At $165 million, the bonuses at American International Group (AIG) are small change compared with the $170 billion-plus that US taxpayers have already poured into a rescue of the embattled insurance giant.
But disclosure of bonuses at the firm seen as the epicenter of a global financial crisis set off a firestorm on Capitol Hill.
Outrage was the No. 1 theme at hearings, briefings, and caucus meetings early this week – some lawmakers complained, to the exclusion of all else.
“There’s a tidal wave of rage, because the taxpayer knows they are the ultimate sucker on the list of those who pay for all of the greed that has gone on in the marketplace for years and years,” said Gary Ackerman (D) of New York at a hearing on the AIG bailout on Wednesday.
What’s less clear is what, beyond rhetorical saber rattling, the Congress can do about it.
The first move is to summon those responsible to a battery of congressional hearings.
“We ought to bring lawsuits to say: These people performed so badly, the magnitude of the losses are so great, that we are justified in rescinding the bonuses,” he said.
With the government bailout, AIG is now 80 percent owned by the federal government.
On Monday, President Obama pledged to “pursue every legal avenue to block these bonuses and make the American taxpayers whole.”
But Democrats on Capitol Hill want a quicker flexing of legislative muscle to show voters that they get it.
After disclosure of the AIG bonuses last weekend, lawmakers rushed to draft a legislative remedy to recapture those bonuses for taxpayers.
First off the mark, the Senate Finance Committee is proposing new legislation to “discourage excessive compensation by companies that have taken taxpayer funds.”
They also propose recouping payments to executives at AIG and other institutions that have received taxpayer funds from the Troubled Assets Relief Program.
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.
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.
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?”