prometheus is a novel about a failed experiment that produced a monster, written by Mary Shelley, with inserts of poems by Percy Bysshe Shelley. Shelley started writing the story when she was eighteen, and the novel was published when she was twenty-one. The first...
" and "The gated communities these suits live in are gated for a reason. For when the revolution starts." He also wrote that AIG "really stands for America Is Gyped. Avarice Is Great, or Actually, It's Graft." Susan Antilla
Susan Antilla
Susan Antilla is practicing journalist as well as an adjunct professor of journalism at New York University.A self-professed high school troublemaker at her parochial school in New Rochelle, N.Y, she became a successful journalist and author. In 1994, she became the focus of controversy when she...
, reporting for Bloomberg
Bloomberg L.P.
Bloomberg L.P. is an American privately held financial software, media, and data company. Bloomberg makes up one third of the $16 billion global financial data market with estimated revenue of $6.9 billion. Bloomberg L.P...
, wrote that "The public is angry. They are steaming, off-with-their-heads
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
mad at AIG and other financial companies for the greed and cheating that pushed us into a financial meltdown." and "Americans want to see heads roll
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
." Fred J. Joseph, commissioner of the Colorado division of securities and president of the North American Securities Administrators Association
North American Securities Administrators Association
The North American Securities Administrators Association , founded in Kansas in 1919, is the oldest international investor protection organization. NASAA is an association of state securities administrators who are charged with the responsibility to protect consumers who purchase securities or...
, said "If these people could get their hands on pitchforks, they really would storm the castle."
The Washington Post reported that "Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all." The paper quoted one anonymous AIG executive as saying "It's a mob effect. It's putting people's lives in danger." and another as saying "It's going to blow up. I have a horrible, horrible, horrible feeling that this is going to end badly." The Associated Press quoted one anonymous AIG executive as saying "It's scary. People are very, very nervous for their security." The AP reported that "police cars that now regularly patrol the well-kept streets" of a neighborhood of AIG executives. AIG has advised employees "to avoid wearing the company logo" and "to travel in pairs at night and park in well-lit areas." Reuters quoted an anonymous senior equity salesman at a bank receiving TARP funds as saying "At this point, it's like the French Revolution
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
-- the mob has got the banks' heads in the guillotine
Guillotine
The guillotine is a device used for carrying out :executions by decapitation. It consists of a tall upright frame from which an angled blade is suspended. This blade is raised with a rope and then allowed to drop, severing the head from the body...
."
NBC Connecticut, through the Freedom of Information Act, obtained information about dozens of death threats that were made to employees of AIG and their families. Some of the people who made the threats left their email addresses and phone numbers, making it much easier for law enforcement officials to identify them.
In an online editorial for the Wall Street Journal, James Taranto
James Taranto
James Taranto is an American columnist for The Wall Street Journal, editor of its online editorial page OpinionJournal.com and a member of the newspaper's editorial board. He is best known for his daily online column Best of the Web Today...
speculated that for bonus recipients living in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
, if the 90% bonus tax passed by the United States House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
is added to the Medicare FICA tax of 1.45%, plus the state and local taxes of 6.85% and 3.648%, respectively, it adds up to a tax rate of 101.948%. This means the individual receiving the bonus will have to paid more than he or she 'received' from the bonus.
In a nationally syndicated opinion column, economist Thomas Sowell
Thomas Sowell
Thomas Sowell is an American economist, social theorist, political philosopher, and author. A National Humanities Medal winner, he advocates laissez-faire economics and writes from a libertarian perspective...
claimed that the politicians who did the most to create the situation that led to the use of taxpayer money to fund the bonuses are now the same ones who are complaining the most about the bonuses. Sowell also wrote, "If members of Congress can't be bothered to read the laws they pass, then they have no basis for whipping up lynch mob outrage against people who did read the law and acted within the law."
Mike Cassidy of the San Jose Mercury News
San Jose Mercury News
The San Jose Mercury News is a daily newspaper in San Jose, California. On its web site, however, it calls itself Silicon Valley Mercury News. The paper is owned by MediaNews Group...
wrote that the bonuses bring "a whole new meaning to the phrase 'bank robber.'" He also wrote "These bankers and brokers and investing Svengalis knew exactly how their obscene cash-grabbing orgy would look to the rest of us. They just didn't care."
AIG's response and counter-responses
AIG has defended the bonuses by citing contractual obligations. AIG also claims that only their executives can unwind their complex derivative deals. Rick Newman of US News & World Report argues that this is tantamount to extortionExtortion
Extortion is a criminal offence which occurs when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Refraining from doing harm is sometimes euphemistically called protection. Extortion is commonly practiced by organized crime...
. MSNBC host David Shuster
David Shuster
David Martin Shuster is an American television journalist who has been an anchor for MSNBC and who has also worked for Fox News and CNN. He anchored MSNBC Live weekdays from 10-11am and 3-4pm ET and filled in for Keith Olbermann, Chris Matthews, Ed Schultz and Rachel Maddow on their respective shows...
said "The argument that these were so-called retention bonuses is undermined by the fact that 52 of the people who received them have already left the company."
To date, few people outside of AIG itself have defended AIG's payments of the bonuses. Former White House Press Secretary
White House Press Secretary
The White House Press Secretary is a senior White House official whose primary responsibility is to act as spokesperson for the government administration....
under the George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
administration Dana Perino
Dana Perino
Dana Maria Perino is an American political commentator for Fox News. She served as the White House Press Secretary for President George W. Bush from September 14, 2007 to January 20, 2009...
defended AIG, saying "If they don't get it [the bonus], maybe they won't be motivated enough to try to help the company turn around." and accusing the "rhetoric in Washington" of "demonizing people". Terence Corcoran
Terence Corcoran
Terence "Terry" Dollard Corcoran is editor and columnist for the Financial Post section of the Toronto-based National Post.-Biography and works:...
, writing in the Financial Post
Financial Post
The Financial Post was an English Canadian business newspaper, which published from 1907 to 1998. In 1998, the publication was folded into the new National Post, although the name Financial Post has been retained as the banner for that paper's business section and also lives on in the Post’s...
, claims that AIG is innocent, and instead "massive government failure" on the part of Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
, whom Corcoran claims "doesn't get it," is at fault. Evan Newmark of The Wall Street Journal
The Wall Street Journal
The Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....
accused those attacking AIG of "hysterical, bloodthirsty ravings" and "populist hurly-burly." Andrew Ross Sorkin
Andrew Ross Sorkin
Andrew Ross Sorkin is a Gerald Loeb Award-winning American journalist, author and television personality. He is a financial columnist for The New York Times and a co-anchor of CNBC's Squawk Box. He is also the founder and editor of DealBook, a financial news service published by The New York Times...
of The New York Times
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...
argued the case for paying bonuses, saying there was likely some truth to AIG's claim that it needed to retain its top talent, and that its most talented employees could find employment elsewhere. Sorkin also said not paying the bonuses could spark problems across the business community. "If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right," wrote Sorkin. Joshua Zumbrun of Forbes
Forbes
Forbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
and Eliot Spitzer of Slate
Slate (magazine)
Slate is a US-based English language online current affairs and culture magazine created in 1996 by former New Republic editor Michael Kinsley, initially under the ownership of Microsoft as part of MSN. On 21 December 2004 it was purchased by the Washington Post Company...
argued that the outrage over bonuses distracted from a larger issue: that AIG had taken much of the bailout money and used it to settle contracts with its counterparties, Wall Street banks, hedge funds and non-U.S. banks, at full price.
Conservative political commentator Rush Limbaugh
Rush Limbaugh
Rush Hudson Limbaugh III is an American radio talk show host, conservative political commentator, and an opinion leader in American conservatism. He hosts The Rush Limbaugh Show which is aired throughout the U.S. on Premiere Radio Networks and is the highest-rated talk-radio program in the United...
defended AIG, saying "We've got peasants
Proletariat
The proletariat is a term used to identify a lower social class, usually the working class; a member of such a class is proletarian...
with their pitchforks phoning in death threats at AIG. We have members of the United States Senate and the United States House of Representatives sounding like communist dictators." Limbaugh's comments defended that the bonuses were legal and productive, saying "This money went to American citizens. This money went mostly to American citizens who are registered Democrats. These people who got the bonus are going to spend it. That's called private sector stimulus...The ones who got the bonuses did so on the basis of sales success. These were reported as merit bonuses that they are contractually permitted to get. If you violate their contract, if you don't give them their bonus, you have got a lawsuit on your hands and 80% of this company is now owned by Barney Frank
Barney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...
and Chris Dodd and [Nancy] Pelosi
Nancy Pelosi
Nancy Patricia D'Alesandro Pelosi is the Minority Leader of the United States House of Representatives and served as the 60th Speaker of the United States House of Representatives from 2007 to 2011...
, and so they would be sued, the government would be sued by these people."
AIG CEO Edward M. Liddy
Edward M. Liddy
Edward Michael Liddy was the chairman and chief executive officer of American International Group from 2008 to 2009 during the late-2000s financial crisis.-Early life:...
told Congress that he asked employees who received bonuses over $100,000 to give half back. David Shuster said "That sounded half-assed to members of Congress who were both channeling and deflecting voter outrage."
AIG has pointed out that Connecticut, the state where AIG is based, has a law called the Wage Act. According to the law, employers who don't pay employees the money which they are contractually obligated to pay, could ultimately be required to pay twice that amount.
As of March 23, 2009, 9 of the 10 highest paid AIG executives had agreed to give back their bonuses - and of the 20 highest paid, 15 had agreed to give back their bonuses.
Response by state officials
On March 16, 2009, New York State Attorney General Andrew CuomoAndrew Cuomo
Andrew Mark Cuomo is the 56th and current Governor of New York, having assumed office on January 1, 2011. A member of the Democratic Party, he was the 64th New York State Attorney General, and was the 11th United States Secretary of Housing and Urban Development...
sent a letter to AIG demanding "the list of individuals who are to receive payments" and "a description of each individual's job description and performance at AIG Financial Products" in order to determine "whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout" and "whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions." AIG failed to respond, so Cuomo subpoenaed them for the names of the bonus recipients. Cuomo announced that 73 AIG employees were each paid more than $1 million in bonuses, saying "AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout." and "Something is deeply wrong with this outcome."
On March 21, Connecticut Attorney General Richard Blumenthal
Richard Blumenthal
Richard Blumenthal is the junior United States Senator from Connecticut and a member of the Democratic Party. Previously, he served as Attorney General of Connecticut....
issued a subpoena to AIG to find out why they gave out an additional $53 million in bonuses on top of the $165 million already reported.
Bonuses exempted in TARP
Initially, Senator Chris Dodd was identified by Treasury Department spokesmen as being responsible for the inclusion of the provision exempting such bonuses from the executive pay limits clause of the TARP. However, on February 14, 2009, the Wall Street Journal published an article, Bankers Face Strict New Pay Cap, discussing a retroactive limit to bonus compensation inserted by Chris Dodd into the TARP bill that passed in the Senate.The same article went on to mention that Treasury Secretary Timothy Geithner and Lawrence Summers "had called Sen. Dodd and asked him to reconsider". When the bill left conference, Dodd's provision had been removed and replaced with the explicit exemptions lobbied for by Geithner and Summers.
As Dodd explained in his March 18 interview on CNN, at Geithner and the Obama Administration's insistence he removed the language he had himself inserted and replaced it with Geithner and Summers' loophole, which thus allowed the bonuses which formed the basis for the AIG scandal.
Dodd retreated from his original statement that he did not know how the bill was changed Dodd was criticised by many in the Connecticut media for the apparent flip-flop. In a March 20, 2009 editorial the New Haven Register called Dodd "a lying weasel" The same day, Hartford Courant columnist Rick Green called on Dodd not to seek re-election in 2010.
Jake DeSantis's resignation
On March 24, 2009, The New York TimesThe New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...
printed the open letter
Open letter
An open letter is a letter that is intended to be read by a wide audience, or a letter intended for an individual, but that is nonetheless widely distributed intentionally....
of resignation of Jake DeSantis, an executive vice president of AIG’s financial products unit, to Edward M. Liddy, the chief executive of AIG DeSantis stated that he and the majority of AIG-F.P. employees had nothing to do with the money-losing credit default swaps, that many of them had lost much of their savings in the form of deferred compensation invested in the capital of AIG-F.P., that he and others had agreed to work for an annual salary of $1 out of a sense of duty to the company, that AIG-F.P. employees were assured many times following the government bailout in September 2008 that AIG would honor the pre-existing retention contracts with scheduled payments to be made in March 2009, and that AIG-F.P. employees believed they were let down by Liddy's lack of support against opportunistic political pressure. He also stated he was going to donate his March 2009 payment to those suffering from the global economic downturn.
External links
- 90% Tax on Bonuses HR1586 passed the house 19Mar2009.