Lawmakers target 'outrageous' AIG bonuses
Members of both parties are mad at the insurance giant. But big questions remain over what they can do about it.
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They also propose recouping payments to executives at AIG and other institutions that have received taxpayer funds from the Troubled Assets Relief Program.
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The proposal includes a 35 percent excise tax on all retention bonuses and all other bonuses over $50,000. The provisions would apply to all TARP recipients of government funds as well as companies in which the government holds an equity interest, including Fannie Mae and Freddie Mac.
On the House side, Democratic Reps. Steve Israel of New York and Tim Ryan of Ohio propose creating a 100 percent “bailout bonus tax bracket” to recover all taxpayer dollars paid out in bonuses.
Lawmakers want to know the names of those receiving bonuses – and also why AIG trading partners are getting paid back in full, including some institutions also at the receiving end of TARP bailout funds.
“It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure,” said former New York Governor and Attorney General Elliot Spitzer in a blog post widely cited on Capitol Hill.
In a letter to Congress on Tuesday, Treasury Secretary Timothy Geithner said that the Treasury Department has the authority to pull back payments deemed “inconsistent with the purpose” of the TARP.
Other Democrats, citing discussions with Treasury Department lawyers, say there is little legal precedent for such a move – and AIG is too vital to the economy to allow it to fail.
“For businesses to function ... , to create jobs, they need access to insurance to protect their investments, and during a financial crisis in which credit is frozen, the critical role of insurance cannot be overstated,” said Sen. Christopher Dodd (D) of Connecticut.
House majority leader Steny Hoyer questioned whether clawing back bonuses would violate the Constitution’s equal-protection clause.
Meanwhile, Republicans cite the AIG bonus scandal as evidence that a strategy of government bailouts, launched by the Bush administration but now, they say, owned by President Obama, is misguided.
“Why hasn’t the [Federal Reserve] outlined an exit strategy?” asked Rep. Scott Garrett (R) of New York at Wednesday’s hearing. “The real outrage is the $170 billion that has been pumped into this company – and to what effect?”
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