WASHINGTON - President Barack Obama declared Monday that insurance giant American International Group is in financial straits because of "recklessness and greed" and said he intends to stop it from paying out millions in executive bonuses.
"It's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession.
"How do they justify this outrage to the taxpayers who are keeping the company afloat," the president said.
Obama spoke out in the wake of reports that surfaced over the weekend saying that financially strapped American International Group Inc. was paying substantial bonuses to executives.
Noting that AIG has "received substantial sums" of federal aid from the federal government, Obama said he has asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
A White House official told the Wall Street Journal that the Treasury Department will "use a planned $30 billion infusion into AIG to compel the company to repay the bonuses promised to employees of its financial-products group, which is responsible for selling the exotic financial instruments that brought the company to near-collapse."
Said Obama: "All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules."
"This isn't just a matter of dollars and cents," he added. "It's about our fundamental values."
The $165 million 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 reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history. The bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
Rep. Barney Frank, chairman of the House Financial Services Committee, earlier Monday charged that the move to pay bonuses amounted to "rewarding incompetence."
"These people may have a right to their bonuses. They don't have a right to their jobs forever," said Frank, a Massachusetts Democrat.
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 and said that not enough safeguards were built into the deal.
It also was revealed over the weekend that American International Group Inc. used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom 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 money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.
"We ought to explore everything that we can through the government to make sure that this money is not wasted," said Sen. Richard Shelby, R-Ala. "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."
AIG has agreed to Obama administration requests to restrain future payments. Geithner had pressed the president's case with AIG's chairman, Edward Liddy, last week.
"He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this," said Austan Goolsbee, staff director of President Barack Obama's Economic Recovery Advisory Board.
Obama did note in his remarks Monday that Liddy "came on board after the contracts that led to these bonuses were agreed to last year."
In an interview that aired Sunday on CBS' "60 Minutes," Federal Reserve Chairman Ben Bernanke did not address the bonuses but expressed his frustration with the AIG intervention.
"It makes me angry. I slammed the phone more than a few times on discussing AIG," Bernanke said. "It's -- it's just absolutely -- I understand why the American people are angry."
In a letter to Geithner dated Saturday, Liddy said outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.
Frank appeared on NBC's "Today" show and Shelby was interviewed on ABC's "Good Morning America."
* * * * *
Transcript of Obama's remarks on AIG:
But before I talk about the new steps we're taking to get credit flowing to small businesses across our country, I want to comment on the news about executive bonuses at AIG.
This is a corporation that finds itself in financial distress due to recklessness and greed.
Under these circumstances, it'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?
In the last six months, AIG has received substantial sums from the US 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.
I know he's working to resolve this matter with the new CEO, Edward Liddy, who came on board after the contracts that led to these bonuses were agreed to last year.
This isn't just a matter of dollars and cents. It's about our fundamental values.
All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses. And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules.
That is an ethic we must demand.
What this situation also underscores is the need for overall financial regulatory reform, so we don't find ourselves in this position again, and for some form of resolution mechanism in dealing with troubled financial institutions, so we have greater authority to protect the American taxpayer and our financial system in cases such as this. We will work with Congress to that end.
How to vote
Vote-by-mail ballot request deadline: Varies by state
For the Nov 3 election: States are making it easier for citizens to vote absentee by mail this year due to the coronavirus. Each state has its own rules for mail-in absentee voting. Visit your state election office website to find out if you can vote by mail.Get more informationTrack ballot status
In-person early voting dates: Varies by state
Sometimes circumstances make it hard or impossible for you to vote on Election Day. But your state may let you vote during a designated early voting period. You don't need an excuse to vote early. Visit your state election office website to find out whether they offer early voting.My Election Office
General Election: Nov 3, 2020
Polling hours on Election Day: Varies by state/localityMy Polling Place