Saying "this is not just a matter of dollars and cents, it’s about our fundamental values," President Obama lashed out at the news of more than $121 million in bonuses being awarded to executives of AIG. "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."
With a nod to the small business owners in the audience who have been going without pay and taking other austere measures, the president said, "all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. That is an ethic we have to demand."
The president called AIG "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. Now, how do they justify this outrage to the taxpayers who are keeping the company afloat?"
Pointing out that "in the last six months, AIG has received substantial sums from the U.S. Treasury" — more than $170 billion, to be precise — the president said he’d asked Treasury Secretary Tim Geithner "to use that leverage" of the U.S. taxpayer owning 80 percent of AIG "and pursue every single legal avenue to block these bonuses and make the American taxpayers whole." Geithner is "working to resolve this matter with the new CEO, Edward Liddy, who by the way everybody needs to know came on board after the contracts that led to these bonuses were agreed to last year."
The president, standing in East Room of the White House, also said that "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."
The president said "we already have some of that resolution authority when it comes to a traditional bank," but with AIG and other organizations, he said, "we don’t, and we will work with Congress to that end."
The regulatory reform the Obama administration supports includes resolution authority, which would have better allowed the administration to protect the American taxpayer and the financial system.
As explained by an administration source, AIG sells its products in all 50 states and over 130 countries, and is regulated by 400 different regulatory bodies, not one of which would be capable of taking over the entire company. AIG’s collapse would likely overwhelm the world’s regulatory capabilities and interfere with the oversight of other businesses and industries. And since AIG is not a bank, the regulatory/resolution scheme for banks was not able to handle this situation either. A broader resolution mechanism would have permitted a more orderly breaking up of the businesses with protection for the company’s policyholders instead of merely providing ongoing support to prevent the company’s abrupt collapse.
"More specifically, clear resolution authority would have given the government the power and flexibility to remove senior management and dispose of assets in a way that ensures maximum taxpayer protection," the administration source says, "rather than having to calibrate to a variety of different constraints (rating agencies, external auditors, local regulators, etc.), which is currently the case."