WASHINGTON — The head of the American International Group told Congress on Wednesday that he's asked employees who received $165 million in bonuses to "step up and do the right thing" and voluntarily give back at least half of their rewards.
Edward Liddy, AIG's chairman and chief executive officer, told a House Financial Services subcommittee that, earlier in the day, he requested that AIG employees who received retention bonuses of more than $100,000 return at least half of the money.
"Some have already stepped forward and offered to give up 100 percent of their payments," Liddy said. "We will work toward the highest level of employee participation in this effort in the days ahead, and will keep the Congress and the American people informed of our progress."
Nevertheless, public indignation about AIG's bonuses raged unabated Wednesday throughout Washington, as President Barack Obama called for more power to oversee financial firms such as AIG. He also voiced confidence in his embattled treasury secretary, Timothy Geithner, who's facing mounting criticism for his failures to block AIG's bonuses and on other financial fronts.
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In addition, Congress moved speedily to try to take back AIG's bonuses through legislation. The House of Representatives plans to vote Thursday on a bill that would tax such bonuses at a 90 percent rate.
Liddy's testimony was a mixture of contrition and confidence. While deploring the bonuses, he said he thought that paying them was correct, to avoid a financial disaster at AIG that could further damage the American economy.
He said he understood the public furor over a company that had received $170 billion in taxpayer bailout money shelling out $165 million for bonuses to the executives who drove the firm into virtual insolvency, but that he still considered the payments necessary.
Although AIG has managed to unwind more than $1 trillion from its troubled financial portfolio, a problematic $1.6 trillion portfolio remains, Liddy said, and "continues to contain substantial risk.
"To prevent undo risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place at the end of '07 and the beginning of 2008."
"I'm trying desperately to prevent an uncontrolled collapse of that business," Liddy added. "This is the only way to improve AIG's ability to pay taxpayers back quickly and completely, and the only way to avoid a shock to the economy that the U.S. government's help was meant to relieve."
Liddy said that if he'd been in charge of AIG when the retention contracts first came up, he would've opposed them.
"But we concluded that the risk to the company, and therefore the financial system and the economy, were unacceptably high," he said.
Liddy acknowledged that mistakes "were made at AIG on a scale few could have ever imagined possible."
"The most critical of those mistakes was that the company strayed from its core competencies in the insurance business," he said. "This was typified by the creation of what grew to become an internal hedge fund, which became substantially overexposed to market risk."
Liddy's testimony did little to soothe lawmakers.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, demanded the names of AIG employees who got bonuses and threatened to use subpoena power to get them.
Liddy said he was reluctant to produce the names because the company had been receiving death threats.
"All the executives and their families should be executed with piano wire around their necks," Liddy read from one note.
Frank called the threats "despicable" but said he still wanted the names.
"If you give in to these kind of threats, we would never get information made public about a lot of things," Frank said.
Frank may have gotten an assist in his quest from a New York state judge, who ruled Wednesday that Merrill Lynch and Bank of America couldn't keep private the names of Merrill executives who received bonuses.
The bonuses that AIG awarded last week were paid to 418 employees and included $33.6 million for 52 people who've left the firm, according to the office of Andrew Cuomo, New York state's attorney general.
Cuomo, who has subpoenaed AIG for a list of all bonuses, called Liddy's proposal for bonus recipients to voluntary return half the money "too little, too late."
Limiting these givebacks to those earning more than $100,000 would cover 298 out of 418 recipients, Cuomo said in a statement, calling on Liddy to immediately turn over the list and to understand that "the American people have a right to know what is happening with massive amounts of their money."
Rep. Gary Ackerman, D-N.Y., while saying that he held no personal animosity toward Liddy or AIG, said: "This old teacher is going to give you a little bit of advice: Pay the $165 million back."
In a related development, Senate Banking Committee Chairman Christopher Dodd, D-Conn., told CNN that he was responsible for adding the loophole to the $787 billion economic-stimulus bill that permitted AIG and other companies that received bailouts to pay bonuses. He said he did it at the request of Geithner's Treasury Department.
As the House subcommittee heard Liddy's testimony, Obama called for ways to exert greater federal regulatory control over financial institutions.
On the South Lawn of the White House before he left for a two-day trip to California, Obama said that he'd work with Congress to put on a "fast track" an expanded "resolution authority" similar to the Federal Deposit Insurance Corp. but over insurance companies and other nonbanks, such as AIG.
"It would allow us proactively to get out in front, make sure that we're separating out bad assets from good, dealing with contracts that may be inappropriate and preventing the kinds of systemic risks that we've seen taking place with AIG," Obama said.
The president noted that his administration wasn't yet in power when the AIG contracts allowing bonuses or the regulatory situation that led to the economic crisis occurred. Still, he said, "the buck stops with me. . . . Ultimately, I'm responsible. I'm the president of the United States."
He also gave a vote of confidence to his treasury secretary, as Republican lawmakers are starting to call for Geithner's head. Obama said that Geithner was facing more challenges than any predecessor perhaps since Alexander Hamilton, who first held the job 220 years ago and had to deal with the debt from the Revolutionary War.
"What we need to be doing is making sure that we are providing him the support he needs in order to work through all these problems, so that we're able to deal with them more effectively in the future," the president said.
Lawmakers from both parties continued to look for ways to retrieve the bonus money from AIG.
The House plans to vote Thursday on a measure to tax these types of bonuses at a 90 percent rate.
"When you get mugged, you want two things: justice, and your money back," said Rep. Steve Israel, D-N.Y., the chief sponsor of the bill, which is expected to pass overwhelmingly.
The House Democratic leadership is strongly backing the bill. When Rep. Charles Rangel, D-N.Y., the chairman of the House Ways and Means Committee, was asked whether the White House had been involved, he said, "We just kept them aware of what we were doing."
House Speaker Nancy Pelosi, D-Calif., said that she wanted the House Judiciary Committee to look into how Attorney General Eric Holder might recover the AIG bonuses.
Holder said that his department would check to see whether any component of the bonuses "has to do with illegal, inappropriate, fraudulent activity."
Pelosi also wants the House Financial Services Committee to examine what powers the federal government holds as a stakeholder in AIG.
Frank said that he'd like the government, which owns a 79.9 percent stake in AIG, to bring a shareholders suit against the company.
"We would try to recover the bonuses to employees who did not deserve them," he said. "I think that's the cleanest way to do it."
(Margaret Talev, Kevin G. Hall, Marisa Taylor and Steven Thomma contributed to this story.)
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