Congress Prods the White House to Use Its Leverage With AIG

Start your day with TPM.
Sign up for the Morning Memo newsletter

AIG’s plan to pay out $165 million in bonuses to its disgraced Financial Products unit is prompting some surprising unity on Capitol Hill: Democrats and Republicans in Congress are taking a forward-leaning approach to holding AIG accountable to the taxpayers, while the Obama administration appears to be caught a few steps behind.

The current controversy began on Saturday with a letter from AIG CEO Edward Liddy to Treasury Secretary Tim Geithner. Liddy’s missive has been quoted frequently, but it’s hard to get the full picture of AIG’s commitment to its own enrichment without reading the complete version — TPMDC’s copy is viewable here.

Lawmakers from both ends of the ideological spectrum are seething at Liddy’s argument to Geithner that “we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses … if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

House Financial Services Committee Chairman Barney Frank (D-MA) told NBC today that firings may be necessary at AIG, whether or not the company’s 2008 bonuses can be legally withheld. Meanwhile, Richard Shelby (R-AL), Frank’s frequent night-and-day opposite on financial issues and the senior Republican on the Senate Banking Committee, was telling ABC the exact same thing.

“You’re rewarding failure. A lot of these people should be fired, not awarded a bonus,” Shelby said.

So where is the Obama administration? So far, the president and his advisers have shared Congress’ keen sense of outrage but remained a few steps behind lawmakers on the fast-moving push to deny AIG its bonuses.

White House economic adviser Larry Summers said yesterday that Geithner had done what he could to recover the bonuses — which Liddy has promised only to scale back by 30% for 2009 — but emphasized the need to avoid future cases similar to AIG, rather than look backward. Summers told ABC:

What the Obama administration has done, based on the advice of attorneys, is done everything it can to, within the law and within the tradition of upholding law that we have in this country, to limit these bonuses.

And they have, as a result of Secretary Geithner’s efforts, been scaled back.

And, obviously, this whole area is something we’re going to have to look at, as we think about regulation in the future. Because no one can be satisfied with — with what’s happened. And in many cases, we just can’t continue to do it — to do it in this way.

Dr. Christina Romer, who chairs Obama’s Council of Economic Advisers, said yesterday that the administration was pursuing “every legal means to deal with” AIG’s refusal to cancel its bonuses.

You know, I think the truth is AIG is just a problem. It’s not a problem anyone wants to have to deal with, and it’s unfortunately a problem we’ve inherited and are managing the best that we can with … [T]here are questions of contracts and what we’re able to do with, with contracts that have been signed.

Romer did not address the question being raised by several senior members of Congress — whether the government, acting as AIG’s largest shareholder, has used all of its political leverage to push the company into forgoing its legal rights to hang onto the bonuses.

The legal hurdles the government faces, in fact, are bigger than today’s bonus scandal. Geithner himself said last week that the government lacks the legal authority to prevent AIG’s total collapse from recurring at another company.

What’s clear right now: If congressional Republicans and Democrats continue to get out in front in responding to taxpayer ire over AIG, the Obama administration may be forced to escalate its efforts.

Latest DC
Comments
Masthead Masthead
Founder & Editor-in-Chief:
Executive Editor:
Managing Editor:
Associate Editor:
Editor at Large:
General Counsel:
Publisher:
Head of Product:
Director of Technology:
Associate Publisher:
Front End Developer:
Senior Designer: