Congressional lawmakers today expressed concern that another AIG bonus fiasco could soon unfold, on the heels of a new watchdog report criticizing the Treasury Department for failing to oversee pay plans at AIG before the bailed-out company dished out $168 million in retention payments in March.
"It was a failure of oversight by Treasury" that led to the spring's bonus fiasco, watchdog Neil Barofsky told the House Oversight and Government Reform Committee this morning, a failure for which he said Treasury Secretary Tim Geithner was ultimately responsible.
Treasury essentially abdicated its oversight duties of AIG's compensation structures to the Federal Reserve Bank of New York, which was "a recipe for disastrous consequences," said Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program.
Ultimately, Geithner did not learn about the bonuses until March 10, three days before they were paid out, despite running the Treasury Department since January and, before that, the Federal Reserve Bank of New York, where officials knew about the payments last November. At that time, both parties agreed that there was no legal grounds to stop the payments, a correct determination, according to Barofsky.
After hearing the watchdog's testimony, the panel's ranking GOP member, Rep. Darrell Issa of California, called for Geithner to come before the committee in an effort to get him to "make a change in direction" at Treasury.
"We have a Secretary of the Treasury who failed to know what he should have known, failed to do what he should have done, and has failed to give us transparency," Issa said.
"We're hearing that, one, we're not getting transparency and, two, even if we get transparency, if we can't trust the judgment and decisions of the Treasury, then, in fact, we're not going to get the outcome the American people expect us to get. And we're going to continue to have non-essential people paid huge bonuses in many cases that are unnecessary with taxpayer dollars."
"It's unbelievable that this could happen in our country," Rep. Marcy Kaptur, D-Ohio, said.
It could happen again, in March, when AIG is due to pay out another $198 million in retention payments.
"We have history repeating itself," the panel's chairman, Rep. Edolphus Towns, D-N.Y., said.
"It just doesn't seem right that the people who caused this tragedy should be so richly rewarded."
But, as Barofsky, a former assistant U.S. attorney from New York, stated in his new audit released Tuesday, the Obama administration's pay czar Ken Feinberg is now trying to reduce AIG's 2010 payments.
"Mr. Feinberg is encouraging them to renegotiate," Barofsky said.
"There's an opportunity that's here because of advance knowledge that really didn't exist last time," he noted.
In two weeks, Feinberg will testify before the same House panel, Towns said today. Feinberg is expected to release his findings on executive compensation at seven firms receiving "exceptional assistance" -– including AIG -– later this month.