House Financial Services Committee chairman Barney Frank (D-Mass) says that in light of AIG's apparent decision to award $165 million in bonuses, Congress will now take the stance of being AIG's owner, in an effort to retrieve the money, The Wall Street Journal reports.
"I think the time has come to act as the owner," Rep. Frank said, according to CNNMoney.com. The United States government has an 80% ownership stake in AIG.
Congress says: There go my people . . .
In truth, Rep. Frank was doing a little damage control because he was one of many officials who, essentially, looked the other way regarding the absurdity of a non-performing company, AIG (AIG), paying bonuses to certain company professionals, after the U.S. government had to pour $173 billion into the company to prevent a possible U.S. financial system meltdown. So it's shame on Rep. Frank.
But don't misunderstand: it's also shame on the U.S. Treasury Department, both Bush (former Secretary Hank Paulson) and Obama (Tim Geithner) versions; and shame on the U.S. Federal Reserve, although whether the Fed could have legally prevented AIG from moving forward with the controversial bonuses has not yet been determined. And it's shame on both congressional Democrats and Republicans: there were isolated voices who opposed the bonuses, but the sentiment didn't coalesce.
. . . I better go out there and lead them.
Didn't coalesce, that is, until the public finally expressed outrage over AIG's bonus program. Further, the public's response is another case study of the patience of the American people. They believe risk and work should be rewarded, they believe its o.k. for top business performers to be paid well, and they've even tolerated what many would argue are large, some say too large, corporate pay and bonus packages that have characterized the past decade. And they really don't mind the fact that the typical CEO earns 100, 200 sometimes 300 times as much as a typical employee.
But a company awarding bonuses after it nearly caused a financial calamity, and on the heels of being bailed out with U.S. taxpayer dollars -- that's one the American people could not tolerate.
Rep. Frank also said he believed if Congress concentrates on its ownership role, from a legal standpoint, and not its lender role, that will make it more likely that it will be able to get AIG to pay back the bonus money, and also to implement operational changes at AIG, CNNMoney.com reports. However, Frank added that Congress will not disrupt AIG's counterparty relationships, as that has the potential to destabilize financial markets.
Congress is also preparing legislation that would tax the AIG bonuses at a very high rate, should the company not agree to return the money. "If you don't return it on your own, we will do it for you,'' said U.S. Sen. Charles Schumer (D-New York).
Analysis: Some criticism is also due here, because I, too, did not protest AIG's bonuses, under the theory that AIG needed to pay bonuses to retain as much talent as possible, with the goal of causing as little disruption as possible to AIG's extensive and critical counterparty relationships. But that was wrong; there's plenty of financial talent out there, if AIG officials leave. Some apparently left even after receiving a 'retention' bonus! Congress should move to prevent AIG's bonuses, and also review other bonus structures where taxpayer dollars have been lent.
Financial Editor Joseph Lazzaro is based in New York.
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