Officials go after AIG bonuses as CEO heads to Congress

WASHINGTON -- AIG CEO Edward Liddy Wednesday called some of the bonuses paid recently to employees "distasteful" but said the company had to run its "business as a business" and said it legally had to make the payments.

"We are acutely aware not only that we must be good stewards of the public funds we have received, but that the patience of America's taxpayers is wearing thin," Liddy said in testimony prepared to be delivered to a House subcommittee later today.

As new details emerged about $165 million in bonuses paid by the bailed-out insurance giant, lawmakers and administration officials are seeking ways to recoup the money either by imposing stiff new taxes on the extra pay or requiring the company to return it in exchange for future taxpayer aid.

"We are essentially operating AIG on behalf of the American taxpayer so that we can maximize the amount of money we pay back to the government," he said. "In order to do that, we have to continue managing our business as a business, taking account of the cold realities of competition for customers, for revenues and for employees. Because of this, and because of certain legal obligations, AIG has recently made a set of compensation payments, some of which I find distasteful."

Liddy, who was asked by the government in September to take over the failing insurer, said he had now seen the "bad side" of capitalism. "Mistakes were made at AIG on a scale few could have ever imagined possible," he said. "Those missteps have exacted a very high price, not only for AIG, but for America's taxpayers, the federal government's finances and the economy as a whole."

Liddy said the firm was working to wind down its financial products division, which was at the root of AIG's problems, but also where the bulk of the bonus recipients work. But stress in financial markets had slowed the firm's ability to sell the division's assets, he said.

The value of the division's derivatives business is now $1.6 trillion, down from $2.7 trillion.

Liddy also said the firm is working to cut its debt to the Federal Reserve, which first stepped in in September with the Treasury Department to boost the insurance giant on the brink of failure.

Also Wednesday, AIG said it may sell its Manhattan headquarters and a nearby office building. AIG spokesman Mark Herr said the company is evaluating the sale of 70 Pine Street and 72 Wall Street.

But the bonuses remain the central focus in the AIG situation. Lawmakers kicking off the hearing assailed the bonuses and said pledged to try to get back the money, which was due to employees March 15.

"AIG now stands for arrogance, incompetence and greed," said Rep. Paul Hodes, D-N.H..

"The taxpayer knows they are the ultimate sucker who pays for all of the greed that has been going in the marketplace for years and years," Rep. Gary Ackerman, D-N.Y., said. Added Rep. David Scott, D-Ga.: "We have got to put a pause button on these bailouts and get to the bottom of this."

Treasury Secretary Timothy Geithner — who had come under criticism for his handling of the issue by Republican lawmakers, including Sen. Richard Shelby, R-Ala. — promised in a letter Tuesday night to House Speaker Nancy Pelosi that Treasury will recover all the money.

Geithner said if Treasury is unable to force AIG employees to return the money, he will require the company to pay back the bonus money as a condition of receiving an additional $30 billion in taxpayer money promised earlier this month.

In his letter, Geithner acknowledged "considerable outrage" in Congress after a day when angry lawmakers proposed a series of ideas to recoup the money through higher taxes.

"If you don't return it on your own, we will do it for you," Sen. Charles Schumer, D-N.Y., warned the employees who received bonuses.

The level of hostility rose after New York Attorney General Andrew Cuomo reported Tuesday in a letter to Congress that 73 individuals at AIG received bonuses of $1 million or more Friday, including 11 who have left the company. AIG has described the bonuses as "retention payments" to keep good workers.

"Eleven of them left the company; they took the money and ran," said Rep. Steve Israel, D-N.Y. "So much for the retention part of retention bonuses."

On Tuesday, an AIG aig spokesman said the company had no comment.

Several Senate Democrats, including Schumer, sent a letter to Liddy on Tuesday asking him to renegotiate the bonuses. If that does not happen, Sen. Max Baucus, D-Mont., chair of the Senate Finance Committee, said he will propose an excise tax on companies receiving bailout money and their employees who receive bonuses. The ranking Republican on the committee, Sen. Chuck Grassley, R-Iowa, says he backs the proposal.

"Senators on both sides of the aisle are outraged ... which means there's a much better chance of getting something passed," Baucus said.

Several House Democrats, including Israel, have already introduced legislation to place a 100% tax on any bonus of more than $100,000 from a company receiving bailout funds. Currently, the IRS withholds 25% from bonuses of less than $1 million and 35% for bonuses more than $1 million.

"If we can't kill the big bonuses, we are going to tax the big bonuses back," Israel said. "Our message to these companies is very simple: We saved you from bankruptcy, and now we're going to stop you from incompetency."

In his letter sent Tuesday to Massachusetts Rep. Barney Frank, chairman of the House Committee on Financial Services, Cuomo questioned AIG's claim that it is required to pay the bonuses because they were established in employment contracts. He said the company has renegotiated salary terms with employees. Cuomo has subpoenaed AIG for the names, job descriptions, performance records and bonus contracts for people who got bonuses.

Frank said the government ought to be able to veto paying the bonuses because it owns 80% of the company. "I think the time has come to exercise our ownership rights," he said.

Republican lawmakers including Shelby questioned why President Obama and Geithner did not take action to stop the bonuses earlier. Shelby told CBS' Early Show it was another example of Geithner being "out of the loop." Shelby asked, "Where was Treasury before this money was paid out?"

White House Press Secretary Robert Gibbs said Obama had "complete confidence" in Geithner.

Hagenbaugh, Fritze and Hall reported from Washington, Shell from New York