![AIG Lobby at 70 Pine Street](https://upload.wikimedia.org/wikipedia/commons/b/b8/AIG_Lobby_at_70_Pine_Street.jpg)
The AIG bonus payments controversy began in March 2009, when it was publicly disclosed that the
American International Group
American International Group, Inc. (AIG) is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.https://www.aig.com/content/dam/aig/amer ...
(AIG) insurance corporation was going to pay approximately $218 million in bonus payments to employees of its financial services division.
AIG is notable for having received taxpayer bailouts and in the fourth quarter of 2008 posted a loss of $61.7 billion, the greatest ever for any corporation.
Beyond the $165 million in bonus payments that were announced in March 2009, the total bonuses for the financial unit is unknown, it was estimated that it could have reached $450 million and bonuses for the entire company could have reached $1.2 billion.
The event sparked widespread outrage among both
Democratic and
Republican
Republican can refer to:
Political ideology
* An advocate of a republic, a type of government that is not a monarchy or dictatorship, and is usually associated with the rule of law.
** Republicanism, the ideology in support of republics or agains ...
politicians, and from media commentators on all sides of the political spectrum. Both the
House of Representatives
House of Representatives is the name of legislative bodies in many countries and sub-national entitles. In many countries, the House of Representatives is the lower house of a bicameral legislature, with the corresponding upper house often c ...
and the
Senate
A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
adopted bills that taxed these bonuses at a very high rate, but these bills were never signed into law and were opposed by the financial sector, right-wing pundits, and President
Barack Obama
Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...
.
In the end, some AIG employees, including 15 out of the 20 top executives of the company, paid back the bonuses they received to the company. In total, 50 million dollars in bonuses paid were returned to AIG. Following this announcement,
House Majority leader
Party leaders of the United States House of Representatives, also known as floor leaders, are congresspeople who coordinate legislative initiatives and serve as the chief spokespersons for their parties on the House floor. These leaders are e ...
Steny Hoyer
Steny Hamilton Hoyer (born June 14, 1939) is an American politician and attorney serving as the U.S. representative for since 1981 and as House Majority Leader since 2019. A Democrat, Hoyer was first elected in a special election on May 19, 19 ...
concluded that the scandal did not warrant a legislative response.
Background
AIG had insured the toxic financial assets that caused the
subprime mortgage crisis
The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the col ...
without making rigorous risk assessments. They attracted many contracts from Real Estate investors because their investment insurance policies were cheaper than market value. With the windfalls they made during the
Great Moderation
The Great Moderation is a period in the United States of America starting from the mid-1980s until at least 2007 characterized by the reduction in the volatility of business cycle fluctuations in developed nations compared with the decades befor ...
, they neglected creating an insurance fund large enough to cover what they were insuring, which would have been impossible given the sums involved. Instead, they raised the salaries and bonus of the firm's executive, and paid higher dividends to its shareholders. The investment section of the firm thus became insolvent during
Financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of ...
.
The
Federal Reserve Bank of New York
The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is responsible for the Second District of the Federal Reserve System, which encompasses the State of New York, the 12 northern counties of Ne ...
bailed out AIG by providing an emergency credit liquidity facility of up to $85 billion,
which will be repaid by selling off assets of the company.
[
] After assessing that a disorderly failure of AIG could worsen the current financial and economic crisis, and at the request of AIG, the Federal Reserve Bank of New York intervened. The Federal Reserve required a 79.9 percent equity stake as a fee for service and to compensate for the risk of the loan to AIG.
Presidential candidate
Barack Obama
Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...
supported this bailout at the time, along with most of
Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
, who adopted the
Bailout Bill that enabled it.
Responses from politicians
On the wake of the scandal, President
Barack Obama
Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...
said, "
's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" and "In the last six months, AIG has received substantial sums from the U.S. Treasury. I’ve asked
Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Politicians on both sides of
Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
reacted with outrage to the planned bonus payments.
Senator
A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
Chuck Grassley
Charles Ernest Grassley (born September 17, 1933) is an American politician serving as the president pro tempore emeritus of the United States Senate, and the senior United States senator from Iowa, having held the seat since 1981. In 2022, h ...
(
Republican
Republican can refer to:
Political ideology
* An advocate of a republic, a type of government that is not a monarchy or dictatorship, and is usually associated with the rule of law.
** Republicanism, the ideology in support of republics or agains ...
,
Iowa
Iowa () is a U.S. state, state in the Midwestern United States, Midwestern region of the United States, bordered by the Mississippi River to the east and the Missouri River and Big Sioux River to the west. It is bordered by six states: Wiscon ...
) said "I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the
Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
Senator
Chuck Schumer
Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, an ...
(
Democrat,
New York
New York most commonly refers to:
* New York City, the most populous city in the United States, located in the state of New York
* New York (state), a state in the northeastern United States
New York may also refer to:
Film and television
* '' ...
) accused AIG of "Alice in Wonderland business practices" and said "It boggles the mind." Senator
Richard Shelby
Richard Craig Shelby (born May 6, 1934) is an American lawyer and politician serving as the senior United States senator from Alabama. First elected to the U.S. Senate in 1986 as a Democrat who later switched to the Republican Party in 1994, h ...
(Republican,
Alabama
(We dare defend our rights)
, anthem = " Alabama"
, image_map = Alabama in United States.svg
, seat = Montgomery
, LargestCity = Huntsville
, LargestCounty = Baldwin County
, LargestMetro = Greater Birmingham
, area_total_km2 = 135,7 ...
) said "These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous."
Senator
Mitch McConnell
Addison Mitchell McConnell III (born February 20, 1942) is an American politician and retired attorney serving as the senior United States senator from Kentucky and the Senate minority leader since 2021. Currently in his seventh term, McCon ...
(Republican,
Kentucky
Kentucky ( , ), officially the Commonwealth of Kentucky, is a state in the Southeastern region of the United States and one of the states of the Upper South. It borders Illinois, Indiana, and Ohio to the north; West Virginia and Virginia ...
) echoed his comments, saying "This is an outrage."
Senator
Jon Tester
Raymond Jon Tester (born August 21, 1956) is an American farmer and politician serving as the senior United States senator from Montana, a seat he has held since 2007. A member of the Democratic Party, Tester is the dean of Montana's congressi ...
(Democrat,
Montana
Montana () is a state in the Mountain West division of the Western United States. It is bordered by Idaho to the west, North Dakota and South Dakota to the east, Wyoming to the south, and the Canadian provinces of Alberta, British Columb ...
) said "This is ridiculous." and AIG executives "need to understand that the only reason they even have a job is because of the taxpayers."
Senator
Dick Durbin
Richard Joseph Durbin (born November 21, 1944) is an American lawyer and politician serving as the senior United States senator from Illinois, a seat he has held since 1997. A member of the Democratic Party, Durbin has served as the Senate De ...
(Democrat,
Illinois
Illinois ( ) is a state in the Midwestern United States. Its largest metropolitan areas include the Chicago metropolitan area, and the Metro East section, of Greater St. Louis. Other smaller metropolitan areas include, Peoria and Rock ...
) said "I've had it." and "The fact that they continue to do it while we pour in billions of dollars is undefensible."
Representative
Paul Hodes
Paul William Hodes (born March 21, 1951) is an American lawyer, musician, and former U.S. Representative for , serving from 2007 to 2011. He is a member of the Democratic Party, and was New Hampshire's first Jewish representative.
Hodes was an un ...
(Democrat,
New Hampshire
New Hampshire is a U.S. state, state in the New England region of the northeastern United States. It is bordered by Massachusetts to the south, Vermont to the west, Maine and the Gulf of Maine to the east, and the Canadian province of Quebec t ...
) said "I think AIG now stands for arrogance, incompetence and greed."
Representative Barney Frank
Barnett Frank (born March 31, 1940) is a former American politician. He served as a member of the U.S. House of Representatives from Massachusetts from 1981 to 2013. A Democrat, Frank served as chairman of the House Financial Services Committ ...
(Democrat,
Massachusetts
Massachusetts (Massachusett: ''Muhsachuweesut Massachusett_writing_systems.html" ;"title="nowiki/> məhswatʃəwiːsət.html" ;"title="Massachusett writing systems">məhswatʃəwiːsət">Massachusett writing systems">məhswatʃəwiːsət'' En ...
), Chairman of the
House Financial Services Committee, said paying these bonuses would be "rewarding incompetence"
and "These people may have a right to their bonuses. They don't have a right to their jobs forever."
Representative
Mark Kirk
Mark Steven Kirk (born September 15, 1959) is a retired American politician and attorney who served as a United States senator from Illinois from 2010 to 2017, and as the United States representative for Illinois's 10th congressional district fr ...
(Republican, Illinois) said "AIG should not be on welfare from Uncle Sam, and yet paying bonuses and transferring a considerable amount of taxpayer funds to entities overseas."
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
Chairman
Ben Bernanke
Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Fed, he was appointed a distinguished fellow at the Brookings Institution. Duri ...
said "It makes me angry. I slammed the phone more than a few times on discussing AIG."
Lawrence Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pres ...
, Director of the
National Economic Council, said "The easy thing would be to just say, you know, ‘
Off with their heads,’ and violate the contracts."
Austan Goolsbee, of the
Council of Economic Advisers
The Council of Economic Advisers (CEA) is a United States agency within the Executive Office of the President established in 1946, which advises the President of the United States on economic policy. The CEA provides much of the empirical rese ...
said "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 "You worry about that backlash."
Representative
Barney Frank
Barnett Frank (born March 31, 1940) is a former American politician. He served as a member of the U.S. House of Representatives from Massachusetts from 1981 to 2013. A Democrat, Frank served as chairman of the House Financial Services Committ ...
said "I do want to stress, this initial intervention into AIG was not part of the congressional rescue plan.", "Before we were even asked by the Bush administration to do the rescue plan, President Bush's two top economic appointees Mr. Bernanke and Mr. Paulson came to us and said--Mr. Bernanke, as head of the Federal Reserve is going to lend $85 billion to AIG under a statute that dates back to 1932. They didn't ask us. They didn't solicit our opinion. They simply informed us.", and "Since then, when we have voted, we have put tough conditions on. And, in fact, this won't be happening again. The conditions are so tough that there have been articles recently in ''
The Washington Post
''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large n ...
'' and ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' from banks complaining that we've made the conditions so tough they are going to give us our money back."
Representative
Thaddeus McCotter
Thaddeus George "Thad" McCotter (born August 22, 1965) is an American politician, radio host, and a member of the Republican Party who was the U.S. representative from from 2003 to 2012. The district at the time consisted of portions of Detroi ...
(R-Michigan) said in a speech to Congress, "Every single Democrat in this House that voted for that bill voted to approve and protect those AIG bonuses."
[McCotter Slams those Protecting AIG Bonuses in Voting for Stimulus Bill](_blank)
YouTube, March 20, 2009 Senator
Jim Inhofe
James Mountain Inhofe ( ; born November 17, 1934) is an American politician serving as the senior United States senator from Oklahoma, a seat he was first elected to in 1994. A member of the Republican Party, he chaired the U.S. Senate Committ ...
(R-Oklahoma) said that much of the blame for the bonuses should be directed at the 74 Senators who voted for the bailout, "... including now President Obama, who voted in favor of handing over an unprecedented amount of money and power to an unelected bureaucrat last August."
[Inhofe: Blame Washington For AIG Bonuses](_blank)
, KTUL, March 17, 2009
Tax on bonuses
On March 19, 2009, the House of Representatives approved, by a vote of 328 to 93, a measure to levy a 90% tax on bonuses awarded by corporations receiving more than $5 billion in Treasury aid from the
Troubled Asset Relief Program
The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President ...
(TARP). The House bill affects individuals who make $250,000 or more in total household income and bonuses paid or scheduled to be paid after December 31, 2008.
The Senate version of the bill is similar to the House bill except it will levy a 70% tax on bonuses awarded by corporations that are receiving any amount of Treasury aid from the
Troubled Asset Relief Program
The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President ...
(TARP). The 70% tax will be paid through a 35% excise tax on the corporation and 35% tax on the receiver of the bonus.
Some commentators suggested that such a tax would run into constitutional problems, because Article 1, Section 9 of the U.S. Constitution prohibits Congress from enacting
bill of attainder
A bill of attainder (also known as an act of attainder or writ of attainder or bill of penalties) is an act of a legislature declaring a person, or a group of people, guilty of some crime, and punishing them, often without a trial. As with attai ...
and
ex post facto laws. However,
Laurence Tribe
Laurence Henry Tribe (born October 10, 1941) is an American legal scholar who is a University Professor Emeritus at Harvard University. He previously served as the Carl M. Loeb University Professor at Harvard Law School.
A constitutional law sc ...
, quoted in the blog of ''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'', said that there were no insoluble constitutional difficulties. ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' quoted experts on constitutional and tax law having said it was likely the House bill could pass muster. Numerous court rulings have upheld retroactive tax provisions, particularly over short periods (The House bill applies back only to January 1, 2009). The measure is also strengthened by the fact that it does not apply to just one company or group of individuals, and does not take aim only at past bonuses paid in 2009 but also bonuses to be paid in future.
In a March 22, 2009 Wall St. Journal editorial, Jonathan Clements, a Citi employee, wrote, "... by mid-October, I will hit $250,000 in total income -- and have no incentive to earn any more income in 2009. At that point, I plan to ask Citi for an unpaid sabbatical." He also argues that some individuals have already received and spent most of their bonuses and will not be able to afford the tax.
A March 24, 2009
CNN
CNN (Cable News Network) is a multinational cable news channel headquartered in Atlanta, Georgia, U.S. Founded in 1980 by American media proprietor Ted Turner and Reese Schonfeld as a 24-hour cable news channel, and presently owned by the M ...
article said that an objection to this proposal is that private companies wouldn't feel comfortable doing business with the U.S. government if they thought the government would change the rules after the contracts have already been signed. A March 26, 2009
Associated Press
The Associated Press (AP) is an American non-profit news agency headquartered in New York City. Founded in 1846, it operates as a cooperative, unincorporated association. It produces news reports that are distributed to its members, U.S. newspa ...
article stated, "Obama then warned the public against vilifying investors and entrepreneurs who are needed to keep the economy alive."
In response to this criticism,
Senate majority leader
The positions of majority leader and minority leader are held by two United States senators and members of the party leadership of the United States Senate. They serve as the chief spokespersons for their respective political parties holding t ...
Harry Reid
Harry Mason Reid Jr. (; December 2, 1939 – December 28, 2021) was an American lawyer and politician who served as a United States senator from Nevada from 1987 to 2017. He led the Senate Democratic Caucus from 2005 to 2017 and was the Sena ...
's spokesperson said that "in light of the significant concerns raised by President Obama and Senate Republicans, we've decided to take a step back and discuss any possible next steps."
House majority leader
Steny Hoyer
Steny Hamilton Hoyer (born June 14, 1939) is an American politician and attorney serving as the U.S. representative for since 1981 and as House Majority Leader since 2019. A Democrat, Hoyer was first elected in a special election on May 19, 19 ...
argued that the tax "may not be necessary" because of the
repayment of bonuses. He added "I think our bill apparently had the effect of focusing their attention on that issue.... Whether or not it becomes law is another question."
In the end, no tax on TARP bonuses was ever signed into law by President Obama. The following year, Obama raised the idea of taxing TARP bonuses while campaigning for the
2010 United States elections. However, there was little chance that Congress would be inclined to adopt such a tax at that time.
Restriction on base compensation
Congressman
Brad Sherman
Bradley James Sherman (born October 24, 1954) is an American accountant and politician serving as the U.S. representative for California's 30th congressional district since 2013. A member of the Democratic Party, he first entered Congress in 19 ...
introduced a bill to restrict base salaries of employees of firms who have taken $5 billion or more in the
Troubled Asset Relief Program
The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was passed by Congress and signed into law by President ...
by taxing all non-bonus compensation over $500,000. It is designed to tax all compensations, including all payments that may be "re-named" bonuses to ensure that individuals and firms will not escape the bonus tax. This bill also did not make it into law.
Media commentary
Political commentators and journalists have expressed an equally bipartisan outrage. Commentator
Charles Krauthammer
Charles Krauthammer (; March 13, 1950 – June 21, 2018) was an American political columnist. A moderate liberal who turned independent conservative as a political pundit, Krauthammer won the Pulitzer Prize for his columns in ''The Washington ...
said "I would deny them the bonuses if possible. I would be for an exemplary
hanging
Hanging is the suspension of a person by a noose or ligature around the neck.Oxford English Dictionary, 2nd ed. Hanging as method of execution is unknown, as method of suicide from 1325. The ''Oxford English Dictionary'' states that hanging i ...
or two. Have it in Times Square, invite
Madame Defarge
Madame Thérèse Defarge is a fictional character and the main antagonist of the 1859 novel ''A Tale of Two Cities'' by Charles Dickens. She is a ringleader of the tricoteuses, a tireless worker for the French Revolution, memorably knitting besi ...
. You borrow a
guillotine
A guillotine is an apparatus designed for efficiently carrying out executions by beheading. The device consists of a tall, upright frame with a weighted and angled blade suspended at the top. The condemned person is secured with stocks at th ...
from the
French and we could have a party."
Mort Kondracke
Morton Matt Kondracke (; born April 28, 1939) is an American political commentator and journalist. He became well known due to a long stint as a panelist on ''The McLaughlin Group''. Kondracke worked for several major publications, serving for twen ...
, another conservative commentator, said "I was going to recommend
boiling in oil in Times Square."
MSNBC
MSNBC (originally the Microsoft National Broadcasting Company) is an American news-based pay television cable channel. It is owned by NBCUniversala subsidiary of Comcast. Headquartered in New York City, it provides news coverage and political ...
host
Rachel Maddow
Rachel Anne Maddow (, ; born April 1, 1973) is an American television news program host and liberal political commentator. Maddow hosts ''The Rachel Maddow Show'', a weekly television show on MSNBC, and serves as the cable network's special eve ...
said "Sometime in early 2008, that company signed contracts with its employees that said: 'Even if you cause the company to fail and nearly bring down the worldwide financial system, you will still get a bonus.' I mean, who writes those contracts?"
Chuck Todd
Charles David Todd (born April 8, 1972) is an American television journalist who is the 12th and current moderator of NBC's ''Meet the Press''. He also hosts ''Meet the Press Now'', its daily edition on NBC News Now and is the Political Directo ...
, also an MSNBC commentator, wrote that "It's a
lynch mob out there, and members of Congress seem to be carrying torches."
Comedy Central
Comedy Central is an American basic cable channel owned by Paramount Global through its network division's MTV Entertainment Group unit, based in Manhattan. The channel is geared towards young adults aged 18–34 and carries comedy programming ...
host
Jon Stewart
Jon Stewart (born Jonathan Stuart Leibowitz; November 28, 1962) is an American comedian, political commentator, and television host. He hosted ''The Daily Show'', a satirical news program on Comedy Central, from 1999 to 2015 and now hosts ''Th ...
said "You know, they say angry
populism
Populism refers to a range of political stances that emphasize the idea of "the people" and often juxtapose this group against " the elite". It is frequently associated with anti-establishment and anti-political sentiment. The term developed ...
is all the rage. Literally, it's been building for months, simmering. Our
proletarian
The proletariat (; ) is the social class of wage-earners, those members of a society whose only possession of significant economic value is their labour power (their capacity to work). A member of such a class is a proletarian. Marxist philoso ...
rage feels so unfocused. If only someone would step up and put on the kick me sign." and "They're not good people."
The New Jersey Star-Ledger editorial page read "This band of "best and brightest" just blew a $62 billion hole in the company. What's to retain?
Heads should be rolling. Besides, is there really that much cutthroat competition for such an overpaid bunch of losers?"
CNN
CNN (Cable News Network) is a multinational cable news channel headquartered in Atlanta, Georgia, U.S. Founded in 1980 by American media proprietor Ted Turner and Reese Schonfeld as a 24-hour cable news channel, and presently owned by the M ...
reporter
Carol Costello
Carol Costello (born October 11, 1961) is an American television anchor and former host of '' CNN Newsroom''. In 2017, she left CNN to join sister network HLN, based in Los Angeles. In October 2018, HLN announced that Costello would be let go, ...
said "Some political analysts fear public anger has reached a
tipping point."
Commentator
William Kristol
William Kristol (; born December 23, 1952) is an American neoconservative writer. A frequent commentator on several networks including CNN, he was the founder and editor-at-large of the political magazine ''The Weekly Standard''. Kristol is now ...
wrote "Can
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
survive the behavior of some capitalists? It's always been an open question. But if capitalism is to survive, shouldn't the Republican party, the party that defends democratic capitalism, be particularly vehement in denouncing
its excesses? Isn't this a pretty spectacular one?" Robert Lenzer wrote in
Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
that "The $170 billion bailout of AIG and the $165 million bonus outrage are the result of reckless behavior by AIG and most especially by its
egomaniacal former chairman,
Maurice "Hank" Greenberg. This supposed paragon of higher finance was just plain playing
Russian roulette with his shareholders' money, destroying nearly $200 billion in equity and putting an onerous cost on Uncle Sam and taxpayers." Lenzer accused AIG and Greenberg of "cowboy capitalism", "numbskull ... tomfoolery", and "rotten arrogance." Karim Bardeesy, writing in
Slate
Slate is a fine-grained, foliated, homogeneous metamorphic rock derived from an original shale-type sedimentary rock composed of clay or volcanic ash through low-grade regional metamorphism. It is the finest grained foliated metamorphic rock. ...
, compared AIG to
Imperial Japan
The also known as the Japanese Empire or Imperial Japan, was a historical nation-state and great power that existed from the Meiji Restoration in 1868 until the enactment of the post-World War II 1947 constitution and subsequent forma ...
and
Nazi Germany
Nazi Germany (lit. "National Socialist State"), ' (lit. "Nazi State") for short; also ' (lit. "National Socialist Germany") (officially known as the German Reich from 1933 until 1943, and the Greater German Reich from 1943 to 1945) was ...
, stating "Sometimes the internal workings of a society are so rotten that it takes a complete outsider to come in and change the culture and the cultural production within it. Allies came in and rewrote constitutions for the corrupted societies in Japan and Germany after World War II."
MSNBC host
Keith Olbermann
Keith Theodore Olbermann (; born January 27, 1959) is an American sports and political commentator and writer.
Olbermann spent the first 20 years of his career in sports journalism. He was a sports correspondent for CNN and for local TV and r ...
said "Certainly, we can screw these guys out of these bonuses the way they screwed us." He has labeled the bonuses "failure bonuses" and "failure rewards."
George Washington University
, mottoeng = "God is Our Trust"
, established =
, type = Private federally chartered research university
, academic_affiliations =
, endowment = $2.8 billion (2022)
, preside ...
law professor
Jonathan Turley
Jonathan Turley is an American attorney, legal scholar, writer, commentator, and legal analyst in broadcast and print journalism. A professor at George Washington University Law School, he has testified in United States Congressional proceedi ...
said "I have some question about fraud here. I mean, these contracts seem to have been written in haste when the company could not possibly have honored them short of a bailout."
Turley also said that there is "real
social unrest
Civil disorder, also known as civil disturbance, civil unrest, or social unrest is a situation arising from a mass act of civil disobedience (such as a demonstration, riot, strike, or unlawful assembly) in which law enforcement has difficulty m ...
" and that "Congress has finally pushed this country to the
breaking point."
John Kelso wrote in the
Austin American-Statesman
The ''Austin American-Statesman'' is the major daily newspaper for Austin, the capital city of Texas. It is owned by Gannett.
The paper prints Associated Press, ''New York Times'', ''The Washington Post'', and ''Los Angeles Times'' internation ...
that "irate Americans...are about to start chasing these guys around the castle the way the townsfolk with the torches went after
Frankenstein
''Frankenstein; or, The Modern Prometheus'' is an 1818 novel written by English author Mary Shelley. ''Frankenstein'' tells the story of Victor Frankenstein, a young scientist who creates a sapient creature in an unorthodox scientific ex ...
" and "The gated communities these suits live in are gated for a reason. For when the revolution starts." He also wrote that AIG "really stands for America Is Gyped. Avarice Is Great, or Actually, It's Graft."
Susan Antilla, reporting for
Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and ma ...
, wrote that "The public is angry. They are steaming,
off-with-their-heads mad at AIG and other financial companies for the greed and cheating that pushed us into a financial meltdown." and "Americans want to see
heads roll."
Fred J. Joseph, commissioner of the Colorado division of securities and president of the
North American Securities Administrators Association
The North American Securities Administrators Association (NASAA), founded in Kansas in 1919, is the oldest international investor protection organization. NASAA is an association of state securities administrators who are charged with the responsi ...
, said "If these people could get their hands on pitchforks, they really would storm the castle."
''
The Washington Post
''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large n ...
'' reported that "Hired guards stood watch outside the suburban Connecticut offices of AIG Financial Products, the division whose exotic derivatives brought the insurance giant to the brink of collapse last year. Inside, death threats and angry letters flooded e-mail inboxes. Irate callers lit up the phone lines. Senior managers submitted their resignations. Some employees didn't show up at all." The paper quoted one anonymous AIG executive as saying "It's a mob effect. It's putting people's lives in danger." and another as saying "It's going to blow up. I have a horrible, horrible, horrible feeling that this is going to end badly." The Associated Press quoted another anonymous AIG executive as saying "It's scary. People are very, very nervous for their security."
The AP reported that "police cars that now regularly patrol the well-kept streets" of a neighborhood of AIG executives.
AIG has advised employees "to avoid wearing the company logo" and "to travel in pairs at night and park in well-lit areas."
Reuters quoted an anonymous senior equity salesman at a bank receiving TARP funds as saying "At this point, it's like the
French Revolution
The French Revolution ( ) was a period of radical political and societal change in France that began with the Estates General of 1789 and ended with the formation of the French Consulate in November 1799. Many of its ideas are considere ...
-- the mob has got the banks' heads in the
guillotine
A guillotine is an apparatus designed for efficiently carrying out executions by beheading. The device consists of a tall, upright frame with a weighted and angled blade suspended at the top. The condemned person is secured with stocks at th ...
."
NBC Connecticut, through the
Freedom of Information Act Freedom of Information Act may refer to the following legislations in different jurisdictions which mandate the national government to disclose certain data to the general public upon request:
* Freedom of Information Act 1982, the Australian act
* ...
, obtained information about dozens of death threats that were made to employees of AIG and their families. Some of the people who made the threats left their email addresses and phone numbers, making it much easier for law enforcement officials to identify them.
In an online editorial for ''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'',
James Taranto
James Taranto (born January 6, 1966) is an American journalist. He is editorial features editor for ''The Wall Street Journal'', in charge of the newspaper's op-ed pages, both print and digital.[New York City
New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...]
, if the 90% bonus tax passed by the
United States House of Representatives
The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...
is added to the
Medicare FICA tax of 1.45%, plus the state and local taxes of 6.85% and 3.648%, respectively, it adds up to a tax rate of 101.948%. This means the individual receiving the bonus will have to pay more than he or she 'received' from the bonus.
In a nationally syndicated opinion column, economist
Thomas Sowell
Thomas Sowell (; born June 30, 1930) is an American author, economist, political commentator and academic who is a senior fellow at the Hoover Institution. With widely published commentary and books—and as a guest on TV and radio—he becam ...
claimed that the politicians who did the most to create the situation that led to the use of taxpayer money to fund the bonuses are now the same ones who are complaining the most about the bonuses. Sowell also wrote, "If members of Congress can't be bothered to read the laws they pass, then they have no basis for whipping up lynch mob outrage against people who did read the law and acted within the law."
Mike Cassidy of the ''
San Jose Mercury News
''The Mercury News'' (formerly ''San Jose Mercury News'', often locally known as ''The Merc'') is a morning daily newspaper published in San Jose, California, in the San Francisco Bay Area. It is published by the Bay Area News Group, a subsidiar ...
'' wrote that the bonuses bring "a whole new meaning to the phrase 'bank robber.'" He also wrote "These bankers and brokers and investing Svengalis knew exactly how their obscene cash-grabbing orgy would look to the rest of us. They just didn't care."
Response by state officials
On March 16, 2009, New York State Attorney General
Andrew Cuomo
Andrew Mark Cuomo ( ; ; born December 6, 1957) is an American lawyer and politician who served as the 56th governor of New York from 2011 to 2021. A member of the Democratic Party, he was elected to the same position that his father, Mario Cuo ...
sent a letter to AIG demanding "the list of individuals who are to receive payments" and "a description of each individual's job description and performance at AIG Financial Products" in order to determine "whether any of the individuals receiving such payments were involved in the conduct that led to AIG's demise and subsequent bailout" and "whether, as you claim, such individuals are truly required to unwind AIG Financial Product's positions." AIG failed to respond, so Cuomo subpoenaed them for the names of the bonus recipients.
[Louise Story]
Cuomo Details Million-Dollar Bonuses at AIG
''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', March 17, 2009 Cuomo announced that 73 AIG employees were each paid more than $1 million in bonuses, saying "AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout." and "Something is deeply wrong with this outcome."
On March 21, Connecticut Attorney General
Richard Blumenthal
Richard Blumenthal (; born February 13, 1946) is an American lawyer and politician who is the senior United States senator from Connecticut, a seat he has held since 2011. A member of the Democratic Party, he is one of the wealthiest members of ...
issued a subpoena to AIG to find out why they gave out an additional $53 million in bonuses on top of the $165 million already reported.
Bonuses exempted in TARP
On February 14, 2009, the Wall Street Journal published an article, Bankers Face Strict New Pay Cap, discussing a retroactive limit to bonus compensation ''inserted'' by Chris Dodd into the
TARP bill that passed in the Senate. The same article went on to mention that Treasury Secretary Timothy Geithner and Lawrence Summers "had called Sen. Dodd and asked him to reconsider".
On March 17, 2009, Fox Business Network's Rich Edson first reported Senator Chris Dodd included a provision exempting such bonuses from the executive pay limits clause of the
TARP. When the bill left conference, Dodd's provision had been removed and replaced with the explicit exemptions lobbied for by Geithner and Summers.
As Dodd explained in his March 18 interview on CNN, at Geithner and the Obama Administration's insistence he removed the language he had himself inserted and replaced it with Geithner and Summers' loophole, which thus allowed the bonuses which formed the basis for the AIG scandal.
Dodd retreated from his original statement that he did not know how the bill was changed Dodd was criticised by many in the Connecticut media for the apparent flip-flop. In a March 20, 2009 editorial the
New Haven Register
The ''New Haven Register'' is a daily newspaper published in New Haven, Connecticut. It is owned by Hearst Communications. The Register's main office is located at 100 Gando Drive in New Haven. The ''Register'' was established about 1812 and i ...
called Dodd "a lying weasel" The same day,
Hartford Courant
The ''Hartford Courant'' is the largest daily newspaper in the U.S. state of Connecticut, and is considered to be the oldest continuously published newspaper in the United States. A morning newspaper serving most of the state north of New Haven ...
columnist Rick Green called on Dodd not to seek re-election in 2010. In January 2010, Dodd announced that he would not run for re-election.
AIG's response and counter-responses
AIG has defended the bonuses by citing contractual obligations. AIG also claims that only their executives can unwind their complex derivative deals. Rick Newman of ''
U.S. News & World Report'' argues that this is tantamount to
extortion
Extortion is the practice of obtaining benefit through coercion. In most jurisdictions it is likely to constitute a criminal offence; the bulk of this article deals with such cases. Robbery is the simplest and most common form of extortion, ...
. MSNBC host
David Shuster
David Martin Shuster (born July 22, 1967) is an American television journalist and talk radio host. He most recently served as principal anchor and managing editor for i24 News, previously serving as an anchor for MSNBC and worked for Fox News, ...
said "The argument that these were so-called retention bonuses is undermined by the fact that 52 of the people who received them have already left the company."
Few people outside of AIG itself have defended AIG's payments of the bonuses. Former
White House Press Secretary under the
George W. Bush
George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...
administration
Dana Perino
Dana Marie Perino (born May 9, 1972) is an American political commentator and author who served as the 26th White House Press Secretary, under President George W. Bush from September 14, 2007, to January 20, 2009. She was the second female White ...
defended AIG, saying "If they don't get it
he bonus maybe they won't be motivated enough to try to help the company turn around." and accusing the "rhetoric in Washington" of "demonizing people".
Terence Corcoran
Terence "Terry" Dollard Corcoran (born November 6, 1942) is columnist and comment editor for the Financial Post section of the Toronto-based ''National Post''.
Biography and works
Born in Montreal, Quebec, Corcoran received a Bachelor of Journali ...
, writing in the ''
Financial Post
The ''Financial Post'' was an English Canadian business newspaper, which published from 1907 to 1998. In 1998, the publication was folded into the new ''National Post'',"Black says Post to merge with new paper". ''The Globe and Mail'', July 23, ...
'', claims that AIG is innocent, and instead "massive government failure" on the part of
Barack Obama
Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...
, whom Corcoran claims "doesn't get it," is at fault. Evan Newmark of ''
The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' accused those attacking AIG of "hysterical, bloodthirsty ravings" and "populist hurly-burly."
Andrew Ross Sorkin
Andrew Ross Sorkin (born February 19, 1977) is an American journalist and author. He is a financial columnist for ''The New York Times'' and a co-anchor of CNBC's ''Squawk Box.'' He is also the founder and editor of DealBook, a financial news s ...
of ''
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' argued the case for paying bonuses, saying there was likely some truth to AIG's claim that it needed to retain its top talent, and that its most talented employees could find employment elsewhere. Sorkin also said not paying the bonuses could spark problems across the business community. "If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right," wrote Sorkin. Joshua Zumbrun of ''
Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
'' and Eliot Spitzer of ''
Slate
Slate is a fine-grained, foliated, homogeneous metamorphic rock derived from an original shale-type sedimentary rock composed of clay or volcanic ash through low-grade regional metamorphism. It is the finest grained foliated metamorphic rock. ...
'' argued that the outrage over bonuses distracted from a larger issue: that AIG had taken much of the bailout money and used it to settle contracts with its counterparties, Wall Street banks, hedge funds and non-U.S. banks, at full price.
Conservative political commentator
Rush Limbaugh
Rush Hudson Limbaugh III ( ; January 12, 1951 – February 17, 2021) was an American conservative political commentator who was the host of '' The Rush Limbaugh Show'', which first aired in 1984 and was nationally syndicated on AM and FM r ...
defended AIG, saying "We've got
peasants
A peasant is a pre-industrial agricultural laborer or a farmer with limited land-ownership, especially one living in the Middle Ages under feudalism and paying rent, tax, fees, or services to a landlord. In Europe, three classes of peasants ...
with their pitchforks phoning in death threats at AIG. We have members of the United States Senate and the United States House of Representatives sounding like communist dictators." Limbaugh's comments defended that the bonuses were legal and productive, saying "This money went to American citizens. This money went mostly to American citizens who are registered Democrats. These people who got the bonus are going to spend it. That's called private sector stimulus...The ones who got the bonuses did so on the basis of sales success. These were reported as merit bonuses that they are contractually permitted to get. If you violate their contract, if you don't give them their bonus, you have got a lawsuit on your hands and 80% of this company is now owned by
Barney Frank
Barnett Frank (born March 31, 1940) is a former American politician. He served as a member of the U.S. House of Representatives from Massachusetts from 1981 to 2013. A Democrat, Frank served as chairman of the House Financial Services Committ ...
and
Chris Dodd
Christopher John Dodd (born May 27, 1944) is an American lobbyist, lawyer, and Democratic Party politician who served as a United States senator from Connecticut from 1981 to 2011. Dodd is the longest-serving senator in Connecticut's history. H ...
and
Pelosi">ancyPelosi, and so they would be sued, the government would be sued by these people."
Repayment of bonuses
AIG CEO
Edward M. Liddy
Edward "Ed" Liddy (born January 28, 1946) is an American businessman who was chairman of the Allstate Corporation from 1999 to 2008.
In September 2008, at the request of the secretary of the U.S. Department of the Treasury, Liddy agreed to serve ...
told Congress that he asked employees who received bonuses over $100,000 to give half back. David Shuster said "That sounded half-assed to members of Congress who were both channeling and deflecting voter outrage."
Liddy was joined by New York Attorney General
Andrew Cuomo
Andrew Mark Cuomo ( ; ; born December 6, 1957) is an American lawyer and politician who served as the 56th governor of New York from 2011 to 2021. A member of the Democratic Party, he was elected to the same position that his father, Mario Cuo ...
in requesting these repayments.
AIG has pointed out that Connecticut, the state where AIG is based, has a law called the Wage Act. According to the law, employers who don't pay employees the money which they are contractually obligated to pay, could ultimately be required to pay twice that amount.
As of March 23, 2009, 9 of the 10 highest paid AIG executives had agreed to give back their bonuses to the company - and of the 20 highest paid, 15 had agreed to give back their bonuses. Most of the employees who accepted to pay back their bonuses were Americans. Non-American AIG employees strongly objected to repaying their bonuses, and some considered the request to be "blackmail", "extortion" and a "potentially illegal" mean for the company to take back money that was contractually the employees'. They feared that New York Attorney General Andrew Cuomo, who had opened an investigation of the bonus payments, would reveal their name if they refused to give their bonuses back.
Following the announcement of the repayment of bonuses, house majority leader
Steny Hoyer
Steny Hamilton Hoyer (born June 14, 1939) is an American politician and attorney serving as the U.S. representative for since 1981 and as House Majority Leader since 2019. A Democrat, Hoyer was first elected in a special election on May 19, 19 ...
argued that a tax on these bonuses like the one that was adopted by the House a week prior "may not be necessary".
Jake DeSantis's resignation
On March 24, 2009,
The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
printed the
open letter
An open letter is a Letter (message), letter that is intended to be read by a wide audience, or a letter intended for an individual, but that is nonetheless widely distributed intentionally.
Open letters usually take the form of a letter (mess ...
of resignation of Jake DeSantis, an executive vice president of AIG's financial products unit, to Edward M. Liddy, the chief executive of AIG. DeSantis stated that he and the majority of AIG-F.P. employees had nothing to do with the money-losing credit default swaps, that many of them had lost much of their savings in the form of
deferred compensation Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options. The p ...
invested in the capital of AIG-F.P., that he and others had agreed to work for an annual salary of $1 out of a sense of duty to the company, that AIG-F.P. employees were assured many times following the government bailout in September 2008 that AIG would honor the pre-existing retention contracts with scheduled payments to be made in March 2009, and that AIG-F.P. employees believed they were let down by Liddy's lack of support against opportunistic political pressure. He also stated he was going to donate his March 2009 payment to those suffering from the global economic downturn.
[Jake DeSantis]
Dear AIG, I Quit!
''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', March 25, 2009
References
External links
90% Tax on BonusesHR 1586 passed the house on March 19, 2009.
{{DEFAULTSORT:Aig Bonus Payments Controversy
American International Group
Political controversies in the United States
2009 controversies
Criticisms of companies
Great Recession in the United States
Employee bonus
Employee compensation in the United States