WASHINGTON - President Obama's top advisers and Democratic and Republican congressional leaders voiced outrage yesterday that insurer American International Group, recipient of a $173 billion taxpayer bailout, is paying $165 million in employee bonuses.
But they agreed it was unclear what, if anything, the government can do to cut the bonuses because the contracts seem legally binding.
Lawmakers said, however, that plenty of questions need to be answered and some AIG officials may need to be ousted. They also said legislation may be needed to prevent a repeat of such action and retain public confidence in federal bailouts.
AIG has agreed to White House requests to restrain future payments. Treasury Secretary Timothy Geithner 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 Obama's Economic Recovery Advisory Board.
"I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people, and we've done exactly what we can do to prevent this kind of thing from happening again," Mr. Goolsbee said.
Christina Romer, chairman of the White House Council of Economic Advisers, told NBC's Meet the Press: "We will absolutely do everything possible to make sure that the money we put in there is spent in a way that we think is appropriate."
She and Lawrence Summers, director of the National Economic Council, said contracts must be honored, but the situation at AIG would be examined.
Mr. Summers said, "The easy thing would be to just say off with their heads, violate the contracts. But you have to think about the consequences of breaking contracts for the overall system of law, for the overall financial system."
The Democratic administration's argument about the contracts was more than Senate Republican leader Mitch McConnell of Kentucky could bear.
"We all know that contracts are valid in this country, but they need to be looked at," Mr. McConnell said. "Did they enter into these contracts knowing full well that, as a practical matter, the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess in the first place? I think it's an outrage."
Public outrage was equally apparent on news Web sites and in blogs.
"This makes me ill," a reader wrote on the New York Times Web site. "Let AIG fail, and then let's see what those executives believe they are entitled" to.
AIG agreed on Saturday to revamp its system for paying bonuses after the Obama Administration objected to plans for hundreds of millions of dollars in such payouts. But the company said it had no choice but to pay out the $165 million due by yesterday.
AIG will sharply cut remaining 2009 salaries for top executives of its AIG Financial Products unit and realign 2008 bonuses to tie them to restructuring and repayment targets, Mr. Liddy wrote to Mr. Geithner.
AIG had promised to pay about $1 billion in retention bonuses over a period of several years. Half the total already has been paid.
Mr. Liddy's letter said the firm was legally obligated to make already-committed 2008 employee-retention payments, the value of which were set early last year before problems at its Financial Products unit became public.
Financial Products made bad bets on toxic mortgages and credit default swap contracts that led to the company's near collapse - and the first of a series of taxpayer-funded bailouts in mid-September.
"We need to find out whether these bonuses are legally recoverable," said Rep Barney Frank (D., Mass.), chairman of the House Financial Services Committee.
Appearing on Fox News Sunday, he said the government also needs answers from AIG.
"Who said, and at what point, 'We're going to give these bonuses no matter what'? And I do think it's inappropriate for those people to stay in power at that company," he said.
Rep. Paul Kanjorski, a Pennsylvania Democrat who heads a House subcommittee on capital markets, said the bonuses would be a topic at a hearing on Wednesday at which Mr. Liddy will testify.
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